Income Taxes

12 Months Ended

Mar. 28, 2020

Income (loss) before income taxes consists of the following components (in thousands):



	Fiscal Year
	2020			2019			2018
United States	$	(226,005	)	$	(297,975	)	$	(151,083	)
Foreign	621,094			389,767			168,228
Total	$	395,089		$	91,792		$	17,145

The components of the income tax provision are as follows (in thousands):



	Fiscal Year
	2020			2019			2018
Current (expense) benefit:
Federal	$	(6,705	)	$	17,222		$	(28,168	)
State	(93		)	209			(229		)
Foreign	(65,065		)	(46,267		)	(61,284		)
	(71,863		)	(28,836		)	(89,681		)
Deferred benefit (expense):
Federal	$	7,826		$	55,833		$	11,817
State	4,603			946			253
Foreign	(1,330		)	13,390			20,178
	11,099			70,169			32,248
Total	$	(60,764	)	$	41,333		$	(57,433	)

On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was signed into law in the U.S., lowering the U.S. corporate income tax rate to 21% from 35%, instituting a one-time transition tax on unrepatriated foreign earnings (the "Transitional Repatriation Tax"), and implementing a territorial tax system. During fiscal 2018, the Company recorded a net provisional tax expense of $77.3 million for the estimated effects of the Tax Act. In accordance with Staff Accounting Bulletin No. 118, the Company completed its analysis of the impact of the Tax Act during fiscal 2019 and recorded a net discrete income tax benefit adjustment of $17.0 million to the prior year provisional estimates. The Global Intangible Low-Taxed Income ("GILTI") provisions became effective for the Company in fiscal 2019, at which time the Company elected to treat taxes due on future GILTI inclusions in U.S. taxable income as current-period expense (the "period cost method").

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") to help provide relief as a result of the COVID-19 outbreak. Similarly, governments around the world have enacted or implemented various forms of tax relief to assist with the economic disruption in the wake of COVID-19. The measures vary by jurisdiction, but often include the ability to delay certain income tax payments. As of March 28, 2020, the COVID-19 relief measures did not have a material impact on the Company's effective tax rate or other income tax accounts.

A reconciliation of the provision for income taxes to income tax expense computed by applying the statutory federal income tax rate to pre-tax income (loss) for fiscal years 2020, 2019 and 2018 is as follows (dollars in thousands):



	Fiscal Year
	2020					2019					2018
	Amount			Percentage		Amount			Percentage		Amount			Percentage
Income tax expense at statutory federal rate	$	(82,969	)	21.0	%	$	(19,276	)	21.0	%	$	(5,407	)	31.5	%
(Increase) decrease resulting from:
State benefit, net of federal expense	2,605			(0.7	)	710			(0.8	)	474			(2.8	)
Tax credits	64,017			(16.2	)	69,856			(76.1	)	38,054			(221.9	)
Effect of changes in income tax rate applied to net deferred tax assets	(2,269		)	0.6		12,972			(14.1	)	39,168			(228.4	)
Foreign tax rate difference	75,247			(19.0	)	41,672			(45.4	)	21,829			(127.3	)
Foreign permanent differences and related items	(5,446		)	1.4		6,825			(7.4	)	(2,598		)	15.2
Change in valuation allowance	6,438			(1.6	)	2,353			(2.6	)	(1,632		)	9.5
Expiration of state attributes	(5,165		)	1.3		—			—		—			—
Stock-based compensation	(1,707		)	0.4		(7,694		)	8.4		9,924			(57.9	)
Tax reserve adjustments	(13,973		)	3.5		5,213			(5.7	)	(29,188		)	170.2
U.S. tax on foreign earnings, including GILTI	(81,916		)	20.8		(76,215		)	83.0		(5,098		)	29.7
U.S. Transitional Repatriation Tax	—			—		1,897			(2.1	)	(116,419		)	679.0
Intra-entity transfer	—			—		3,935			(4.3	)	(6,873		)	40.1
Permanent reinvestment assertion	(6,814		)	1.7		—			—		—			—
Acquisition related adjustments	(7,257		)	1.8		—			—		—			—
Other income tax (expense) benefit	(1,555		)	0.4		(915		)	1.1		333			(1.9	)
	$	(60,764	)	15.4	%	$	41,333		(45.0	)%	$	(57,433	)	335.0	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis used for income tax purposes. The deferred income tax assets and liabilities are measured in each taxing jurisdiction using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Significant components of the Company’s net deferred income taxes are as follows (in thousands):



