Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

12. Income Taxes

Digital Realty Trust, Inc. has elected to be treated and believes that it has been organized and has operated in a manner that has enabled it to qualify as a REIT for federal income tax purposes. As a REIT, Digital Realty Trust, Inc. is generally not subject to corporate level federal income taxes on taxable income distributed currently to its stockholders. Since inception, Digital Realty Trust, Inc. has distributed at least 100% of its taxable income annually. As such, no provision for federal income taxes has been included in the Company’s accompanying consolidated financial statements for the years ended December 31, 2020, 2019 and 2018.

The Operating Partnership is a partnership and is not required to pay federal income tax. Instead, taxable income is allocated to its partners, who include such amounts on their federal income tax returns. As such, no provision for federal income taxes has been included in the Operating Partnership’s accompanying consolidated financial statements.

We have elected taxable REIT subsidiary (“TRS”) status for some of our consolidated subsidiaries. In general, a TRS may provide services that would otherwise be considered impermissible for REITs to provide and may hold assets that REITs cannot hold directly. Income taxes for TRS entities were accrued, as necessary, for the years ended December 31, 2020, 2019 and 2018.

For our TRS entities and foreign subsidiaries that are subject to U.S. federal, state, local and foreign income taxes, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if we believe it is more likely than not that the deferred tax asset may not be realized, based on available evidence at the time the determination is made. An increase or decrease in the valuation allowance that results from the change in circumstances that causes a change in our judgment about the realizability of the related deferred tax asset is included in the income statement. Deferred tax assets (net of valuation allowance) and liabilities for our TRS entities and foreign subsidiaries were accrued, as necessary, for the years ended December 31, 2020, 2019 and 2018. As of December 31, 2020 and 2019, we had deferred tax liabilities net of deferred tax assets of approximately $737.3 million and $143.4 million, respectively, primarily related to our foreign properties, classified in accounts payable and other accrued expenses in the consolidated balance sheet. The majority of our net deferred tax liability relates to differences between foreign tax basis and book basis of the assets acquired in the Interxion Combination in March 2020, the European Portfolio Acquisition in July 2016 and the Sentrum portfolio acquisition during 2012. The valuation allowance against the deferred tax assets at December 31, 2020 and 2019 relate primarily to net operating loss carryforwards that we do not expect to utilize attributable to certain foreign jurisdictions.

Deferred income tax assets and liabilities as of December 31, 2020 and 2019 were as follows (in thousands):

	2020		2019
Gross deferred tax assets:
Net operating loss carryforwards	$	164,294	$	63,280
Basis difference - real estate property		748,411		9,955
Basis difference - intangibles		2,368		1,071
Straight-line rent		1,121		1,404
Other - temporary differences		60,840		17,624
Total gross deferred tax assets		977,034		93,334
Valuation allowance		(108,060)		(40,795)
Total deferred tax assets, net of valuation allowance		868,974		52,539
Gross deferred tax liabilities:
Basis difference - real estate property		1,338,612		162,095
Basis difference - equity investments		4,000		4,000
Basis difference - intangibles		246,950		1,547
Straight-line rent		6,884		8,044
Other - temporary differences		9,805		20,218
Total gross deferred tax liabilities		1,606,251		195,904
Net deferred tax liabilities	$	737,277	$	143,365