Income taxes

12 Months Ended

Mar. 31, 2016

Income taxes

Income taxes

15. Income taxes:

The following table presents components of Income tax expense reported in the consolidated statements of income for the years ended March 31, 2014, 2015 and 2016.

	Millions of yen
	Year ended March 31
	2014		2015		2016
Current:
Domestic	¥	21,558	¥	80,760	¥	72,272
Foreign		6,546		13,531		9,183
Subtotal		28,104		94,291		81,455
Deferred:
Domestic		109,037		23,309		(66,176	)
Foreign		8,024		3,180		7,317
Subtotal		117,061		26,489		(58,859	)
Total	¥	145,165	¥	120,780	¥	22,596

The income tax benefit recognized from operating losses for the years ended March 31, 2014, 2015 and 2016 was ¥26,990 million, ¥3,888 million and ¥5,451 million, respectively, included within deferred income tax expense above.

The Company and its wholly-owned domestic subsidiaries have adopted the consolidated tax filing system permitted under Japanese tax law. The consolidated tax filing system is permitted only for a national tax.

As a result of revisions to domestic tax laws during the third quarter ended December 31, 2011, the fourth quarter ended March 31, 2014 and 2015, Nomura’s domestic effective statutory tax rate was approximately 38% for the fiscal year ended March 31, 2014, decreased to approximately 36% for the fiscal year ended March 31, 2015, and decreased to approximately 33% for the fiscal year ended March 31, 2016.

On March 29, 2016, the “Act to partially revise the Income Tax Act and Others” (Act No.15 of 2016) (“Act 15”) and “Act to partially revise the Local Tax Act and Others” (Act No.13 of 2016) (“Act 13”) were enacted. Under Act 13 and Act 15, effective from the fiscal year beginning on or after April 1, 2016, corporate tax rate has been reduced from 32% to 31% for the temporary differences expected to be reversed in the fiscal year beginning on or after April 1, 2016. Use of operating loss carryforwards for the tax purposes will be limited to 60% of the current year taxable income before deducting operating loss carryforwards for tax purpose after the fiscal years beginning on or after April 1, 2016, and 55% after the fiscal years beginning on or after April 1, 2017. The fiscal years beginning on or after April 1, 2018, use of operating loss carryforwards for the tax purposes will continue to be limited to 50%. Due to these revisions, net deferred tax liabilities decreased by ¥1,525 million yen and income tax expenses decreased by the same amount.

Foreign subsidiaries are subject to income taxes of the countries in which they operate. The relationship between income tax expense and pretax accounting income (loss) is affected by a number of items, including various tax credits, certain revenues not subject to income taxes, certain expenses not deductible for income tax purposes, changes in deferred tax valuation allowance and different enacted tax rates applicable to foreign subsidiaries.

The following table presents a reconciliation of the effective income tax rate reflected in the consolidated statements of income to Nomura’s effective statutory tax rate for the years ended March 31, 2014, 2015 and 2016.

	Year ended March 31
	2014			2015			2016
Nomura’s effective statutory tax rate		38.0	%		36.0	%		33.0	%
Impact of:
Changes in deferred tax valuation allowance		(9.8	)		5.1			36.1
Additional taxable revenues		0.4			0.3			0.3
Non-deductible expenses		7.7			5.9			7.8
Non-taxable revenue		(8.0	)		(4.7	)		(7.2	)
Dividends from foreign subsidiaries		—			0.0			0.0
Tax effect of undistributed earnings of foreign subsidiaries		3.5			0.0			0.1
Different tax rate applicable to income (loss) of foreign subsidiaries		6.3			(1.4	)		1.1
Effect of changes in domestic tax laws		0.6			(1.4	)		(0.9	)
Expiration of loss carryforwards		0.7			0.0			—
Tax benefit recognized on the devaluation of investment in subsidiaries and affiliates		1.4			—			(54.8	)
Other		(0.7	)		(5.0	)		(1.8	)
Effective tax rate		40.1	%		34.8	%		13.7	%

The following table presents the significant components of deferred tax assets and liabilities as of March 31, 2015 and 2016, before offsetting of amounts which relate to the same tax-paying component within a particular tax jurisdiction.

	Millions of yen
	March 31
	2015			2016
Deferred tax assets
Depreciation, amortization and valuation of fixed assets	¥	14,692		¥	16,862
Investments in subsidiaries and affiliates		33,553			112,030
Valuation of financial instruments		56,566			60,776
Accrued pension and severance costs		10,335			16,190
Other accrued expenses and provisions		123,567			96,202
Operating losses		466,531			435,122
Other		4,356			5,644
Gross deferred tax assets		709,600			742,826
Less—Valuation allowance		(565,103	)		(543,489	)
Total deferred tax assets		144,497			199,337
Deferred tax liabilities
Investments in subsidiaries and affiliates		109,087			121,874
Valuation of financial instruments		56,808			49,873
Undistributed earnings of foreign subsidiaries		735			711
Valuation of fixed assets		20,644			19,165
Other		8,670			6,822
Total deferred tax liabilities		195,944			198,445
Net deferred tax assets (liabilities)	¥	(51,447	)	¥	892

After offsetting deferred tax assets and liabilities which relate to the same tax-paying component within a particular tax jurisdiction, net deferred tax assets reported within Other assets—Other in the consolidated balance sheets were ¥19,718 million and ¥36,130 million as of March 31, 2015 and 2016, respectively and net deferred tax liabilities reported within Other liabilities in the consolidated balance sheets were ¥71,165 million and ¥35,238 million as of March 31, 2015 and 2016, respectively.

