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Income Taxes
 12 Months Ended
Mar. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
16. Income Taxes
LDTI standard has been adopted since April 1, 2023, with the transition date of April 1, 2021, using the modified retrospective transition approach. For further information, see Note 1 “Significant Accounting and Reporting Policies (z) New accounting pronouncements.”
Income before income taxes and the provision for income taxes in fiscal 2022, 2023 and 2024 are as follows:
 
    
Millions of yen
  
    
2022
    
2023
     
2024
  
Income before income taxes:
        
Japan
    ¥ 315,922     ¥ 201,168      ¥ 298,321  
Overseas
      193,525       191,010        171,654  
  
 
 
    
 
 
     
 
 
  
   ¥ 509,447     ¥ 392,178      ¥ 469,975  
  
 
 
    
 
 
     
 
 
  
Provision for income taxes:
        
Current—
        
Japan
    ¥ 136,623     ¥ 30,808      ¥ 80,274  
Overseas
      38,433       27,490        31,114  
  
 
 
    
 
 
     
 
 
  
     175,056       58,298        111,388  
  
 
 
    
 
 
     
 
 
  
Deferred—
        
Japan
      (1,301 )      22,047        9,049  
Overseas
      12,839       14,900        10,951  
  
 
 
    
 
 
     
 
 
  
     11,538       36,947        20,000  
  
 
 
    
 
 
     
 
 
  
Provision for income taxes
    ¥ 186,594     ¥ 95,245      ¥ 131,388  
  
 
 
    
 
 
     
 
 
  
In fiscal 2022, 202
3
and 202
4
, 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 income tax rate of 31.5%, the aggregate statutory income tax rate of the Company’s tax domicile, and the consolidated provision for income taxes in fiscal 2022, 2023 and 2024 are as follows:
 
    
Millions of yen
  
    
2022
    
2023
    
2024
  
Income before income taxes
    ¥ 509,447     ¥ 392,178     ¥ 469,975  
  
 
 
    
 
 
    
 
 
  
Tax provision computed at the statutory rate
    ¥ 160,476     ¥ 123,536     ¥ 148,042  
Increases (reductions) in taxes due to:
       
Change in valuation allowance
      11,464       2,533       5,441  
Nondeductible expenses
      4,066       4,794       4,762  
Nontaxable income
      (2,611 )      (3,347 )      (3,574 ) 
Effect of lower tax rates on certain subsidiaries
      (18,694 )     (19,764 )     (17,627 )
Effect of investor taxes on earnings of subsidiaries
      8,155       4,789       7,674  
Effect of sale or liquidation of subsidiaries
      25,642       (16,754 )      (14,995 ) 
Other, net
      (1,904 )     (542 )     1,665  
  
 
 
    
 
 
    
 
 
  
Provision for income taxes
    ¥ 186,594     ¥ 95,245     ¥ 131,388  
  
 
 
    
 
 
    
 
 
  
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 2022, 2023 and 2024 was allocated as follows:
 
    
Millions of yen
  
    
2022
    
2023
    
2024
  
Provision for income taxes
    ¥ 186,594     ¥ 95,245     ¥ 131,388  
Income tax expense (benefit) allocated to other comprehensive income (loss):
       
Net change of unrealized gains (losses) on investment in securities
      (21,897 )      (41,961 )      (27,157 ) 
Net change of impact of changes in policy liability discount rate
      23,126       43,576       32,471  
Net change of debt valuation adjustments
      (131 )      20       (74 ) 
Net change of defined benefit pension plans
      4,889       1,630       5,554  
Net change of foreign currency translation adjustments
      (17,347 )      (17,325 )      (30,992 ) 
Net change of unrealized gains (losses) on derivative instruments
      4,734       3,514       (1,523 ) 
Adjustments to retained earnings for changes in accounting principles*
      (4,511 )      0       0  
Other direct adjustments to shareholders’ equity
      214       36       32  
  
 
 
    
 
 
    
 
 
  
Total income tax expense
    ¥ 175,671     ¥  84,735     ¥ 109,699  
  
 
 
    
 
 
    
 
 
  
 
*
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”)), and Accounting Standards Update 2018-12 (“Targeted Improvements to the Accounting for Long-Duration Contracts”—ASC 944 (“Financial Services—Insurance”).
 
