Income taxes (Tables)

12 Months Ended

Mar. 31, 2020

Components of Income Before Income Taxes

The components of income before income taxes comprise the following:

	Yen in millions
	For the years ended March 31,
	2018		2019		2020
Income before income taxes:
Parent company and domestic subsidiaries		1,880,971		1,552,975		1,704,397
Foreign subsidiaries		739,458		732,490		850,210
		2,620,429		2,285,465		2,554,607

Provision for Income Taxes

The provision for income taxes consists of the following:

	Yen in millions
	For the years ended March 31,
	2018			2019			2020
Current income tax expense:
Parent company and domestic subsidiaries		565,998			599,521			483,087
Foreign subsidiaries		176,369			147,017			8,196
Total current		742,367			746,538			491,283
Deferred income tax expense (benefit):
Parent company and domestic subsidiaries		45,097			(110,608	)		45,739
Foreign subsidiaries		(283,058	)		24,014			146,408
Total deferred		(237,961	)		(86,594	)		192,147
Total provision		504,406			659,944			683,430

Reconciliation of Differences Between Statutory Tax Rate and Effective Income Tax Rate

Reconciliation of the differences between the statutory tax rate and the effective income tax rate is as follows:

	For the years ended March 31,
	2018			2019			2020
Statutory tax rate		31.1	%		30.9	%		30.9	%
Increase (reduction) in taxes resulting from:
Non-deductible expenses		0.4			0.4			0.4
Deferred tax liabilities on undistributed earnings of foreign subsidiaries		1.1			1.2			1.0
Deferred tax liabilities on undistributed earnings of affiliated companies accounted for by the equity method		3.8			3.1			1.7
Valuation allowance		(2.0	)		0.2			0.5
Tax credits		(4.3	)		(5.3	)		(4.9	)
The difference between the statutory tax rate in Japan and that of foreign subsidiaries		(1.5	)		(2.3	)		(2.7	)
Unrecognized tax benefits adjustments		0.2			(0.1	)		(0.4	)
Revision to reduce deferred tax assets and liabilities at the fiscal year-end due to changes in tax rates		—			—			—
Effect of the Tax Cuts and Jobs Act of 2017 of the United States		(9.5	)		—			—
Other		(0.1	)		0.8			0.3
Effective income tax rate		19.2	%		28.9	%		26.8	%

Components of Deferred Tax Assets and Liabilities

Significant components of deferred tax assets and liabilities are as follows:

	Yen in millions
	March 31,
	2019			2020
Deferred tax assets
Accrued pension and severance costs		256,478			277,528
Accrued expenses and liabilities for quality assurances		664,950			601,108
Other accrued employees’ compensation		121,024			118,961
Operating loss carryforwards for tax purposes		364,220			55,918
Allowance for doubtful accounts and credit losses		69,049			73,620
Property, plant and equipment and other assets		266,866			282,136
Other		338,744			268,040
Gross deferred tax assets		2,081,331			1,677,311
Less - Valuation allowance		(93,599	)		(110,642	)
Total deferred tax assets		1,987,732			1,566,669
Deferred tax liabilities
Unrealized gains on securities, net		(493,052	)		(421,846	)
Undistributed earnings of foreign subsidiaries		(25,972	)		(24,808	)
Undistributed earnings of affiliated companies accounted for by the equity method		(836,860	)		(952,660	)
Basis difference of acquired assets		(29,116	)		(29,756	)
Lease transactions		(946,128	)		(739,911	)
Other		(169,583	)		(86,072	)
Gross deferred tax liabilities		(2,500,711	)		(2,255,053	)
Net deferred tax liability		(512,979	)		(688,384	)

The deferred tax assets and liabilities above that comprise the net deferred tax liability are included in the consolidated balance sheets as follows:

	Yen in millions
	March 31,
	2019			2020
Deferred tax assets
Investments and other assets - Other		501,872			354,785
Deferred tax liabilities
Deferred income taxes (Long-term liabilities)		(1,014,851	)		(1,043,169	)
Net deferred tax liability		(512,979	)		(688,384	)

Net Changes in Total Valuation Allowance for Deferred Tax Assets

The net changes in the total valuation allowance for deferred tax assets for the years ended March 31, 2018, 2019 and 2020 consist of the following:

	Yen in millions
	For the years ended March 31,
	2018			2019			2020
Valuation allowance at beginning of year		146,623			93,814			93,599
Additions		16,106			13,967			27,629
Deductions		(74,435	)		(9,801	)		(6,089	)
Other		5,520			(4,381	)		(4,497	)
Valuation allowance at end of year		93,814			93,599			110,642

Summary of Gross Unrecognized Tax Benefits Changes

A summary of the gross unrecognized tax benefits changes for the years ended March 31, 2018, 2019 and 2020 is as follows:

	Yen in millions
	For the years ended March 31,
	2018			2019			2020
Balance at beginning of year		21,553			21,564			17,268
Additions based on tax positions related to the current year		612			1,212			2,199
Additions for tax positions of prior years		13,954			1,304			127
Reductions for tax positions of prior years		(13,217	)		(819	)		(9,586	)
Reductions for tax positions related to lapse of statute of limitations		—			—			—
Reductions for settlements		(26	)		(6,696	)		(298	)
Other		(1,312	)		703			(1,363	)
Balance at end of year		21,564			17,268			8,347