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Income Taxes | 12 Months Ended
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Apr. 24, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 14. Income Taxes Income before income taxes is as follows (in millions):
|  | Year Ended |
|  | April 24, 2020 |  |  | April 26, 2019 |  |  | April 27, 2018 |
Domestic |  | $ | 379 |  |  | $ | 678 |  |  | $ | 589 |
Foreign |  |  | 565 |  |  |  | 590 |  |  |  | 610 |
Total |  | $ | 944 |  |  | $ | 1,268 |  |  | $ | 1,199 |
The provision for income taxes consists of the following (in millions):
|  | Year Ended |
|  | April 24, 2020 |  |  | April 26, 2019 |  |  | April 27, 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 83 |  |  | $ | 26 |  |  | $ | 764 |
State |  |  | 9 |  |  |  | 27 |  |  |  | 10 |
Foreign |  |  | 50 |  |  |  | 49 |  |  |  | 39 |
Total current |  |  | 142 |  |  |  | 102 |  |  |  | 813 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (26 | ) |  |  | 35 |  |  |  | 239 |
State |  |  | (6 | ) |  |  | (6 | ) |  |  | 27 |
Foreign |  |  | 15 |  |  |  | (32 | ) |  |  | 4 |
Total deferred |  |  | (17 | ) |  |  | (3 | ) |  |  | 270 |
Provision for income taxes |  | $ | 125 |  |  | $ | 99 |  |  | $ | 1,083 |
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate as follows (in millions):
|  | Year Ended |
|  | April 24, 2020 |  |  | April 26, 2019 |  |  | April 27, 2018 |
Tax computed at federal statutory rate |  | $ | 198 |  |  | $ | 266 |  |  | $ | 366 |
State income taxes, net of federal benefit |  |  | 10 |  |  |  | 16 |  |  |  | 18 |
Foreign earnings in lower tax jurisdictions (1) |  |  | (40 | ) |  |  | (84 | ) |  |  | (108 | )
Stock-based compensation |  |  | (4 | ) |  |  | (19 | ) |  |  | (23 | )
Research and development credits |  |  | (16 | ) |  |  | (17 | ) |  |  | (10 | )
Global minimum tax on intangible income |  |  | 32 |  |  |  | 22 |  |  |  | — |
Transition tax and related reserves |  |  | 15 |  |  |  | (5 | ) |  |  | 732 |
Tax rate changes |  |  | — |  |  |  | — |  |  |  | 108 |
Resolution of income tax matters (2) |  |  | (61 | ) |  |  | (48 | ) |  |  | — |
Non-taxable gain on joint venture formation |  |  | — |  |  |  | (14 | ) |  |  | — |
Domestic production activities deduction |  |  | — |  |  |  | (13 | ) |  |  | (7 | )
Other |  |  | (9 | ) |  |  | (5 | ) |  |  | 7 |
Provision for income taxes |  | $ | 125 |  |  | $ | 99 |  |  | $ | 1,083 |
| (1) | For fiscal 2020, 2019 and 2018, we generated foreign earnings in lower tax jurisdictions primarily related to income from our European operations.
| (2) | During fiscal 2020, we recognized a tax benefit related to the lapse of statutes of limitations on our fiscal 2014 and 2015 federal income tax returns. During fiscal 2019, the Internal Revenue Service completed the examination of our fiscal 2012 to fiscal 2013 federal income tax returns, and we recognized a tax benefit attributable to the effective settlement and the release of related tax reserves.
