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Income Taxes
 12 Months Ended
Mar. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
16. Income Taxes
Income before income taxes and the provision for income taxes in fiscal 2021, 2022 and 2023 are as follows:
 
    
Millions of yen
  
    
2021
     
2022
    
2023
  
Income before income taxes:
                          
Japan
    ¥ 171,569      ¥ 311,351     ¥ 176,158  
Overseas
      115,992        193,525       191,010  
    
 
 
     
 
 
    
 
 
  
     ¥ 287,561      ¥ 504,876     ¥ 367,168  
    
 
 
     
 
 
    
 
 
  
Provision for income taxes:
                          
Current—
                          
Japan
    ¥ 45,262      ¥ 136,623     ¥ 30,808  
Overseas
      19,967        38,433       27,490  
    
 
 
     
 
 
    
 
 
  
       65,229        175,056       58,298  
    
 
 
     
 
 
    
 
 
  
Deferred—
                          
Japan
      10,642        (631 )      14,302  
Overseas
      14,876        12,839       14,900  
    
 
 
     
 
 
    
 
 
  
       25,518        12,208       29,202  
    
 
 
     
 
 
    
 
 
  
Provision for income taxes
    ¥ 90,747      ¥ 187,264     ¥ 87,500  
    
 
 
     
 
 
    
 
 
  
In fiscal 2021, 2022 and 2023, the Company and its subsidiaries in Japan were subject to a National Corporation tax of approximately 24%, an Inhabitant tax of approximately 4% and a deductible Enterprise tax of approximately 4%, which in the aggregate result in a statutory income tax rate of approximately 31.5%.
 
Reconciliations of the differences between the tax provision computed at the statutory rate and the consolidated provision for income taxes in fiscal 2021, 2022 and 2023 are as follows:
 
    
Millions of yen
  
    
2021
    
2022
    
2023
  
Income before income taxes
    ¥ 287,561     ¥ 504,876     ¥ 367,168  
    
 
 
    
 
 
    
 
 
  
Tax provision computed at the statutory rate
    ¥ 90,582     ¥ 159,036     ¥ 115,658  
Increases (reductions) in taxes due to:
                         
Change in valuation allowance
      6,808       11,464       2,533  
Nondeductible expenses
      2,751       4,066       4,794  
Nontaxable income
      (1,629 )      (2,611 )      (3,347 ) 
Effect of lower tax rates on certain subsidiaries
      (12,895 )      (16,584 )      (19,631 ) 
Effect of investor taxes on earnings of subsidiaries
      4,590       8,155       4,789  
Effect of the tax law and rate changes
      1,158       (142 )      180  
Effect of sale or liquidation of subsidiaries
      878       25,642       (16,754 ) 
Other, net
      (1,496 )      (1,762 )      (722 ) 
    
 
 
    
 
 
    
 
 
  
Provision for income taxes
    ¥ 90,747     ¥ 187,264     ¥ 87,500  
    
 
 
    
 
 
    
 
 
  
 
The effective income tax rate is different from the statutory income tax rate primarily because of certain nondeductible expenses, nontaxable income, changes in valuation allowance, the effect of lower tax rates on certain subsidiaries, effect of investor taxes on earnings of subsidiaries and effect of sale or liquidation of subsidiaries.
Total income tax expense recognized in fiscal 2021, 2022 and 2023 was allocated as follows:
 
    
Millions of yen
  
    
2021
    
2022
    
2023
  
Provision for income taxes
    ¥ 90,747     ¥ 187,264     ¥ 87,500  
Income tax expense (benefit) allocated to other comprehensive income (loss):
                         
Net change of unrealized gains (losses) on investment in securities
      (6,212 )      (21,897 )      (41,961 ) 
Net change of debt valuation adjustments
      (349 )      (131 )      20  
Net change of defined benefit pension plans
      2,615       4,889       1,630  
Net change of foreign currency translation adjustments
      (13,958 )      (17,347 )      (17,325 ) 
Net change of unrealized gains (losses) on derivative instruments
      1,883       4,734       3,514  
Adjustments to retained earnings for changes in accounting principles*
      (17,113 )      (215 )      0  
Other direct adjustments to shareholders’ equity
      1,521       214       36  
    
 
 
    
 
 
    
 
 
  
Total income tax expense
    ¥   59,134     ¥ 157,511     ¥   33,414  
    
 
 
    
 
 
    
 
 
  
 
*
The amount for fiscal 2021 reflects the tax effect of the adoption of Accounting Standards Update
2016-13
(“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)). The amount for fiscal 2022 reflects the tax effect of the adoption of Accounting Standards Update
2019-12
(“Simplifying the Accounting for Income Taxes”—ASC 740 (“Income Taxes”)).
 