	March 28, 2020			March 30, 2019
Deferred income tax assets:
Inventory reserve	$	10,114		$	8,588
Equity compensation	18,817			27,380
Net operating loss carry-forwards	71,928			13,744
Research and other credits	106,958			95,640
Employee benefits	12,606			13,070
Lease liabilities	16,456			—
Other deferred assets	3,559			19,457
Total deferred income tax assets	240,438			177,879
Valuation allowance	(35,280		)	(40,433		)
Total deferred income tax assets, net of valuation allowance	$	205,158		$	137,446

Deferred income tax liabilities:
Amortization and purchase accounting basis difference	$	(107,517	)	$	(45,665	)
Accumulated depreciation/basis difference	(59,356		)	(62,097		)
Accrued tax on unremitted foreign earnings	(15,521		)	—
Right-of-use assets	(14,400		)	—
Other deferred liabilities	(1,955		)	—
Total deferred income tax liabilities	(198,749		)	(107,762		)
Net deferred income tax asset	$	6,409		$	29,684

Amounts included in the Consolidated Balance Sheets:
Other non-current assets	$	45,754		$	30,017
Other long-term liabilities	(39,345		)	(333		)
Net deferred income tax asset	$	6,409		$	29,684

The Company has recorded a valuation allowance against certain U.S. and foreign deferred tax assets as of March 28, 2020 and March 30, 2019. These valuation allowances were established based upon management's opinion that it is more likely than not (a likelihood of more than 50 percent) that the benefit of these deferred tax assets may not be realized.

The valuation allowance against deferred tax assets decreased by approximately $5.2 million in fiscal 2020. The decrease was comprised of a $7.9 million decrease in the valuation allowance against state deferred tax assets for net operating losses and credits and a $2.7 million increase for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries, $2.1 million of which was due to purchase accounting related adjustments. At the end of fiscal 2020, a $3.8 million valuation allowance remained against deferred assets at foreign subsidiaries and a $31.5 million valuation allowance remained against state deferred tax assets.

The valuation allowance against deferred tax assets decreased by $2.4 million in fiscal 2019. The decrease was comprised of a $1.5 million decrease in the valuation allowance against state deferred tax assets for net operating losses and tax credits and a $0.9 million decrease for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries. At the end of fiscal 2019, a $1.1 million valuation allowance remained against deferred tax assets at foreign subsidiaries and a $39.3 million valuation allowance remained against state deferred tax assets.

The valuation allowance against deferred tax assets increased by $9.7 million in fiscal 2018. The increase was comprised of a $6.8 million increase resulting from tax rate changes, primarily the federal rate enacted in the Tax Act, a $1.9 million increase in the valuation allowance against state deferred tax assets for net operating losses and tax credits, a $1.0 million increase for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries and a $0.5 million increase in the valuation allowance for state tax credits due to the adoption of

ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." It was partially offset by a $0.5 million decrease in valuation allowance for federal deferred tax assets for foreign tax credits. At the end of fiscal 2018, a $2.0 million valuation allowance remained against deferred tax assets at foreign subsidiaries and a $40.8 million valuation allowance remained against domestic deferred tax assets.

As of March 28, 2020, the Company had federal loss carryovers of approximately $190.4 million that expire in fiscal years 2021 to 2040 if unused and state losses of approximately $281.1 million that expire in fiscal years 2021 to 2040 if unused. Federal research credits of $143.0 million, and state credits of $64.1 million may expire in fiscal years 2030 to 2040 and 2021 to 2040, respectively. The Company had foreign losses of $107.5 million, some of which may expire in fiscal years 2021 to 2030 if unused. Included in the amounts above are $397.5 million of federal, state and foreign losses and $7.5 million of tax credits related to acquisitions in the current year. The utilization of acquired domestic assets is subject to certain annual limitations as required under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") and similar state income tax provisions.

