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Income Taxes | 12 Months Ended
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Jan. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The income tax expense (benefit) applicable to income before income taxes consists of the following:
| Year Ended
| January 31, 2021 |  | January 26, 2020 |  | January 27, 2019
| (In millions)
Current income taxes: |  |  |  |  |
Federal | $ | 197 |  |  | $ | 65 |  |  | $ | 1 |
State | 1 |  |  | 4 |  |  | — |
Foreign | 161 |  |  | 87 |  |  | 69 |
Total current | 359 |  |  | 156 |  |  | 70 |
Deferred taxes: |  |  |  |  |
Federal | (246) |  |  | 2 |  |  | (315) |
Foreign | (36) |  |  | 16 |  |  | — |
Total deferred | (282) |  |  | 18 |  |  | (315) |
Income tax expense (benefit) | $ | 77 |  |  | $ | 174 |  |  | $ | (245) |
Income before income tax consists of the following:
| Year Ended
| January 31, 2021 |  | January 26, 2020 |  | January 27, 2019
| (In millions)
Domestic | $ | 1,437 |  |  | $ | 620 |  |  | $ | 1,843 |
Foreign | 2,972 |  |  | 2,350 |  |  | 2,053 |
Income before income tax | $ | 4,409 |  |  | $ | 2,970 |  |  | $ | 3,896 |
The income tax expense (benefit) differs from the amount computed by applying the U.S. federal statutory rate of 21% to income before income taxes as follows:
| Year Ended
| January 31, 2021 |  | January 26, 2020 |  | January 27, 2019
| (In millions)
Tax expense computed at federal statutory rate | $ | 926 |  |  | $ | 624 |  |  | $ | 818 |
Expense (benefit) resulting from: |  |  |  |  |
State income taxes, net of federal tax effect | 10 |  |  | 12 |  |  | 23 |
Foreign tax rate differential | (561) |  |  | (301) |  |  | (412) |
U.S. federal R&D tax credit | (173) |  |  | (110) |  |  | (141) |
Stock-based compensation | (136) |  |  | (60) |  |  | (191) |
Tax Cuts and Jobs Act of 2017 | — |  |  | — |  |  | (368) |
Other | 11 |  |  | 9 |  |  | 26 |
Income tax expense (benefit) | $ | 77 |  |  | $ | 174 |  |  | $ | (245) |
The tax effect of temporary differences that gives rise to significant portions of the deferred tax assets and liabilities are presented below:
| January 31, 2021 |  | January 26, 2020
| (In millions)
Deferred tax assets: |
GILTI deferred tax assets | $ | 709 |  |  | $ | 428 |
Research and other tax credit carryforwards | 650 |  |  | 605 |
Operating lease liabilities | 120 |  |  | 114 |
Net operating loss carryforwards | 100 |  |  | 62 |
Accruals and reserves, not currently deductible for tax purposes | 59 |  |  | 39 |
Stock-based compensation | 36 |  |  | 28 |
Property, equipment and intangible assets | 32 |  |  | 12 |
Gross deferred tax assets | 1,706 |  |  | 1,288 |
Less valuation allowance | (728) |  |  | (621) |
Total deferred tax assets | 978 |  |  | 667 |
Deferred tax liabilities: |  |  |
Acquired intangibles | (191) |  |  | (1) |
Unremitted earnings of foreign subsidiaries | (111) |  |  | (40) |
Operating lease assets | (111) |  |  | (107) |
Gross deferred tax liabilities | (413) |  |  | (148) |
Net deferred tax asset (1) | $ | 565 |  |  | $ | 519 |
(1) Net deferred tax asset includes long-term deferred tax assets of $806 million and $548 million and long-term deferred tax liabilities of $241 million and $29 million for fiscal years 2021 and 2020, respectively. Long-term deferred tax liabilities are included in other long-term liabilities on our Consolidated Balance Sheets. We recognized an income tax expense of $77 million and $174 million for fiscal years 2021 and 2020, respectively, and income tax benefit of $245 million for fiscal year 2019. Our annual effective tax rate was 1.7%, 5.9%, and (6.3)% for fiscal years 2021, 2020, and 2019, respectively. The decrease in our effective tax rate in fiscal year 2021 as compared to fiscal year 2020 was primarily due to a decrease in the proportional amount of earnings subject to United States tax and an increase of tax benefits from stock-based compensation. The increase in our effective tax rate in fiscal year 2021 and fiscal year 2020 as compared to fiscal year 2019 was primarily due to an absence of tax benefits related to the enactment of the TCJA and a decrease of tax benefits from stock-based compensation. Our effective tax rate for fiscal years 2021, 2020, and 2019 was lower than the U.S. federal statutory rate of 21% due primarily to income earned in jurisdictions, including the British Virgin Islands, Israel and Hong Kong, where the tax rate was lower than the U.S. federal statutory tax rate, recognition of U.S. federal research tax credits, excess tax benefits related to stock-based compensation, and the finalization of the enactment-date income tax effects of the TCJA in 2019. During the second quarter of fiscal year 2021, we completed the acquisition of Mellanox. As a result of the acquisition, we recorded $256 million of net deferred tax liabilities primarily on the excess of book basis over the tax basis of the acquired intangible assets and undistributed earnings in certain foreign subsidiaries. We also recorded $153 million of long-term tax liabilities related to tax basis differences in Mellanox. The net deferred tax liabilities and long-term tax liabilities are based upon certain assumptions underlying our purchase price allocation. As a result of the acquisition, as of January 31, 2021, we intend to indefinitely reinvest approximately $1.16 billion of cumulative undistributed earnings held by Mellanox non-U.S. subsidiaries. We have not provided the amount of unrecognized deferred tax