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Income Taxes | 12 Months Ended
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Oct. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The domestic and foreign components of the Company’s total income (loss) before provision for income taxes are as follows:
| Year Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in thousands)
United States | $ | 487,430 |  |  | $ | (18,029 | ) |  | $ | (2,702 | )
Foreign | 58,076 |  |  | 381,572 |  |  | 385,800 |
Total income (loss) before provision for income taxes | $ | 545,506 |  |  | $ | 363,543 |  |  | $ | 383,098 |
The components of the provision (benefit) for income taxes were as follows:
| Year Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in thousands)
Current: |  |  |  |  |
Federal | $ | 22,821 |  |  | $ | (1,120 | ) |  | $ | 25,420 |
State | 11,846 |  |  | 2,025 |  |  | 5,565 |
Foreign | 61,092 |  |  | 140,430 |  |  | 92,498 |
| 95,759 |  |  | 141,335 |  |  | 123,483 |
Deferred: |  |  |  |  |
Federal | (41,219 | ) |  | (139,547 | ) |  | 95,003 |
State | (7,227 | ) |  | (25,661 | ) |  | 24,440 |
Foreign | (34,174 | ) |  | (45,102 | ) |  | 3,609 |
| (82,620 | ) |  | (210,310 | ) |  | 123,052 |
Provision (benefit) for income taxes | $ | 13,139 |  |  | $ | (68,975 | ) |  | $ | 246,535 |
The provision (benefit) for income taxes differs from the taxes computed with the statutory federal income tax rate as follows:
| Year Ended October 31,
| 2019 |  | 2018 |  | 2017
| (in thousands)
Statutory federal tax | $ | 114,557 |  |  | $ | 85,142 |  |  | $ | 134,084 |
State tax (benefit), net of federal effect | 6,529 |  |  | (32,351 | ) |  | (20,071 | )
Tax credits | (34,485 | ) |  | (35,142 | ) |  | (24,365 | )
Tax on foreign earnings | 23,467 |  |  | (104,252 | ) |  | (52,413 | )
Foreign-derived intangible income deduction | (26,615 | ) |  | — |  |  | — |
Tax settlements | (10,953 | ) |  | (14,691 | ) |  | (7,057 | )
Stock-based compensation | (25,356 | ) |  | (19,293 | ) |  | (26,205 | )
Changes in valuation allowance | (42,144 | ) |  | 78,192 |  |  | 47,745 |
Integration of acquired technologies | — |  |  | 27,927 |  |  | 36,443 |
Undistributed earnings of foreign subsidiaries | 6,341 |  |  | (974 | ) |  | (9,610 | )
Tax impact of repatriation | — |  |  | — |  |  | 166,152 |
Impact of tax restructuring | — |  |  | (171,979 | ) |  | — |
Impact of Tax Act rate change | — |  |  | 51,075 |  |  | — |
Transition tax | — |  |  | 63,107 |  |  | — |
Other | 1,798 |  |  | 4,264 |  |  | 1,832 |
Provision (benefit) for income taxes | $ | 13,139 |  |  | $ | (68,975 | ) |  | $ | 246,535 |
The integration of acquired technologies represents the income tax effect resulting from the transfer of certain intangible assets among company-controlled entities. These intangible assets generally result from the acquisition of technology by a company-controlled entity as part of a business or asset acquisition. The Tax Cuts and Jobs Act (Tax Act), enacted on December 22, 2017, lowered the statutory federal corporate income tax rate from 35% to 21% effective on January 1, 2018. Beginning in the Company's fiscal 2019, the annual statutory federal corporate tax rate is 21%. The Tax Act includes certain new tax provisions listed below which apply to the Company beginning in fiscal 2019.
• | A tax on global intangible low-tax income (GILTI), which is determined annually based on the Company's aggregate foreign subsidiaries' income in excess of certain qualified business asset investment return. In fiscal 2019, the Company adopted an accounting policy to account for the tax effects of GILTI in the period that it is subject to such tax.
• | A base erosion and anti-abuse tax (BEAT), which functions as a minimum tax that partially disallows deductions for certain related party transactions and certain tax credits.
• | A special tax deduction for foreign-derived intangible income (FDII), which, in general, allows a deduction of certain intangible income earned in the U.S. and derived from foreign sources.