The Company has continued to expand its operations and increase its investments in numerous international jurisdictions. These activities expose the Company to taxation in multiple foreign jurisdictions. Management has concluded that it can no longer support an assertion that certain earnings which have been subject to U.S. federal taxation at its foreign subsidiaries are permanently reinvested. During the second quarter of fiscal 2020, the Company updated forecasts of cash balances and cash flow outside the U.S. and began to implement a more centralized approach to cash management. As a result, the Company recorded $6.8 million of tax expense during fiscal 2020. In the third quarter of fiscal 2018, the Company had previously released its permanent reinvestment assertion on its largest operating subsidiary in Singapore, Qorvo International Pte. Ltd. The remainder of the Company's foreign earnings and historic investments will continue to be permanently reinvested to fund working capital requirements and operations abroad. It is not practical to estimate the additional tax that would be incurred, if any, if the remainder of the permanently reinvested earnings were repatriated.

The Company has foreign subsidiaries with tax holiday agreements in Singapore and Costa Rica. These tax holiday agreements have varying rates and expire in December 2021 and December 2027, respectively. Incentives from these countries are subject to the Company meeting certain employment and investment requirements. The Company does not expect that the Singapore legislation enacted in February 2017, which will exclude from the Company's existing Development and Expansion Incentive grant the benefit of the reduced tax rate for intellectual property income earned after June 30, 2021, will have an impact on the Company. Income tax expense decreased by $62.9 million (an impact of approximately $0.54 and $0.53 per basic and diluted share, respectively) in fiscal 2020 and $34.6 million (an impact of approximately $0.28 and $0.27 per basic and diluted share, respectively) in fiscal 2019 as a result of these agreements.

The Company’s gross unrecognized tax benefits totaled $119.2 million as of March 28, 2020, $103.2 million as of March 30, 2019, and $122.8 million as of March 31, 2018. Of these amounts, $114.8 million (net of federal benefit of state taxes), $99.1 million (net of federal benefit of state taxes) and $118.7 million (net of federal benefit of state taxes) as of March 28, 2020, March 30, 2019, and March 31, 2018, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years.

The Company’s gross unrecognized tax benefits increased from $103.2 million as of March 30, 2019 to $119.2 million as of March 28, 2020, primarily due to increases related to current year tax positions, the effect of provision-to-return adjustments on prior year positions, and increases related to business combinations recognized as part of purchase accounting.

A reconciliation of fiscal 2018 through fiscal 2020 beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):



	Fiscal Year
	2020			2019			2018
Beginning balance	$	103,178		$	122,823		$	90,615
Additions based on positions related to current year	10,357			7,193			26,431
Additions for tax positions in prior years	6,484			8,369			5,844
Reductions for tax positions in prior years	(69		)	(24,932		)	(67		)
Expiration of statute of limitations	(728		)	(6,972		)	—
Settlements	—			(3,303		)	—
Ending balance	$	119,222		$	103,178		$	122,823

It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. During fiscal years 2020, 2019 and 2018, the Company recognized $0.7 million, $(0.2) million and $(2.5) million, respectively, of interest and penalties related to uncertain tax positions. Accrued interest and penalties related to unrecognized tax benefits totaled $5.4 million, $4.4 million and $4.6 million as of March 28, 2020, March 30, 2019 and March 31, 2018, respectively.

The unrecognized tax benefits of $119.2 million and accrued interest and penalties of $5.4 million at the end of fiscal 2020 are recorded on the Consolidated Balance Sheet as a $19.4 million other long-term liability, with the balance reducing the carrying value of the gross deferred tax assets.

Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease within the next 12 months due to uncertainties regarding the timing of examinations and the amount of settlements that may be paid, if any, to tax authorities, the Company currently believes it is reasonably possible that only a minimal amount of gross unrecognized tax benefits will be reduced for tax positions taken in prior years within the next 12 months.

Income taxes payable of $50.8 million and $41.6 million as of March 28, 2020 and March 30, 2019, respectively, are included in "Other current liabilities" in the Consolidated Balance Sheets. Income taxes receivable of $5.4 million and $6.2 million as of March 28, 2020 and March 30, 2019, respectively, are included in “Other current assets” in the Consolidated Balance Sheets. Long-term income taxes payable of $5.6 million and $5.7 million as of March 28, 2020 and March 30, 2019, respectively, which relates to the Transitional Repatriation Tax which the Company has elected to pay over eight years, is included in "Other long-term liabilities" in the Consolidated Balance Sheets.

Qorvo files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. Qorvo’s fiscal 2017 U.S. federal and state tax returns and subsequent tax years remain open for examination, as well as all attributes brought forward into those years. The Company is also subject to examination by various international tax authorities. The tax years subject to examination vary by jurisdiction.