As of March 31, 2016, no deferred tax liabilities have been recognized for undistributed earnings of foreign subsidiaries totaling ¥10,649 million which are not expected to be remitted in the foreseeable future. It is not practicable to determine the amount of income taxes payable in the event all such foreign earnings are repatriated.

The following table presents changes in the total valuation allowance established against deferred tax assets for the years ended March 31, 2014, 2015 and 2016.

	Millions of yen
	Year ended March 31
	2014			2015			2016
Balance at beginning of year	¥	522,220		¥	490,603		¥	565,103
Net change during the year		(31,617	)(1)		74,500	(2)		(21,614	)(3)
Balance at end of year		490,603			565,103			543,489

(1) Primarily includes ¥29,134 million of additional full valuation allowances established by certain foreign subsidiaries against additional operating loss carryforwards generated during the period as a result of additional taxable losses being incurred by such subsidiaries, offset by a reduction of ¥47,263 million of valuation allowances related to the liquidation of certain foreign subsidiaries and a reduction of ¥13,488 million of valuation allowances established by the Company and domestic subsidiaries because of changes in the expected realization of deferred tax assets other than those related to operating loss carryforwards. In total, ¥31,617 million of allowances decreased for the year ended March 31, 2014.

(2) Primarily includes ¥85,403 million of additional full valuation allowances established by certain foreign subsidiaries against additional operating loss carryforwards generated during the period as a result of additional taxable losses being incurred by such subsidiaries, offset by a reduction of ¥2,921 million of valuation allowances of certain foreign subsidiaries and a reduction of ¥7,982 million related to Japanese subsidiaries and the Company because of decrease in valuation allowances related to operating loss carryforwards due to the effect of changes in domestic tax laws. In total, ¥74,500 million of allowances increased for the year ended March 31, 2015.

(3) Primarily includes ¥7,003 million of additional full valuation allowances established by certain foreign subsidiaries against additional operating loss carryforwards generated during the period as a result of additional taxable losses being incurred by such subsidiaries, offset by a reduction of ¥27,757 million of valuation allowances of certain foreign subsidiaries and a reduction of ¥860 million related to Japanese subsidiaries and the Company because of decrease in valuation allowances related to operating loss carryforwards due to the effect of changes in domestic tax laws. In total, ¥21,614 million of allowances decreased for the year ended March 31, 2016.

As of March 31, 2016, total operating loss carryforwards were ¥2,127,536 million, which included ¥602,036 million relating to the Company and domestic subsidiaries, ¥721,069 million relating to foreign subsidiaries in the United Kingdom, ¥511,732 million relating to foreign subsidiaries in the United States, ¥217,337 million relating to foreign subsidiaries in Hong Kong, and ¥75,362 million relating to foreign subsidiaries in other tax jurisdictions. Of this total amount, ¥1,009,812 million can be carried forward indefinitely, ¥769,789 million expires by March 31, 2025 and ¥347,935 million expires in later fiscal years.

In determining the amount of valuation allowances to be established as of March 31, 2016, Nomura considered all available positive and negative evidence around the likelihood that sufficient future taxable income will be generated to realize the deferred tax assets in the relevant tax jurisdiction of the Company, its domestic subsidiaries and foreign subsidiaries.

In Japan and other tax jurisdictions where domestic and foreign subsidiaries have experienced cumulative operating losses in recent years, these losses provided the most verifiable negative evidence available and outweigh positive evidence.

While Nomura has considered certain future tax planning strategies as a potential source of future taxable income, no such strategies have been relied upon as positive evidence resulting in the reduction of valuation allowances in any major tax jurisdiction in which Nomura operates as of March 31, 2014, 2015 and 2016. In addition, valuation allowances have not been reduced in any of these periods as a result of changing the weighting applied to positive or negative evidence in any of the major tax jurisdictions in which Nomura operates.

The total amount of unrecognized tax benefits was not significant as of March 31, 2014, 2015 and 2016. There were also no significant movements of the gross amounts in unrecognized tax benefits and the amount of interest and penalties recognized due to the unrecognized tax benefits during the years ended March 31, 2014, 2015 and 2016. Nomura is under continuous examination by the Japanese National Tax Agency and other taxing authorities in the major jurisdictions in which Nomura operates. Nomura regularly assesses the likelihood of additional assessments in each tax jurisdiction and the impact on these consolidated financial statements. It is reasonably possible that there may be a significant increase in unrecognized tax benefits within 12 months of March 31, 2016. Quantification of an estimated range cannot be made at this time due to the uncertainty of the potential outcomes. However, Nomura does not expect that any change in the gross balance of unrecognized tax benefits would have a material effect on its financial condition.

Nomura operates in multiple tax jurisdictions, and faces audits from various taxing authorities regarding many issues including, but not limited to, transfer pricing, the deductibility of certain expenses, foreign tax credits and other matters.

The table below presents information regarding the earliest year in which Nomura remains subject to examination in the major jurisdictions in which Nomura operates as of March 31, 2016. Under Hong Kong Special Administrative Region (“Hong Kong”) tax law, the statute of limitation does not apply if an entity incurs taxable losses and is therefore not included in the table.

Jurisdiction	Year
Japan		2011	(1)
United Kingdom		2014
United States		2013

(1) The earliest year in which Nomura remains subject to examination for transfer pricing issues is 2010.