Income Taxes

9 Months Ended

Oct. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

For the three and nine months ended October 31, 2024, the Company recorded an income tax benefit of $39.4 million and $66.1 million on pretax loss of $11.2 million and $80.5 million, respectively. Included in these amounts is an income tax benefit for the three and nine months ended October 31, 2024 of $8.3 million and $46.4 million, respectively, related to the conclusion of negotiations relating to a BAPA between the U.S. Internal Revenue Service (“IRS”) and Dutch Tax Authority (“DTA”), and a benefit of $31.6 million for three and nine months ended October 31, 2024 related to the conclusion of an agreement with the DTA on a reduced rate of tax on the gain from the transfer of the economic intellectual property (“IP”) rights.

The Company executed the BAPA agreements with the IRS and DTA on October 10, 2024, and October 22, 2024, respectively. On October 28, 2024, the Company paid $187.7 million to satisfy the tax assessment issued by the DTA, which reflected the BAPA negotiations and the agreement to reduce the rate of tax on the gain from the transfer of economic IP rights. As a result of the BAPA and Dutch assessment, the 2015 through 2017 tax years are closed for GitLab B.V. Pursuant to the terms in the BAPA, the Company will file amended returns for the 2018 through 2023 fiscal years; the tax returns for the fiscal year ended January 31, 2024 were not yet due as of the end of the current fiscal quarter. All U.S. federal and state tax net operating losses (“NOLs”) and credits, as well as Netherlands NOLs, are not yet recognized due to the determination that they are not more likely than not to be realized.

For the three and nine months ended October 31, 2023, the Company recorded income tax expense of $256.8 million and $262.3 million on pretax loss of $28.8 million and $125.8 million, respectively. The income tax expense for the three and nine months ended October 31, 2023 was primarily related to an increase in tax expense for unrecognized tax benefit relating to the BAPA, and the Company's foreign and domestic operations.

The Company's provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for jurisdictions for which a loss is expected for the year and no benefit can be realized for those losses, jurisdictions for which forecasted pre-tax income or loss cannot be estimated, and the tax effect of discrete items occurring during the period. The tax provision for jurisdictions for which a forecast cannot be estimated is based on actual taxes and tax reserves for the quarter.

Under the provisions of ASC 740, Income Taxes, the determination of the Company’s ability to recognize its deferred tax asset requires an assessment of both negative and positive evidence when determining the Company’s ability to recognize its deferred tax assets. As in prior years, the Company maintained that it was not more likely than not that the Company could recognize deferred tax assets in certain jurisdictions. The evidence evaluated by the Company included operating results during the most recent three-year period and future projections. More weight was given to historical results than to expectations of future profitability, which are inherently uncertain. Certain entities’ net losses in recent periods represented sufficient negative evidence to require a valuation allowance against its net deferred tax assets. This valuation allowance will be evaluated periodically and could be reversed partially or totally if business results have sufficiently improved to support realization of deferred tax assets.

As of October 31, 2024, unrecognized tax benefits were $9.9 million, of which $0.5 million would affect the effective tax rate if recognized. As of January 31, 2024, the unrecognized tax benefits were $396.8 million, of which $207.8 million would affect the effective tax rate if recognized. The Company has settled and paid the BAPA tax liability with the DTA, thereby reducing the current tax liability previously classified as an unrecognized tax benefit. For unrecognized tax benefits unrelated to the BAPA, the Company is unable to reasonably estimate the timing of the remaining long-term payments or the amount by which the liability will increase or decrease.

It is the Company's policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. Accrued interest and penalties were $0.3 million as of October 31, 2024 and $52.1 million as of January 31, 2024, respectively.

As of October 31, 2024, the Company’s U.S. federal 2018 through 2024 tax years were open and subject to potential examination in one or more jurisdictions. In addition, in the United States, any NOLs or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination. The Company’s Netherlands tax years are currently open from tax years 2018 to 2024, subject to adjustments as a result of the recently negotiated BAPA. The Company believes that it has adequately reserved for the outcome of the BAPA. The Company regularly assesses the likelihood of adverse outcomes resulting from all existing and potential examinations to determine the adequacy of its provision for income taxes. The Company continues to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.