Income Taxes

9 Months Ended

Jan. 02, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company recorded tax provisions of $5.2 million and $75.5 million for the third quarter and the first nine months of fiscal 2021, respectively, representing effective tax rates of 2.9% and 14.1%, respectively. The Company recorded tax provisions of $3.8 million and $13.8 million for the third quarter and the first nine months of fiscal 2020, respectively, representing effective tax rates of 2.3% and 2.1%, respectively.

The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate in all periods presented was primarily due to the beneficial impact of income earned in lower tax rate jurisdictions and excess tax benefits with respect to stock-based compensation, which was partially offset by the U.S. tax on global intangible low-taxed income (GILTI). In addition, the first nine months of fiscal 2021 included the recognition of prior period tax and interest related to impacts of including stock-based compensation in the intercompany research and development (R&D) cost sharing arrangement.

On June 22, 2020, the United States Supreme Court denied certiorari in the case of Altera Corp. v. Commissioner (Altera). The company is not a party to the proceedings but is subject to the findings of the case. The Altera tax case concerns related party R&D cost sharing arrangements and whether stock-based compensation should be included in the pool of costs to be shared. With the Supreme Court’s decision not to hear the Altera case, the decision of the 9th Circuit (which applies to taxpayers such as Xilinx) that stock-based compensation is to be included in the pool of costs to be shared remains in place. During the fiscal quarter ended June 27, 2020, the Company recorded a one-time charge of $56.8 million for prior year taxes and interest representing the cumulative adverse impact for fiscal 2017 through fiscal 2020. Despite the decision in the Altera case, the Company has concluded the related law remains unsettled and will continue to monitor developments and the potential effect on its consolidated financial statements and tax filings.

The Company’s total gross unrecognized tax benefits as of January 2, 2021, determined in accordance with authoritative guidance for measuring uncertain tax positions, decreased by $2.6 million in the third quarter of fiscal 2021 to $152.3 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $115.4 million as of January 2, 2021. It is reasonably possible that changes to the Company's unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements and lapses of statutes of limitation. As a result of uncertainties regarding tax audit settlements and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.

The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the condensed consolidated statements of income. The balance of accrued interest and penalties recorded in the condensed consolidated balance sheets was $5.0 million as of January 2, 2021 and not material for the prior period presented. The amounts of interest and penalties included in the Company's provision for income taxes were not material for all periods presented.

The statutes of limitations have closed for U.S. federal income tax purposes for years through fiscal 2016, for significant U.S. state income tax purposes for years through fiscal 2014, and for Ireland income tax purposes for years through fiscal 2015.