INCOME TAXES

12 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The domestic (Singapore) and foreign components of income before income taxes were comprised of the following:

	Fiscal Year Ended March 31,
	2023		2022		2021
	(In millions)
Domestic	$	99	$	352	$	242
Foreign	875		693		472
Total	$	974	$	1,045	$	714

The provision for income taxes consisted of the following:

	Fiscal Year Ended March 31,
	2023		2022		2021
	(In millions)
Current:
Domestic	$	6	$	3	$	1
Foreign	136		146		105
	142		149		106
Deferred:
Domestic	1		—		1
Foreign	(202)		(44)		(6)
	(201)		(44)		(5)
Provision for (benefit from) income taxes	$	(59)	$	105	$	101

The domestic statutory income tax rate was approximately 17.0% in fiscal years 2023, 2022 and 2021. The reconciliation of the income tax expense expected based on domestic statutory income tax rates to the expense for income taxes included in the consolidated statements of operations is as follows:

	Fiscal Year Ended March 31,
	2023		2022		2021
	(In millions)
Income taxes based on domestic statutory rates	$	166	$	178	$	121
Effect of jurisdictional tax rate differential	5		(114)		(82)
Change in unrecognized tax benefit	(7)		12		11
Change in valuation allowance	(47)		12		35
Foreign exchange movement on prior year taxes recoverable	4		(9)		5
Tax impacts related to sale of Nextracker	16		13		—
APB23 tax liability	—		1		1
Restructuring of Nextracker LLC interest	(195)		—		—
Other	(1)		12		10
Provision for (benefit from) income taxes	$	(59)	$	105	$	101

A number of countries in which the Company is located allow for tax holidays or provide other tax incentives to attract and retain business. In general, these holidays were secured based on the nature, size and location of the Company’s operations. The aggregate dollar effect on the Company’s income resulting from tax holidays and tax incentives to attract and retain business for the fiscal years ended March 31, 2023, 2022 and 2021 was $14 million, $23 million and $21 million, respectively. For the fiscal year ended March 31, 2023, the effect on basic and diluted earnings per share was $0.03 and $0.03, respectively, and the effects on basic and diluted earnings per share during fiscal years 2022 and 2021 were $0.05 and $0.05, and $0.04 and $0.04, respectively. Unless extended or otherwise renegotiated, the Company's existing holidays will expire in various years

through the end of fiscal year 2028. The primary driver of the negative effective tax rate for fiscal year 2023 relates to the recording of a $195 million deferred tax asset, with an offset entry to income tax benefit fully attributable to noncontrolling interest in connection with the Nextracker IPO whereby Nextracker Inc. purchased Nextracker LLC units from a related Flex U.S. subsidiary.

The Company provides a valuation allowance against deferred tax assets that in the Company's estimation are not more likely than not to be realized. During fiscal year 2023, 2022 and 2021, the Company released valuation allowances totaling $12 million, $26 million and $25 million, respectively. For fiscal year 2023, $12 million valuation allowance release was mainly related to certain operations in Australia, and the Netherlands as these amounts were deemed to be more likely than not to be realized due to the sustained profitability during the past three fiscal years as well as continued forecasted profitability of those operations. During fiscal year 2023, the Company also added $12 million in valuation allowance primarily for the deferred tax assets related to operations in Hungary, Canada, and Switzerland. Various other valuation allowance positions were also reduced due to varying factors such as recognition of uncertain tax positions impacting deferred tax assets, one-time income recognition in loss entities, and foreign exchange impacts on deferred tax balances, and increased deferred tax assets as a result of current period losses in legal entities with existing full valuation allowance positions. For fiscal years ended March 31, 2023, 2022 and 2021, the offsetting amounts totaled $(48) million, $39 million and $60 million, respectively.

Under its territorial tax system, Singapore generally does not tax foreign sourced income until repatriated to Singapore. The Company has included the effects of Singapore's territorial tax system in the rate differential line above. The tax effect of foreign income not repatriated to Singapore for the fiscal years ended March 31, 2023, 2022 and 2021 were $31 million, $105 million and $57 million, respectively.

