Income Taxes

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

17. Income Taxes

Income before income taxes and the provision for income taxes in fiscal 2020, 2021 and 2022 are as follows:

	Millions of yen
	2020		2021		2022
Income before income taxes:
Japan	¥	223,327	¥	171,569	¥	311,351
Overseas		189,234		115,992		193,525
	¥	412,561	¥	287,561	¥	504,876
Provision for income taxes:
Current—
Japan	¥	55,577	¥	45,262	¥	136,623
Overseas		35,370		19,967		38,433
		90,947		65,229		175,056
Deferred—
Japan		9,643		10,642		(631	)
Overseas		5,247		14,876		12,839
		14,890		25,518		12,208
Provision for income taxes	¥	105,837	¥	90,747	¥	187,264

In fiscal 2020, 2021 and 2022, the Company and its subsidiaries in Japan were subject to a National Corporation tax of approximately 24%, an Inhabitant tax of approximately 4% and a deductible Enterprise tax of approximately 4%, which in the aggregate result in a statutory income tax rate of approximately 31.5%.

Reconciliations of the differences between the tax provision computed at the statutory rate and the consolidated provision for income taxes in fiscal 2020, 2021 and 2022 are as follows:

	Millions of yen
	2020			2021			2022
Income before income taxes	¥	412,561		¥	287,561		¥	504,876
Tax provision computed at the statutory rate	¥	129,957		¥	90,582		¥	159,036
Increases (reductions) in taxes due to:
Change in valuation allowance		2,505			6,808			11,464
Nondeductible expenses		4,319			2,751			4,066
Nontaxable income		(3,612	)		(1,629	)		(2,611	)
Effect of lower tax rates on certain subsidiaries		(24,862	)		(12,895	)		(16,584	)
Effect of investor taxes on earnings of subsidiaries		3,039			4,590			8,155
Effect of the tax law and rate changes		(6,642	)		1,158			(142	)
Effect of sale or liquidation of subsidiaries		307			878			25,642
Other, net		826			(1,496	)		(1,762	)
Provision for income taxes	¥	105,837		¥	90,747		¥	187,264

The effective income tax rate is different from the statutory income tax rate primarily because of certain nondeductible expenses, nontaxable income, changes in valuation allowance, the effect of lower tax rates on certain subsidiaries, effect of investor taxes on earnings of subsidiaries, the effect of tax law changes and effect of sale or liquidation of subsidiaries.

Total income tax expense recognized in fiscal 2020, 2021 and 2022 was allocated as follows:

	Millions of yen
	2020			2021			2022
Provision for income taxes	¥	105,837		¥	90,747		¥	187,264
Income tax expense (benefit) allocated to other comprehensive income (loss):
Net change of unrealized gains (losses) on investment in securities		(7,016	)		(6,212	)		(21,897	)
Net change of debt valuation adjustments		340			(349	)		(131	)
Net change of defined benefit pension plans		448			2,615			4,889
Net change of foreign currency translation adjustments		10,276			(13,958	)		(17,347	)
Net change of unrealized gains (losses) on derivative instruments		(2,163	)		1,883			4,734
Adjustments to retained earnings for changes in accounting principles*		0			(17,113	)		(215	)
Other direct adjustments to shareholders’ equity		0			1,521			214
Total income tax expense	¥	107,722		¥	59,134		¥	157,511

* The amount for fiscal 2021 reflects the tax effect of the adoption of Accounting Standards Update 2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)). The amount for fiscal 2022 reflects the tax effect of the adoption of Accounting Standards Update 2019-12 (“Simplifying the Accounting for Income Taxes”—ASC 740 (“Income Taxes”)). For further information about Income Taxes, see Note 1 “Significant Accounting and Reporting Policies (aa) New accounting pronouncements.”