 
The tax effects of temporary differences and carryforwards giving rise to the deferred tax assets and liabilities as of March 31, 2023 and 2024 are as follows:
 
    
Millions of yen
  
    
2023
    
2024
  
Assets:
     
Net operating loss carryforwards
    ¥ 59,516     ¥ 62,493  
Allowance for credit losses
      16,382       8,650  
Investment in securities
      10,515       14,382  
Accrued expenses
      25,735       26,401  
Investment in operating leases
      14,999       12,728  
Property under facility operations
      24,615       24,996  
Installment loans
      5,445       5,459  
Unrealized losses on investment in securities
      71,277       98,025  
Lease liabilities
      79,636       69,697  
Other
*
      103,210       156,516  
  
 
 
    
 
 
  
     411,330       479,347  
Less: valuation allowance
      (37,287 )      (39,046 ) 
  
 
 
    
 
 
  
     374,043       440,301  
Liabilities:
     
Net investment in
l
eases
      10,599       10,867  
Investment in operating leases
      137,618       175,727  
Unrealized gains on investment in securities
      4,779       9,139  
Deferred insurance policy acquisition costs
      80,706       85,830  
Policy liabilities and policy account balances
      150,137       194,713  
Property under facility operations
      22,022       22,615  
Other intangible assets
      141,864       152,125  
Undistributed earnings
      74,935       95,720  
Prepaid benefit cost
      17,290       23,473  
Advances paid
      8,346       8,102  
Right-of-use assets
      78,631       68,715  
Other
      27,887       31,946  
  
 
 
    
 
 
  
     754,814       878,972  
  
 
 
    
 
 
  
Net deferred tax liability
    ¥ 380,771     ¥ 438,671  
  
 
 
    
 
 
  
 
*
As of March 31, 2023 and 2024, other deferred tax assets
i
ncludes amounts
related to net investment hedges of ¥52,262 million and ¥95,551 million.
Net deferred tax assets and liabilities at March 31, 2023 and 2024 are reflected in the accompanying consolidated balance sheets under the following captions:
 
    
Millions of yen
  
    
2023
     
2024
  
Other assets
    ¥ 48,292      ¥ 66,519  
Income taxes: Deferred
      429,063        505,190  
  
 
 
     
 
 
  
Net deferred tax liability
    ¥ 380,771      ¥ 438,671  
  
 
 
     
 
 
  
 
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, 2024. 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 ¥13,595 million in fiscal 2022, increases of ¥2,132 million in fiscal 2023, and increases of ¥1,759 million in fiscal 2024. The decrease in the total valuation allowance recognized in earnings due to the utilization of net operating loss carryforwards were ¥1,742 million in fiscal 2022, ¥1,465 million in fiscal 2023 and ¥3,660 million in fiscal 2024. 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 increases of ¥436 million in fiscal 2022 (increases of ¥1,947 million and decreases of ¥1,511 million on a gross basis), net increases of ¥628 million in fiscal 2023 (increases of ¥2,120 million and decreases of ¥1,492 million on a gross basis), and net
increases
of ¥513 million in fiscal 2024 (increases of ¥4,125 million and decreases of ¥3,612 million on a gross basis), respectively.
The Company and certain subsidiaries have net operating loss carryforwards of ¥440,411 million at March 31, 2024, which expire as follows:
 
Years ending March 31,
   
Millions of yen
  
202
5
    ¥ 17,610  
202
6
      23,722  
202
7
      10,222  
202
8
      4,238  
202
9
      31,118  
Thereafter
      280,775  
Indefinite period
      72,726  
  
 
 
  
Total
    ¥ 440,411  
  
 
 
  
The unrecognized tax benefits as of March 31, 2023 and 2024 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, 2024.
The total amounts of penalties and interest expense related to income taxes recognized in the consolidated balance sheets as of March 31, 2023 and 2024, and in the consolidated statements of income for fiscal 2022, 2023 and 2024 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 2023, 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 2017.