The components of deferred income taxes are as follows:

	As of March 31,
	2023		2022
	(In millions)
Deferred tax liabilities:
Fixed assets	$	(63)	$	(49)
Intangible assets	(71)		(89)
Others	(38)		(14)
Total deferred tax liabilities	(172)		(152)
Deferred tax assets:
Fixed assets	77		72
Intangible assets	5		6
Deferred compensation	27		22
Inventory valuation	24		26
Provision for doubtful accounts	3		5
Net operating loss and other carryforwards	1,359		1,542
Investment in Nextracker LLC	249		—
Others	136		201
Total deferred tax assets	1,880		1,874
Valuation allowances	(1,373)		(1,631)
Total deferred tax assets, net of valuation allowances	507		243
Net deferred tax asset	$	335	$	91
The net deferred tax asset is classified as follows:
Long-term asset	$	412	$	177
Long-term liability	(77)		(86)
Total	$	335	$	91

Utilization of the Company's deferred tax assets is limited by the future earnings of the Company in the tax jurisdictions in which such deferred assets arose. As a result, management is uncertain as to when or whether these operations will generate

sufficient profit to realize any benefit from the deferred tax assets. The valuation allowance provides a reserve against deferred tax assets that are not more likely than not to be realized by the Company. However, management has determined that it is more likely than not that the Company will realize certain of these benefits and, accordingly, has recognized a deferred tax asset from these benefits. The change in valuation allowance is net of certain increases and decreases to prior year losses and other carryforwards that have no current impact on the tax provision.

The Company has recorded deferred tax assets of approximately $1.5 billion related to tax losses and other carryforwards against which the Company has recorded a valuation allowance for all but $62 million of the deferred tax assets. These tax losses and other carryforwards will expire at various dates as follows:

Expiration dates of deferred tax assets related to operating losses and other carryforwards
Fiscal year	(In millions)
2024 - 2029	$	415
2030 - 2035	232
2036 and post	78
Indefinite	743
	$	1,468

The amount of deferred tax assets considered realizable, however, could be reduced or increased in the near-term if facts, including the amount of taxable income or the mix of taxable income between subsidiaries, differ from management’s estimates.

The Company does not provide for income taxes on approximately $1.9 billion of undistributed earnings of its subsidiaries which are considered to be indefinitely reinvested outside of Singapore as management has plans for the use of such earnings to fund certain activities outside of Singapore. The estimated amount of the unrecognized deferred tax liability on these undistributed earnings is approximately $169 million. As a result, as of March 31, 2023, the Company has concluded for all earnings in foreign subsidiaries are considered to be indefinitely reinvested and therefore zero deferred tax liabilities were recorded.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Fiscal Year Ended March 31,
	2023		2022
	(In millions)
Balance, beginning of fiscal year	$	282	$	266
Additions based on tax position related to the current year	15		27
Additions for tax positions of prior years	8		15
Reductions for tax positions of prior years	(5)		(7)
Reductions related to lapse of applicable statute of limitations	(13)		(16)
Settlements	(7)		—
Impact from foreign exchange rates fluctuation	(12)		(3)
Balance, end of fiscal year	$	268	$	282

The Company’s unrecognized tax benefits are subject to change over the next twelve months primarily as a result of the expiration of certain statutes of limitations and as audits are settled. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by an additional approximate $84 million within the next twelve months primarily due to potential settlements of various audits and the expiration of certain statutes of limitations.

The Company and its subsidiaries file federal, state, and local income tax returns in multiple jurisdictions around the world. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2008.

Of the $268 million of unrecognized tax benefits at March 31, 2023, $185 million will affect the annual effective tax rate (ETR) if the benefits are eventually recognized. The amount that doesn’t impact the ETR relates to positions that would be settled with a tax loss carryforward previously subject to a valuation allowance.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits within the Company’s tax expense. During the fiscal years ended March 31, 2023, 2022 and 2021, the Company recognized interest and penalties of approximately ($1) million, $2 million and $2 million, respectively. The Company had approximately $15 million, $16 million and $14 million accrued for the payment of interest and penalties as of the fiscal years ended March 31, 2023, 2022 and 2021, respectively.