During fiscal 2019, the U.S. Treasury Department issued proposed regulations that could impact the calculation of taxes related to these provisions. While the Company continues to evaluate the potential impact on its estimated annual tax rate, certain regulations have not been finalized and are subject to change. The Tax Act also provides an exemption from federal income taxes for distributions from foreign subsidiaries made after December 31, 2017, that were not subject to the one-time transition tax. The Company has provided for foreign withholding taxes on undistributed earnings of certain of its foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries of $6.3 million in fiscal 2019. The Tax Act required the Company to pay a one-time transition tax of 15.5% on previously untaxed earnings represented by foreign cash and certain other net current assets, and 8% on the remaining earnings. In fiscal 2018, the Company recorded a tax expense of $63.1 million. Based on subsequent judicial rulings in fiscal 2019 (including Altera Corp. et al. v. Commissioner and the Hungarian Administrative Court ruling, see Non-U.S. Examinations below) the Company recorded a tax benefit of $17.9 million related to the one-time transition tax. On July 27, 2015, the United States Tax Court (Tax Court) issued an opinion (Altera Corp. et al. v. Commissioner) regarding the treatment of stock-based compensation expense in intercompany cost-sharing arrangements. In view of the Tax Court opinion, the Company amended its cost-sharing arrangement effective February 1, 2016 to exclude stock-based compensation expense on a prospective basis and reflected the corresponding benefits in its income tax expense for fiscal years 2016, 2017 and 2018. On July 24, 2018, the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) reversed the decision of the Tax Court, and then subsequently withdrew its decision on August 7, 2018. A rehearing of the case was held on October 16, 2018 and on June 7, 2019, the Ninth Circuit overturned the July 27, 2015 Tax Court decision. In the third quarter of 2019, as a result of the Ninth Circuit decision, the Company recorded a tax expense of $18.3 million, which is net of estimated U.S. foreign tax credits for the tax assessments related to fiscal years 2016, 2017 and 2018. The Company's intercompany cost-sharing arrangement was terminated at the end of fiscal 2018 as part of the tax restructuring. The significant components of deferred tax assets and liabilities were as follows:
| October 31,
| 2019 |  | 2018
| (in thousands)
Net deferred tax assets: |  |  |
Deferred tax assets: |  |  |
Accruals and reserves | $ | — |  |  | $ | 17,766 |
Deferred revenue | — |  |  | 37,072 |
Deferred compensation | 56,483 |  |  | 50,096 |
Intangible and depreciable assets | 160,072 |  |  | 185,940 |
Capitalized research and development costs | 48,804 |  |  | 4,817 |
Stock-based compensation | 20,372 |  |  | 19,825 |
Tax loss carryovers | 40,068 |  |  | 37,029 |
Foreign tax credit carryovers | 20,187 |  |  | 64,803 |
Research and other tax credit carryovers | 278,382 |  |  | 250,069 |
Other | — |  |  | 4,480 |
Gross deferred tax assets | 624,368 |  |  | 671,897 |
Valuation allowance | (157,343 | ) |  | (201,258 | )
Total deferred tax assets | 467,025 |  |  | 470,639 |
Deferred tax liabilities: |  |  |
Intangible assets | 58,697 |  |  | 72,682 |
Accruals and reserves | 4,450 |  |  | — |
Deferred revenue | 6,611 |  |  | — |
Undistributed earnings of foreign subsidiaries | 6,864 |  |  | 523 |
Other | 1,762 |  |  | — |
Total deferred tax liabilities | 78,384 |  |  | 73,205 |
Net deferred tax assets | $ | 388,641 |  |  | $ | 397,434 |
It is more likely than not that the results of future operations will be able to generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance provided against the Company's deferred tax assets as of October 31, 2019 is mainly attributable to U.S. and international foreign tax credits and the California research credits. The valuation allowance decreased by a net of $43.9 million in fiscal 2019 primarily related to the realizability of $28.1 million U.S. foreign tax credits related to the transfer of intangibles associated with the tax restructuring in fiscal 2018. The remainder of the net decrease in valuation allowance relates to current year California research credit usage, and available foreign tax credits. The Company has the following tax loss and credit carryforwards available to offset future income tax liabilities:
Carryforward | Amount |  | Expiration Date
| (in thousands) |  |
Federal net operating loss carryforward | $ | 82,002 |  |  | 2020-2037
Federal research credit carryforward | 144,672 |  |  | 2020-2039
Federal foreign tax credit carryforward | 7,014 |  |  | 2020-2029
International foreign tax credit carryforward | 15,522 |  |  | Indefinite
International net operating loss carryforward | 85,785 |  |  | 2021-Indefinite
California research credit carryforward | 187,685 |  |  | Indefinite
Other state research credit carryforward | 13,429 |  |  | 2023-2034
State net operating loss carryforward | 71,709 |  |  | 2027-2037
The federal and state net operating loss carryforward is from acquired companies and the annual use of such loss is subject to significant limitations under Internal Revenue Code Section 382 and certain provisions of the Tax Act. Foreign tax credits may only be used to offset tax attributable to foreign source income. The gross unrecognized tax benefits decreased by approximately $14.8 million during fiscal 2019 resulting in gross unrecognized tax benefits of $116.2 million as of October 31, 2019. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:
| As of October 31, 2019 |  | As of October 31, 2018
| (in thousands)
Beginning balance | $ | 131,019 |  |  | $ | 91,637 |
Increases in unrecognized tax benefits related to prior year tax positions | 41,346 |  |  | 2,572 |
Decreases in unrecognized tax benefits related to prior year tax positions | (71,092 | ) |  | (27,615 | )
Increases in unrecognized tax benefits related to current year tax positions | 16,927 |  |  | 67,961 |
Decreases in unrecognized tax benefits related to settlements with taxing authorities | (1,624 | ) |  | (175 | )
