Income taxes

12 Months Ended

Jan. 31, 2020

The domestic and foreign components of loss before provision for income taxes consisted of the following (in thousands):


	Years Ended January 31,
	2020		2019		2018

Domestic	$	(340,542)	$	(191,479)	$	(372,466)
Foreign	12,660		4,248		4,873
Net loss before provision for income taxes	$	(327,882)	$	(187,231)	$	(367,593)

The components of provision for income taxes are as follows (in thousands):


	Years Ended January 31,
	2020		2019		2018

Current:
Federal	$	—	$	—	$	—
State	(18)		(106)		(112)
Foreign	(8,766)		(5,371)		(3,097)
Total	(8,784)		(5,477)		(3,209)
Deferred:
Federal	—		—		917
State	—		—		—
Foreign	84		59		213
Total	84		59		1,130
Total provision for income taxes	$	(8,700)	$	(5,418)	$	(2,079)

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


	Years Ended January 31,
	2020		2019		2018

U.S. federal statutory income tax	$	68,856	$	39,318	$	124,287
Research tax credits	6,120		10,044		7,976
Stock-based compensation	(6,395)		(3,004)		(5,124)
Change in valuation allowance	8,566		(42,450)		2,907
Foreign tax rate differential	(6,384)		(4,945)		—
Legal expenses	—		(4,000)		—

Federal tax rate change	—		—		(132,387)
Global intangible low-taxed income	(3,668)		—		—
Non-deductible compensation	(1,150)		—		—
Change in U.S. tax status of foreign entities	(72,449)		—		—
Other	(2,196)		(381)		262
Provision for income taxes	$	(8,700)	$	(5,418)	$	(2,079)

The deferred tax assets and liabilities were as follows (in thousands):


	As of January 31,
	2020		2019
Deferred tax assets:
Accruals and reserves	$	7,948	$	13,753
Deferred revenue	28,621		—
Net operating loss carryforwards	475,390		430,220

Research and development credits and other credits	75,168		62,869
Stock-based compensation	18,428		30,946
ROU assets/lease liability	53,048		—
Gross deferred tax assets	658,603		537,788
Less valuation allowance	(459,649)		(454,278)
Total deferred tax assets, net of valuation allowance	198,954		83,510
Deferred tax liabilities:
Depreciation and amortization	(128,825)		(61,285)
Deferred revenue	—		(5,026)
ROU assets/lease liability	(48,085)		—
Deferred costs	(21,609)		(16,768)
Gross deferred tax liabilities	(198,519)		(83,079)
Net deferred tax assets	$	435	$	431

Undistributed earnings of our foreign subsidiaries at January 31, 2020 are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes has been provided thereon. Due to the Transition Tax and Global Intangible Low-Tax Income (GILTI) regimes as enacted by the U.S. Tax Cuts and Jobs Act of 2017 (Tax Act), those foreign earnings will not be subject to federal income taxes when actually distributed in the form of a dividend or otherwise. However, we could still be subject to state income taxes and withholding taxes payable to various foreign countries. The amounts of taxes which we could be subject to are not material to the accompanying financial statements.

In January 2018, the FASB released guidance on the accounting for tax on the GILTI provision of the Tax Act. The GILTI provision imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as a period cost are both acceptable methods subject to an accounting policy election. We have elected to treat any taxes on GILTI inclusions as a period cost.

A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. We have established a valuation allowance to offset deferred tax assets at January 31, 2020 and 2019 due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets. The net change in the total valuation allowance for the years ended January 31, 2020 and 2019 was an increase of approximately $5.4 million and $182.9 million, respectively.

At January 31, 2020, we have federal, California and other state net operating loss carryforwards of approximately $1.9 billion, $528.7 million and $682.1 million, respectively, expiring beginning fiscal 2028, for federal and California purposes and fiscal 2020 for other states’ purposes.

At January 31, 2020, we have federal and state research credit carryforwards of approximately $56.9 million and $46.7 million, respectively, expiring beginning in fiscal 2029 for federal purposes. The state credits can be carried forward indefinitely.

Federal and state tax laws may impose substantial restrictions on the utilization of the net operating loss and credit carryforward attributes in the event of an ownership change as defined in Section 382 and Section 383 of the Internal Revenue Code. Accordingly, our ability to utilize these carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of our net operating loss and credit carryforwards before they are utilized. We have performed an analysis to determine whether an ownership change has occurred since inception. The analysis identified several historical ownership changes; however, the limitations did not result in a material restriction on the use of our carryforwards. In the event we experience any subsequent changes in ownership, the availability of our carryforwards in any taxable year could change.

For benefits to be recorded, a tax position must be more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon settlement.

The following table reflects the changes in the gross unrecognized tax benefits (in thousands):


	Years Ended January 31,
	2020		2019		2018

Balance as of beginning of year	$	18,600	$	11,700	$	9,600
Tax positions taken in prior period:
Gross increases	600		—		—
Tax positions taken in current period:
Gross decreases	—		(1,000)		—
Gross increases⁽¹⁾	5,200		7,900		2,100
Balance as of end of year	$	24,400	$	18,600	$	11,700

(1) Includes $7.4 million from the Hortonworks merger for fiscal year 2019.

As of January 31, 2020, the total amount of gross unrecognized tax benefits was $24.4 million, of which $1.6 million, if recognized, would impact our effective tax rate.

We recognize interest and penalties related to income tax matters in the provision for income taxes. As of January 31, 2020, we had no accrued interest and penalties related to uncertain tax positions. We are subject to taxes in the United States and other foreign jurisdictions. In the normal course of business, we are subject to examination by various federal, state and local taxing authorities. We are not currently under audit by the Internal Revenue Service or any other tax authority. All tax years remain open to examination by major taxing jurisdictions in which we file returns.