Income Taxes

3 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

(in thousands)	Three months ended
	December 31, 2022			December 31, 2021
Income before income taxes	$	86,424		$	55,376
Provision for income taxes	$	11,389		$	9,287
Effective income tax rate		13	%		17	%

In the first quarter of 2023 and 2022, our effective tax rate differed from the statutory federal income tax rate of 21% due to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and the Cayman Islands. In 2023 and 2022, the foreign rate differential predominantly relates to these earnings.

In 2023 and 2022, in addition to the foreign rate differential, the effective tax rate was impacted by the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.

We reassess our valuation allowance requirements each financial reporting period. We assess available positive and negative evidence to estimate whether sufficient future taxable income will be generated to use our existing deferred tax assets. In the assessment for the period ended December 31, 2022, we maintain our conclusion that it is more likely than not that our deferred tax assets related to U.S. federal and state income will be realizable.

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, limitations on net operating losses and tax credits.

As of December 31, 2022 and September 30, 2022, we had unrecognized tax benefits of $25.5 million and $23.9 million, respectively. If all our unrecognized tax benefits as of December 31, 2022 were to become recognizable in the future, we would record a benefit to the income tax provision of $25.5 million, which would be partially offset by an increase in the U.S. valuation allowance of $5.3 million.

Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $5 million.