Income Taxes

12 Months Ended

Jan. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The domestic and foreign components of income before provision for (benefit from) income taxes consisted of the following (in millions):

	Fiscal Year Ended January 31,
	2022		2021		2020
Domestic	$	1,338	$	2,683	$	686
Foreign	194		(122)		20
	$	1,532	$	2,561	$	706

The provision for (benefit from) income taxes consisted of the following (in millions):

	Fiscal Year Ended January 31,
	2022		2021		2020
Current:
Federal	$	6	$	(12)	$	8
State	(16)		53		33
Foreign	352		238		512
Total	342		279		553
Deferred:
Federal	(181)		228		(41)
State	(57)		66		8
Foreign	(16)		(2,084)		60
Total	(254)		(1,790)		27
Provision for (benefit from) income taxes	$	88	$	(1,511)	$	580

In fiscal 2022, the Company recorded a tax provision of $88 million primarily due to taxes from profitable jurisdictions outside of the United States, which was offset by a net U.S tax benefit primarily due to excess tax benefits from stock-based compensation. In fiscal 2021, the Company changed its international corporate structure, which included the transfer of certain intangible property to Ireland resulting in a net tax benefit of $2.0 billion related to foreign deferred tax assets. The deferred tax assets were recognized as a result of the book and tax basis difference on the intangible property transferred to an Irish subsidiary and were based on the intangible property’s current fair value. The determination of the estimated fair value of the intangible property is complex and subject to judgement due to the use of subjective assumptions in the valuation models used by management. The tax amortization related to the intellectual property transferred will be recognized in future periods and any amortization that is unused in a particular year can be carried forward indefinitely under Irish tax laws. The deferred tax asset and the tax benefit were measured based on the currently enacted Irish tax rate. The Company believes that it is more likely than not that the deferred tax assets will be realized in Ireland. In fiscal 2020, the Company recorded a tax provision primarily driven by incremental tax costs associated with the integration of acquired operations and assets and profitable jurisdictions outside of the United States.

A reconciliation of income taxes at the statutory federal income tax rate to the provision for (benefit from) income taxes included in the accompanying consolidated statements of operations is as follows (in millions):

	Fiscal Year Ended January 31,
	2022		2021		2020
U.S. federal taxes at statutory rate	$	322	$	538	$	148
State, net of the federal benefit	(29)		90		40
Effects of non-U.S. operations (1)	199		(1,817)		540
Tax credits	(263)		(125)		(195)
Non-deductible expenses	83		45		119
Excess tax benefits related to share-based compensation	(323)		(289)		(166)
Effect of U.S. tax law change	0		23		6
Change in valuation allowance	101		15		85
Other, net	(2)		9		3
Provision for (benefit from) income taxes	$	88	$	(1,511)	$	580

(1) Fiscal 2021 effects of non-U.S. operations included tax benefit from the transfer of certain intangible property in Ireland. Fiscal 2020 included incremental tax costs associated with the integration of acquired operations and assets.

Deferred Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities were as follows (in millions):

	As of January 31,
	2022		2021
Deferred tax assets:
Losses and deductions carryforward	$	682	$	202
Deferred stock-based expense	244		179
Tax credits	1,469		990
Accrued liabilities	300		269
Intangible assets	2,009		2,011
Lease liabilities	862		948
Unearned revenue	116		71
Other	32		17
Total deferred tax assets	5,714		4,687
Less valuation allowance	(463)		(305)
Deferred tax assets, net of valuation allowance	5,251		4,382
Deferred tax liabilities:
Capitalized costs to obtain revenue contracts	(817)		(581)
Purchased intangible assets	(1,902)		(833)
Depreciation and amortization	(178)		(121)
Basis difference on strategic and other investments	(337)		(400)
Lease right-of-use assets	(735)		(863)
Total deferred tax liabilities	(3,969)		(2,798)
Net deferred tax assets (liabilities)	$	1,282	$	1,584

