On December 22, 2017, the Tax Act was enacted into law, which made changes to U.S. tax law, including, but not limited to, reducing the U.S. Federal corporate income tax rate from 35% to 21% and generally eliminating U.S. Federal corporate income taxes on dividends from foreign subsidiaries. The Tax Act also included a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. These provisions of the Tax Act were effective for the Company beginning August 1, 2018.

The Company recognized an income tax provision of $2.9 million for fiscal year 2020 compared to an income tax benefit of $8.3 million for fiscal year 2019. The fiscal year 2020 income tax provision was primarily due to the BEAT liability, including interest and penalties, of $11.4 million recorded in fiscal year 2020, of which $7.7 million relates to fiscal year 2020 and $3.7 million relates to fiscal year 2019, as a result of final regulations issued by the Internal Revenue Service (“IRS”) on December 2, 2019 and subsequent amendments resulting from the CARES Act passed on March 27, 2020.

The effective tax rate of (12)% for fiscal year 2020, differs from the statutory U.S. Federal income tax rate of 21% mainly due to permanent differences for stock-based compensation, including excess tax benefits, research and development credits, change in valuation allowance, certain non-deductible expenses including executive compensation, and BEAT.


	Fiscal years ended July 31,
	2020		2019		2018
Domestic	$	(34,121)	$	(1,778)	$	(13,501)
International	9,790		14,230		5,225
Income (loss) before provision for (benefit from) income taxes	$	(24,331)	$	12,452	$	(8,276)


	Fiscal years ended July 31,
	2020		2019		2018
Current:
U.S. Federal	$	13,077	$	3,297	$	2,047
State	178		48		219
Foreign	1,539		1,859		2,203
Total current	14,794		5,204		4,469
Deferred:
U.S. Federal	(10,125)		(13,683)		15,766
State	(1,357)		(989)		(1,460)
Foreign	(445)		1,188		(308)
Total deferred	(11,927)		(13,484)		13,998
Total provision for (benefit from) income taxes	$	2,867	$	(8,280)	$	18,467

Differences between income taxes calculated using the statutory federal income tax rate of 21% in the fiscal years ended July 31, 2020 and 2019, and 27% in the fiscal year ended July 31, 2018 and the provision for income taxes are as follows (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018
Statutory federal income tax	$	(5,109)	$	2,617	$	(2,224)
State taxes, net of federal benefit	(1,179)		(939)		(993)
Share-based compensation	(2,971)		(8,013)		(8,715)
Non-deductible officers' compensation	3,634		3,938		3,230
Foreign income taxed at different rates	(235)		203		1,022
Research tax credits	(4,905)		(6,943)		(5,822)
Base erosion and anti-abuse tax	11,381		—		—
Re-measurement of U.S. deferred taxes	—		—		36,125
Non-deductible acquisition costs	—		—		1,270

Permanent differences and others	829		918		666
Change in valuation allowance	1,422		(61)		(6,092)
Total provision for (benefit from) income taxes	$	2,867	$	(8,280)	$	18,467


	As of July 31,
	2020		2019
Accruals and reserves	$	5,831	$	7,870
Stock-based compensation	6,606		6,353
Deferred revenue	5,553		2,316
Capitalized R&D	4,996		—
Lease liabilities	24,946		—
Net operating loss carryforwards	53,322		55,881
Tax credits	85,048		74,819
Total deferred tax assets	186,302		147,239
Less valuation allowance	37,188		31,421
Net deferred tax assets	149,114		115,818
Less deferred tax liabilities:
Intangible assets	4,381		7,413
Operating lease assets	18,774		—
Convertible debt	8,696		10,274
Property and equipment	8,274		1,435
Unremitted foreign earnings	354		302
Capitalized commissions	7,070		6,086
Total deferred tax liabilities	47,549		25,510
Deferred tax assets, net	101,565		90,308

Less foreign capitalized commissions	904		906
Total net deferred tax assets	100,661		89,402

The Company considered both positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, historic book profit/loss, prior taxable income/loss, and results of future operations, and determined that a valuation allowance was not required for a significant portion of its deferred tax assets. A valuation allowance of $37.2 million and $31.4 million remained as of July 31, 2020 and 2019, respectively, primarily related to California and Canada deferred tax assets. The increase of $5.8 million in the valuation allowance in the current fiscal year relates primarily to net operating losses, income tax credits, and future capital losses in certain tax jurisdictions for which no tax benefit was recognized.

As of July 31, 2020, the Company had U.S. Federal, California, and other states net operating loss (“NOL”) carryforwards of $205.5 million, $57.4 million, and $97.3 million, respectively. The U.S. Federal and California NOL carryforwards will start to expire in 2029 and 2020, respectively.

Federal and California laws impose restrictions on the utilization of NOL carryforwards and R&D credit carryforwards in the event of a change in ownership of the Company, as defined by Internal Revenue Code 382 and 383. The Company experienced an ownership change in the past that does not materially impact the availability of its carryforwards. However, should there be an ownership change in the future, the Company’s ability to utilize existing carryforwards could be restricted.

As of July 31, 2020, the Company has recorded a provisional estimate for foreign withholding taxes on undistributed earnings from foreign subsidiaries of $0.4 million. The Company may repatriate foreign earnings in the future to the extent that the repatriation is not restricted by local laws or there are no substantial incremental costs associated with such repatriation.


	Fiscal years ended July 31,
	2020		2019		2018

Unrecognized tax benefit - beginning of period	$	11,633	$	10,321	$	9,346
Gross increases - prior period tax positions	3,401		98		729
Gross decreases - prior period tax positions	(147)		(88)		(878)
Gross increases - current period tax positions	8,803		1,302		1,124

Unrecognized tax benefit - end of period	$	23,690	$	11,633	$	10,321

During the year ended July 31, 2020, the Company’s unrecognized tax benefits increased by $12.1 million. As of July 31, 2020, the Company had unrecognized tax benefits of $18.0 million that, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in its consolidated statements of operations. As of July 31, 2020, the accrued interest and penalties related to unrecognized tax benefits was immaterial. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease approximately $8.0 million within the next twelve months upon receiving approval of certain tax election applications.

The Company, or one of its subsidiaries, files income taxes in the U.S. Federal jurisdiction and various state and foreign jurisdictions. If the Company utilizes NOL carryforwards or tax credits in future years, the U.S. Federal, state and local, and non-U.S. tax authorities may examine the tax returns covering the period in which the net operating losses and tax credits arose. As a result, the Company’s tax returns in the U.S. and California remain open to examination from fiscal years 2002 through 2020.

The Company is currently under examination by the California Franchise Tax Board for the state income tax returns filed for fiscal years 2018 and 2017. If any issues addressed in the tax audit are resolved in a manner not consistent with the Company’s expectations, the Company may be required to adjust its provision for income tax in the period such resolution occurs. The Company does not believe the audit will have a material impact on the Company’s financial position, operating results, or cash flows.