The tax effects of temporary differences and carryforwards giving rise to the deferred tax assets and liabilities as of March 31, 2022 and 2023 are as follows:
 
    
Millions of yen
  
    
2022
    
2023
  
Assets:
                 
Net operating loss carryforwards
    ¥ 32,914     ¥ 59,516  
Allowance for credit losses
      23,381       16,382  
Investment in securities
      6,685       12,745  
Accrued expenses
      23,900       25,735  
Investment in operating leases
      15,099       14,999  
Property under facility operations
      27,358       24,615  
Installment loans
      4,361       5,445  
Unrealized losses on investment in securities
      29,372       71,277  
Lease liabilities
      77,367       79,636  
Other
      91,837       103,210  
    
 
 
    
 
 
  
       332,274       413,560  
Less: valuation allowance
      (35,155 )      (37,287 ) 
    
 
 
    
 
 
  
       297,119       376,273  
Liabilities:
                 
Net investment in Leases
      13,501       10,599  
Investment in operating leases
      121,337       137,618  
Unrealized gains on investment in securities
      2,505       4,779  
Deferred insurance policy acquisition costs
      73,077       74,211  
Policy liabilities and policy account balances
      74,939       87,150  
Property under facility operations
      21,931       22,022  
Other intangible assets
      108,257       141,864  
Undistributed earnings
      59,134       76,281  
Prepaid benefit cost
      14,483       17,290  
Advances paid
      8,647       8,346  
Right-of-use
assets
      77,003       78,631  
Other
      22,081       28,772  
    
 
 
    
 
 
  
       596,895       687,563  
    
 
 
    
 
 
  
Net deferred tax liability
    ¥ 299,776     ¥ 311,290  
    
 
 
    
 
 
  
Net deferred tax assets and liabilities at March 31, 2022 and 2023 are reflected in the accompanying consolidated balance sheets under the following captions:
 
    
Millions of yen
  
    
2022
     
2023
  
Other assets
    ¥ 46,065      ¥ 48,292  
Income taxes: Deferred
      345,841        359,582  
    
 
 
     
 
 
  
Net deferred tax liability
    ¥ 299,776      ¥ 311,290  
    
 
 
     
 
 
  
The valuation allowance is primarily recognized for deferred tax assets of consolidated subsidiaries with operating loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and operating loss carryforwards are utilizable.
 
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and
tax-planning
strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company and its subsidiaries will realize the benefits of these deductible temporary differences and operating loss carryforwards, net of the existing valuation allowances at March 31, 2023. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The net changes in the total valuation allowance were increases of ¥6,191 million in fiscal 2021, increases of ¥13,595 million in fiscal 2022, and increases of ¥2,132 million in fiscal 2023. The decrease in the total valuation allowance recognized in earnings due to the utilization of net operating loss carryforwards were ¥553 million in fiscal 2021, ¥1,742 million in fiscal 2022 and ¥1,465 million in fiscal 2023. The adjustments to the
beginning-of-the-year
amount in the total valuation allowance resulting from changes in judgment about the realizability of deferred tax assets in future years were net decreases of ¥743 million in fiscal 2021 (increases of ¥1,032 million and decreases of ¥1,775 million on a gross basis), net increases of ¥436 million in fiscal 2022 (increases of ¥1,947 million and decreases of ¥1,511 million on a gross basis), and net increases of ¥628 million in fiscal 2023 (increases of ¥2,120 million and decreases of ¥1,492 million on a gross basis), respectively.
The Company and certain subsidiaries have net operating loss carryforwards of ¥456,985 million at March 31, 2023, which expire as follows:
 
Years ending March 31,
   
Millions of yen
  
2024
    ¥ 17,360  
202
5
      21,183  
202
6
      24,810  
202
7
      13,686  
202
8
      7,993  
Thereafter
      279,892  
Indefinite period
      92,061  
    
 
 
  
Total
    ¥ 456,985  
    
 
 
  
The unrecognized tax benefits as of March 31, 2022 and 2023 were not material. The Company and its subsidiaries do not believe that it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of March 31, 2023.
The total amounts of penalties and interest expense related to income taxes recognized in the consolidated balance sheets as of March 31, 2022 and 2023, and in the consolidated statements of income for the fiscal 2021, 2022 and 2023 were not material.
The Company and its subsidiaries file tax returns in Japan and certain foreign tax jurisdictions. The Company is no longer subject to ordinary tax examination in Japan for the tax years prior to fiscal 2021, and its major domestic subsidiaries are no longer subject to ordinary tax examination for the tax years prior to fiscal 2018, respectively.
Subsidiaries in the United States remain subject to a tax examination for the tax years after fiscal 2019. Subsidiaries in the Netherlands remain subject to a tax examination for the tax years after fiscal 2016.