At January 31, 2022, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $3.1 billion, which expire in fiscal 2023 through 2038 with the exception of post-2017 losses that do not expire, federal research and development tax credits of approximately $1.1 billion, which expire in fiscal 2025 through fiscal 2041, foreign tax credits of approximately $269 million, which expire in fiscal 2023 through fiscal 2032. For California income tax purposes, the Company had net operating loss carryforwards of approximately $1.4 billion which expire beginning in fiscal 2029 through fiscal 2042, California research and development tax credits of approximately $653 million, which do not expire. For other states' income tax purposes, the Company had net operating loss carryforwards of approximately $1.5 billion, which

expire beginning in fiscal 2023 through fiscal 2042 and tax credits of approximately $103 million, which expire beginning in fiscal 2023 through fiscal 2037. Utilization of the Company’s net operating loss carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization.

The Company had a valuation allowance of $463 million and $305 million as of January 31, 2022 and January 31, 2021 respectively. The Company regularly assesses the realizability of its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some or all of its deferred tax assets will not be realized. The Company evaluates and weighs all available positive and negative evidence such as historic results, future reversals of existing deferred tax liabilities, projected future taxable income, as well as prudent and feasible tax-planning strategies. The assessment requires significant judgment and is performed in each of the applicable jurisdictions. The increase in the valuation allowance during fiscal 2022 was primarily due to state tax credits and certain U.S foreign tax credits that are not expected to be realized. At the end of January 31, 2022, the valuation allowance was primarily related to U.S. states’ net operating loss and tax credits, and certain U.S foreign tax credits. The Company will continue to evaluate the need for valuation allowances for its deferred tax assets.

Unrecognized Tax Benefits and Other Considerations

The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits for fiscal years 2022, 2021 and 2020 is as follows (in millions):

	Fiscal Year Ended January 31,
	2022		2021		2020
Beginning of period	$	1,479	$	1,433	$	852
Tax positions taken in prior period:
Gross increases	25		77		12
Gross decreases	(27)		(40)		(37)
Tax positions taken in current period:
Gross increases	358		107		640
Settlements	0		(87)		(27)
Lapse of statute of limitations	(7)		(19)		(4)
Currency translation effect	(6)		8		(3)
End of period	$	1,822	$	1,479	$	1,433

In fiscal 2022 and 2021, the Company reported a net increase of approximately $343 million and $46 million respectively in its unrecognized tax benefits. The increase in unrecognized tax benefits during fiscal 2022 was primarily for acquisition related liabilities. In fiscal 2020, the Company reported an increase of approximately $581 million in its unrecognized tax benefits primarily for the incremental tax costs associated with the integration of certain acquired operations and assets. For fiscal 2022, 2021 and 2020, total unrecognized tax benefits in an amount of $1.3 billion, $1.3 billion and $1.2 billion, respectively, if recognized, would have reduced income tax expense and the Company’s effective tax rate.

The Company has recognized interest and penalties related to unrecognized tax benefits in the income tax provision of $21 million, $25 million and $2 million in fiscal 2022, 2021 and 2020, respectively. Interest and penalties accrued as of January 31, 2022, 2021 and 2020 were $58 million, $37 million and $12 million, respectively.

Certain prior year tax returns are currently being examined by various taxing authorities in countries including the United States, France, and Germany. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the tax audits cannot be predicted with certainty, if any issues addressed in the Company's tax audits are resolved in a manner inconsistent with management's expectations, the Company could adjust its provision for income taxes in the future.

The Company has operations and taxable presence in multiple jurisdictions in the U.S. and outside of the U.S. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions around the world. The Company currently considers U.S. federal, Japan, Australia, Germany, France, United Kingdom, Ireland and Israel to be major tax jurisdictions. The Company’s U.S. federal tax returns since fiscal 2008 remain open to examination. With some exceptions, tax years prior to fiscal 2017 in jurisdictions outside of U.S. are generally closed.

The Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits up to approximately $15 million may occur in the next 12 months, as the applicable statutes of limitations lapse.