The tax effects of temporary differences and carryforwards giving rise to the deferred tax assets and liabilities as of March 31, 2021 and 2022 are as follows:

	Millions of yen
	2021			2022
Assets:
Net operating loss carryforwards	¥	25,083		¥	32,914
Allowance for credit losses		25,322			23,381
Investment in securities		9,983			6,685
Accrued expenses		24,393			23,900
Investment in operating leases		12,911			15,099
Property under facility operations		8,480			27,358
Installment loans		4,392			4,361
Unrealized losses on investment in securities		7,859			29,372
Lease liabilities		85,422			77,367
Other		61,002			91,837
		264,847			332,274
Less: valuation allowance		(21,560	)		(35,155	)
		243,287			297,119
Liabilities:
Net investment in Leases		9,705			13,501
Investment in operating leases		111,102			121,337
Unrealized gains on investment in securities		2,502			2,505
Deferred insurance policy acquisition costs		69,249			73,077
Policy liabilities and policy account balances		62,274			74,939
Property under facility operations		10,183			21,931
Other intangible assets		112,234			108,257
Undistributed earnings		38,408			59,134
Prepaid benefit cost		12,187			14,483
Advances paid		11,742			8,647
Right-of-use assets		86,064			77,003
Other		19,973			22,081
		545,623			596,895
Net deferred tax liability	¥	302,336		¥	299,776

Net deferred tax assets and liabilities at March 31, 2021 and 2022 are reflected in the accompanying consolidated balance sheets under the following captions:

	Millions of yen
	2021		2022
Other assets	¥	38,954	¥	46,065
Income taxes: Deferred		341,290		345,841
Net deferred tax liability	¥	302,336	¥	299,776

The valuation allowance is primarily recognized for deferred tax assets of consolidated subsidiaries with operating loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in

which those temporary differences become deductible and operating loss carryforwards are utilizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company and its subsidiaries will realize the benefits of these deductible temporary differences and operating loss carryforwards, net of the existing valuation allowances at March 31, 2022. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The net changes in the total valuation allowance were increases of ¥2,213 million in fiscal 2020, increases of ¥6,191 million in fiscal 2021, and increases of ¥13,595 million in fiscal 2022. The decrease in the total valuation allowance recognized in earnings due to the utilization of net operating loss carryforwards were ¥890 million in fiscal 2020, ¥553 million in fiscal 2021 and ¥1,742 million in fiscal 2022. The adjustments to the beginning-of-the-year amount in the total valuation allowance resulting from changes in judgment about the realizability of deferred tax assets in future years were net decreases of ¥576 million in fiscal 2020 (increases of ¥942 million and decreases of ¥1,518 million on a gross basis), net decreases of ¥743 million in fiscal 2021 (increases of ¥1,032 million and decreases of ¥1,775 million on a gross basis), and net increases of ¥436 million in fiscal 2022 (increases of ¥1,947 million and decreases of ¥1,511 million on a gross basis), respectively.

The Company and certain subsidiaries have net operating loss carryforwards of ¥278,571 million at March 31, 2022, which expire as follows:

Years ending March 31,	Millions of yen
2023	¥	8,346
2024		17,768
2025		20,038
2026		24,902
2027		12,168
Thereafter		145,823
Indefinite period		49,526
Total	¥	278,571

The unrecognized tax benefits as of March 31, 2021 and 2022 were not material. The Company and its subsidiaries do not believe that it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of March 31, 2022.

The total amounts of penalties and interest expense related to income taxes recognized in the consolidated balance sheets as of March 31, 2021 and 2022, and in the consolidated statements of income for the fiscal 2020, 2021 and 2022 were not material.

The Company and its subsidiaries file tax returns in Japan and certain foreign tax jurisdictions. The Company is no longer subject to ordinary tax examination in Japan for the tax years prior to fiscal 2021, and its major domestic subsidiaries are no longer subject to ordinary tax examination for the tax years prior to fiscal 2018, respectively.

Subsidiaries in the United States remain subject to a tax examination for the tax years after fiscal 2019. Subsidiaries in the Netherlands remain subject to a tax examination for the tax years after fiscal 2016.