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations | (964 | ) |  | (8,828 | )
Increases in unrecognized tax benefits acquired | — |  |  | 7,886 |
Changes in unrecognized tax benefits due to foreign currency translation | 600 |  |  | (2,419 | )
Ending balance | $ | 116,212 |  |  | $ | 131,019 |
As of October 31, 2019 and 2018, approximately $116.2 million and $120.9 million, respectively, of the unrecognized tax benefits would affect the Company's effective tax rate if recognized upon resolution of the uncertain tax positions. Interest and penalties related to estimated obligations for tax positions taken in the Company’s tax returns are recognized as a component of income tax expense (benefit) in the consolidated statements of operations and totaled approximately $0.3 million, $9.4 million and $0.2 million for fiscal years 2019, 2018 and 2017, respectively. As of October 31, 2019 and 2018, the combined amount of accrued interest and penalties related to tax positions taken on the Company’s tax returns was approximately $12.8 million and $12.6 million, respectively. The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. The Company believes that in the coming 12 months, it is reasonably possible that either certain audits and ongoing tax litigation will conclude or the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is between $0.0 and $42.2 million. The Company and/or its subsidiaries remain subject to tax examination in the following jurisdictions:
Jurisdiction | Year(s) Subject to Examination
United States | Fiscal 2019
California | Fiscal years after 2014
Hungary and Ireland | Fiscal years after 2013
Japan and Taiwan | Fiscal years after 2014
Korea | Fiscal years after 2016
In addition, the Company has made acquisitions with operations in several of its significant jurisdictions which may have years subject to examination different from the years indicated in the above table. Intra-Entity Transfers of Assets In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.” This ASU requires the immediate recognition of current and deferred income tax effects of intra-entity transfers of assets other than inventory. This ASU was adopted on the first day of fiscal 2019. As a result of the adoption, the Company recorded a decrease of approximately $130.5 million in retained earnings as of the beginning of the period of adoption, with a corresponding decrease in prepaid taxes related to the unamortized tax expense attributed to intra-entity transfers of assets other than inventory previously deferred. The Company will recognize the income tax consequences of new intra-entity transfers of assets other than inventory in the consolidated statements of operations in the period when the transaction takes place. IRS Examinations In fiscal 2019, the Company reached final settlement with the Examination Division of the IRS for fiscal 2018 and recognized approximately $5.4 million in unrecognized tax benefits and realized $28.1 million of foreign tax credits. In fiscal 2018, the Company reached final settlement with the Examination Division of the IRS for fiscal 2017 and recognized approximately $21.8 million in unrecognized tax benefits, primarily due to the allowance of certain foreign tax credits, and research tax credits from acquired companies. In fiscal 2017, the Company reached final settlement with the Examination Division of the IRS for fiscal 2016 and recognized approximately $4.6 million in unrecognized tax benefits. State Examinations The Company is undergoing an audit by the California Franchise Tax Board for fiscal years 2015 through 2017. No material assessments have been proposed in these examinations. In fiscal 2017, the Company reached final settlement with the California Franchise Tax Board for fiscal 2014, 2013, and 2012. As a result of the settlement, the Company recognized tax expense of $0.4 million, reduced its deferred tax assets by $1.1 million, recognized $14.6 million in unrecognized tax benefits, and increased its valuation allowance by $13.2 million. Non-U.S. Examinations Hungarian Tax Authority In July 2017, the Hungarian Tax Authority (the HTA) issued a final assessment against the Company's Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA has applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $25.0 million and interest and penalties of $11.0 million (at current exchange rates). On August 2, 2017, Synopsys Hungary filed a claim contesting the final assessment with the Hungarian Administrative Court. In the first quarter of fiscal 2018, Synopsys Hungary paid the assessments, penalties and interest as required by law and recorded these amounts as prepaid taxes on its balance sheet, while continuing its challenge to the assessment through the Hungarian Administrative Court. On April 30, 2019, the Hungarian Administrative Court (the Court) ruled against Synopsys Hungary. The Court's opinion was received on May 16, 2019 and the Company filed an appeal with the Hungarian Supreme Court on July 5, 2019. In the second quarter of 2019, as a result of the Court's decision, the Company recorded a tax expense due to an unrecognized tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits for the tax assessments. The Company is undergoing an audit by the HTA for fiscal years 2014 through 2018. No material assessments have been proposed in these examinations. Korea National Tax Service In fiscal 2017, the Company reached final settlement with the Korea National Tax Service for fiscal years 2012 to 2016. As a result of the settlement, the Company recognized income tax expense of $7.9 million. National Taxation Bureau of Taipei In fiscal 2019, the Company reached final settlement with the National Taxation Bureau of Taipei for fiscal year 2017 and recognized $5.5 million in previously unrecognized tax benefits. In fiscal 2017, the Company reached final settlement with the National Taxation Bureau of Taipei on certain tax positions for fiscal year 2014 resulting in an income tax benefit of $10.9 million.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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