On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted into law. The TCJA made significant changes to the U.S. corporate income tax system including a reduction of the U.S. federal corporate income tax rate from 35% to 21%, the imposition of a one-time transition tax on deferred foreign earnings, and the creation of new taxes on certain foreign-sourced earnings. ASC 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118, which allowed companies to record provisional amounts during a measurement period not to extend beyond one year from the TCJA enactment date. As a result of the U.S. federal corporate income tax rate change, effective as of January 1, 2018, we remeasured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future periods. During fiscal 2018, we recorded $108 million of tax expense related to all tax rate changes. Upon finalization of our provisional estimates during fiscal 2019, we recorded tax expense of $6 million related to deferred tax assets for equity-based compensation awards to our executives. The TCJA imposed a mandatory, one-time transition tax on accumulated foreign earnings and profits not previously subject to U.S. income tax at a rate of 15.5% on earnings to the extent of foreign cash and other liquid assets, and 8% on the remaining earnings. In fiscal 2018, we recorded a $732 million discrete tax expense for the estimated U.S. federal and state income tax impacts of the transition tax. In fiscal 2019, we finalized our computation of the transition tax and recorded a reduction of $5 million to our provisional estimate. Under the TCJA, the global minimum tax on intangible income (GMT) provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Under U.S. GAAP, companies are allowed to make an accounting policy election to either (i) account for GMT as a component of tax expense in the period in which a company is subject to the rules, or (ii) account for GMT in a company’s measurement of deferred taxes. We have elected to recognize the GMT as a period cost and thus recorded $32 million and $22 million of tax expense for federal and state impacts for fiscal 2020 and fiscal 2019, respectively. The components of our deferred tax assets and liabilities are as follows (in millions):
|  | April 24, 2020 |  |  | April 26, 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Reserves and accruals |  | $ | 72 |  |  | $ | 50 |
Net operating loss and credit carryforwards |  |  | 113 |  |  |  | 139 |
Stock-based compensation |  |  | 15 |  |  |  | 16 |
Deferred revenue |  |  | 242 |  |  |  | 205 |
Other |  |  | 14 |  |  |  | 16 |
Gross deferred tax assets |  |  | 456 |  |  |  | 426 |
Valuation allowance |  |  | (104 | ) |  |  | (123 | )
Deferred tax assets, net of valuation allowance |  |  | 352 |  |  |  | 303 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Prepaids and accruals |  |  | 49 |  |  |  | 31 |
Acquired intangibles |  |  | 40 |  |  |  | 32 |
Property and equipment |  |  | 33 |  |  |  | 31 |
Other |  |  | 20 |  |  |  | 10 |
Total deferred tax liabilities |  |  | 142 |  |  |  | 104 |
Deferred tax assets, net of valuation allowance and deferred tax liabilities |  | $ | 210 |  |  | $ | 199 |
The valuation allowance decreased by $19 million in fiscal 2020. The decrease is mainly attributable to corresponding changes in deferred tax assets, primarily foreign tax credit carryforwards and certain state tax credit carryforwards. As of April 24, 2020, we have federal net operating loss and tax credit carryforwards of approximately $1 million and $2 million, respectively. In addition, we have gross state net operating loss and tax credit carryforwards of $26 million and $131 million, respectively. The majority of the state credit carryforwards are California research credits which are offset by a valuation allowance as we believe it is more likely than not that these credits will not be utilized. We also have $3 million of foreign net operating losses, and $23 million of foreign tax credit carryforwards where the majority is generated by our Dutch subsidiary which are fully offset by a valuation allowance. Certain acquired net operating loss and credit carryforwards are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be realized with the exception of those which have a valuation allowance. The federal, state, and foreign net operating loss carryforwards and credits will expire in various years from fiscal 2021 through 2038. The California research credit and Dutch foreign tax credit carryforwards do not expire. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|  | Year Ended |
|  | April 24, 2020 |  |  | April 26, 2019 |  |  | April 27, 2018 |
Balance at beginning of period |  | $ | 296 |  |  | $ | 348 |  |  | $ | 218 |
Additions based on tax positions related to the current year |  |  | 5 |  |  |  | 11 |  |  |  | 131 |
Additions for tax positions of prior years |  |  | 1 |  |  |  | 26 |  |  |  | — |
Decreases for tax positions of prior years |  |  | (10 | ) |  |  | (35 | ) |  |  | (1 | )
Settlements |  |  | (81 | ) |  |  | (54 | ) |  |  | — |
Balance at end of period |  | $ | 211 |  |  | $ | 296 |  |  | $ | 348 |
