Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

13. 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, 2022, 2021 and 2020.

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, 2022, 2021 and 2020.

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, 2022, 2021 and 2020.

As of December 31, 2022 and 2021, we had deferred tax liabilities net of deferred tax assets of approximately $1,184.6 million and $658.8 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 Teraco Acquisition in August 2022, Interxion Combination in March 2020, the European Portfolio Acquisition in July 2016 and the Sentrum portfolio acquisition in 2012. The valuation allowance against the deferred tax assets at December 31, 2022 and 2021 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, 2022 and 2021 were as follows (in thousands):

	2022		2021
Gross deferred income tax assets:
Net operating loss carryforwards	$	175,935	$	155,152
Basis difference - real estate property		14,027		9,078
Basis difference - intangibles		7,682		2,357
Basis difference - equity investments		5,694		—
Straight-line rent		—		8,097
Other - temporary differences		132,578		175,766
Total gross deferred income tax assets		335,916		350,450
Valuation allowance		(125,491)		(130,893)
Total deferred income tax assets, net of valuation allowance		210,425		219,557
Gross deferred income tax liabilities:
Basis difference - real estate property		1,160,412		798,640
Basis difference - equity investments		—		3,543
Basis difference - intangibles		219,653		63,222
Straight-line rent		9,215		10,942
Other - temporary differences		5,744		1,976
Total gross deferred income tax liabilities		1,395,024		878,323
Net deferred income tax liabilities (1)	$	1,184,599	$	658,766

(1) Net of deferred tax assets of $8.2 million and $7.7 million for the year ended December 31, 2022 and 2021, respectively.