liabilities for temporary differences related to investments in Mellanox non-U.S. subsidiaries as the determination of such amount is not practicable. As of January 31, 2021 and January 26, 2020, we had a valuation allowance of $728 million and $621 million, respectively, related to state and certain foreign deferred tax assets that management determined not likely to be realized due, in part, to jurisdictional projections of future taxable income. To the extent realization of the deferred tax assets becomes more-likely-than-not, we would recognize such deferred tax asset as an income tax benefit during the period. As of January 31, 2021, we had federal, state and foreign net operating loss carryforwards of $333 million, $308 million and $344 million, respectively. The federal and state carryforwards will begin to expire in fiscal year 2023 and 2022, respectively. The foreign net operating loss carryforwards of $344 million may be carried forward indefinitely. As of January 31, 2021, we had federal research tax credit carryforwards of $238 million that will begin to expire in fiscal year 2035. We have state research tax credit carryforwards of $987 million, of which $944 million is attributable to the State of California and may be carried over indefinitely, and $43 million is attributable to various other states and will begin to expire in fiscal year 2022. Our tax attributes, net operating loss and tax credit carryforwards, remain subject to audit and may be adjusted for changes or modification in tax laws, other authoritative interpretations thereof, or other facts and circumstances. Utilization of federal, state, and foreign net operating losses and tax credit carryforwards may also be subject to limitations due to ownership changes and other limitations provided by the Internal Revenue Code and similar state and foreign tax provisions. If any such limitations apply, the federal, state, or foreign net operating loss and tax credit carryforwards, as applicable, may expire or be denied before utilization. As of January 31, 2021, we had $776 million of gross unrecognized tax benefits, of which $606 million would affect our effective tax rate if recognized. However, $132 million of the unrecognized tax benefits were related to state income tax positions taken, that, if recognized, would be in the form of a carryforward deferred tax asset that would likely attract a full valuation allowance. The $606 million of unrecognized tax benefits as of January 31, 2021 consisted of $352 million recorded in non-current income taxes payable, $5 million recorded in current income taxes payable, and $249 million reflected as a reduction to the related deferred tax assets. A reconciliation of gross unrecognized tax benefits is as follows:
| January 31, 2021 |  | January 26, 2020 |  | January 27, 2019
| (In millions)
Balance at beginning of period | $ | 583 |  |  | $ | 477 |  |  | $ | 447 |
Increases in tax positions for current year | 158 |  |  | 104 |  |  | 129 |
Increases in tax positions for prior years (1) | 60 |  |  | 7 |  |  | 52 |
Decreases in tax positions for prior years | (11) |  |  | — |  |  | (141) |
Settlements | (5) |  |  | — |  |  | — |
Lapse in statute of limitations | (9) |  |  | (5) |  |  | (10) |
Balance at end of period | $ | 776 |  |  | $ | 583 |  |  | $ | 477 |
(1) The fiscal year 2021 balance represents prior year gross unrecognized tax benefits recorded as a result of the Mellanox acquisition. We classify an unrecognized tax benefit as a current liability, or amount refundable, to the extent that we anticipate payment or receipt of cash for income taxes within one year. The amount is classified as a long-term liability, or reduction of long-term deferred tax assets or amount refundable if we anticipate payment or receipt of cash for income taxes during a period beyond a year. Our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of January 31, 2021, January 26, 2020, and January 27, 2019, we had accrued $44 million, $31 million, and $21 million, respectively, for the payment of interest and penalties related to unrecognized tax benefits, which is not included as a component of our unrecognized tax benefits. As of January 31, 2021, unrecognized tax benefits of $352 million and the related interest and penalties of $43 million are included in non-current income taxes payable, and unrecognized tax benefits of $5 million and the related interest and penalties of $1 million are included in current income taxes payable. While we believe that we have adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than our accrued position. Accordingly, our provisions on federal, state and foreign tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved. As of January 31, 2021, we do not believe that our estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next twelve months. We are subject to taxation by taxing authorities both in the United States and other countries. As of January 31, 2021, the significant tax jurisdictions that may be subject to examination include the United States, Hong Kong, Taiwan, China, United Kingdom, Germany, Israel, and India for fiscal years 2005 through 2020. As of January 31, 2021, the significant tax jurisdictions for which we are currently under examination include the United States, United Kingdom, Germany, Israel and India, for fiscal years 2005 through 2019.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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