As of April 24, 2020, we had $211 million of gross unrecognized tax benefits, of which $136 million has been recorded in other long-term liabilities. Unrecognized tax benefits of $136 million, including penalties, interest and indirect benefits, would affect our provision for income taxes if recognized. As a result of U.S. tax reform, we recorded provisional gross unrecognized tax benefits of $114 million during fiscal 2018. We recognized a benefit for adjustments to accrued interest and penalties related to unrecognized tax benefits in the income tax provision of approximately $8 million in fiscal 2020, a benefit of $4 million in fiscal 2019 and an expense of $5 million in fiscal 2018. Accrued interest and penalties of $10 million and $18 million were recorded in the consolidated balance sheets as of April 24, 2020 and April 26, 2019, respectively. The tax years that remain subject to examination for our major tax jurisdictions are shown below: Fiscal Years Subject to Examination for Major Tax Jurisdictions at April 24, 2020
2016 — 2020 |  | United States — federal income tax
2011 — 2020 |  | United States — state and local income tax
2013 — 2020 |  | Australia
2015 — 2020 |  | Germany
2007 — 2020 |  | India
2013 — 2020 |  | Japan
2014 — 2020 |  | The Netherlands
2017 — 2020 |  | United Kingdom
2016 — 2020 |  | Canada
We are currently undergoing various income tax audits in the U.S. and several foreign tax jurisdictions. Transfer pricing calculations are key topics under these audits and are often subject to dispute and appeals. We are effectively subject to federal tax examination adjustments for tax years ended on or after fiscal 2001, in that we have carryforward attributes from these years that could be subject to adjustment in the tax years of utilization. In September 2010, the Danish Tax Authorities issued a decision concluding that distributions declared in 2005 and 2006 by our Danish subsidiary were subject to Danish at-source dividend withholding tax. We do not believe that our Danish subsidiary is liable for such withholding tax and filed an appeal with the Danish Tax Tribunal. In December 2011, the Danish Tax Tribunal issued a ruling in favor of NetApp. The Danish tax examination agency appealed this decision at the Danish High Court (DHC) in March 2012. In February 2016, the DHC requested a preliminary ruling from the Court of Justice of the European Union (CJEU). Parties were heard before the court in October 2017. In March 2018, the Advocate General issued an opinion which was largely in favor of NetApp. The CJEU was not bound by the opinion of the Advocate General and issued its preliminary ruling in February 2019. The CJEU ruling did not preclude the Danish Tax Authorities from imposing withholding tax on distributions based on the benefits of certain European Union directives. The preliminary ruling will be reviewed and may be subjected to additional briefing by the DHC. Once complete, the DHC will then issue its final decision. While the timing and outcome of a final decision on this matter is uncertain, we believe it is more likely than not that our distributions were not subject to withholding tax and we intend to vigorously defend any withholding tax claims by the Danish Tax Authorities. We continue to monitor the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We engage in continuous discussion and negotiation with taxing authorities regarding tax matters in multiple jurisdictions. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude, certain statutes of limitations will lapse, or both. As a result of uncertainties regarding tax audits and their possible outcomes, an estimate of the range of possible impacts to unrecognized tax benefits in the next twelve months cannot be made at this time. Prior to the passage of the TCJA, we had not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries because we had intended to indefinitely reinvest such earnings outside the U.S. The TCJA imposed a one-time transition tax on substantially all accumulated foreign earnings through December 31, 2017 and generally allows companies to make distributions of foreign earnings without incurring additional federal taxes. As a part of the provisional estimates recorded during fiscal 2018, we considered the impacts of the TCJA and reviewed our projected global cash requirements and have determined that certain historical and future foreign earnings will no longer be indefinitely reinvested. As of April 24, 2020, we estimate the unrecognized deferred tax liability related to the earnings we expect to be indefinitely reinvested to be immaterial. We will continue to monitor our plans to indefinitely reinvest undistributed earnings of foreign subsidiaries and will assess the related unrecognized deferred tax liability considering our ongoing projected global cash requirements, tax consequences associated with repatriation and any U.S. or foreign government programs designed to influence remittances.

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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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