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Income Taxes
 12 Months Ended
Apr. 29, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

Income before income taxes is as follows (in millions):

 

 

 

Year Ended

 

 

 

April 29, 2022

 

 

April 30, 2021

 

 

April 24, 2020

 

Domestic

 

$

546

 

 

$

433

 

 

$

379

 

Foreign

 

 

549

 

 

 

529

 

 

 

565

 

Total

 

$

1,095

 

 

$

962

 

 

$

944

 

 

The provision for income taxes consists of the following (in millions):

 

 

 

Year Ended

 

 

 

April 29, 2022

 

 

April 30, 2021

 

 

April 24, 2020

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

187

 

 

$

82

 

 

$

83

 

State

 

 

55

 

 

 

22

 

 

 

9

 

Foreign

 

 

60

 

 

 

134

 

 

 

50

 

Total current

 

 

302

 

 

 

238

 

 

 

142

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(125

)

 

 

6

 

 

 

(26

)

State

 

 

(27

)

 

 

2

 

 

 

(6

)

Foreign

 

 

8

 

 

 

(14

)

 

 

15

 

Total deferred

 

 

(144

)

 

 

(6

)

 

 

(17

)

Provision for income taxes

 

$

158

 

 

$

232

 

 

$

125

 

 

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 29, 2022

 

 

April 30, 2021

 

 

April 24, 2020

 

Tax computed at federal statutory rate

 

$

230

 

 

$

202

 

 

$

198

 

State income taxes, net of federal benefit

 

 

15

 

 

 

23

 

 

 

10

 

Foreign earnings in lower tax jurisdictions

 

 

(46

)

 

 

(26

)

 

 

(40

)

Stock-based compensation

 

 

(8

)

 

 

6

 

 

 

(4

)

Research and development credits

 

 

(18

)

 

 

(13

)

 

 

(16

)

Benefit for foreign derived intangible income

 

 

(49

)

 

 

(2

)

 

 

(4

)

Global minimum tax on intangible income

 

 

1

 

 

 

19

 

 

 

32

 

Transition tax and related reserves

 

 

1

 

 

 

1

 

 

 

15

 

Tax charge from integration of acquired companies

 

 

23

 

 

 

35

 

 

 

—

 

Resolution of income tax matters (1)

 

 

(3

)

 

 

(6

)

 

 

(61

)

Other

 

 

12

 

 

 

(7

)

 

 

(5

)

Provision for income taxes

 

$

158

 

 

$

232

 

 

$

125

 

 

(1)
During fiscal 2022, we recognized a tax benefit related to the lapse of statute of limitations for certain issues in our fiscal 2012 and 2013 state income tax returns. During fiscal 2021, we recognized a tax benefit related to the lapse of statutes of limitations for certain issues on our fiscal 2016 and 2017 federal income tax returns. 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.

The components of our deferred tax assets and liabilities are as follows (in millions):

 

 

April 29, 2022

 

 

April 30, 2021

 

Deferred tax assets:

 

 

 

 

 

 

Reserves and accruals

 

$

267

 

 

$

65

 

Net operating loss and credit carryforwards

 

 

121

 

 

 

115

 

Stock-based compensation

 

 

23

 

 

 

18

 

Deferred revenue and financed unearned services revenue

 

 

235

 

 

 

226

 

Other

 

 

6

 

 

 

20

 

Gross deferred tax assets

 

 

652

 

 

 

444

 

Valuation allowance

 

 

(111

)

 

 

(107

)

Deferred tax assets, net of valuation allowance

 

 

541

 

 

 

337

 

Deferred tax liabilities:

 

 

 

 

 

 

Prepaids and accruals

 

 

108

 

 

 

51

 

Acquired intangibles

 

 

48

 

 

 

28

 

Property and equipment

 

 

39

 

 

 

31

 

Other

 

 

7

 

 

 

24

 

Total deferred tax liabilities

 

 

202

 

 

 

134

 

Deferred tax assets, net of valuation allowance and deferred tax liabilities

 

$

339

 

 

$

203

 

 

The valuation allowance increased by $4 million in fiscal 2022. The increase is mainly attributable to corresponding changes in deferred tax assets, primarily certain state tax credit carryforwards.

As of April 29, 2022, we have federal net operating loss carryforwards of approximately $10 million. In addition, we have gross state net operating loss and tax credit carryforwards of $33 million and $133 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 $4 million of foreign net operating losses, and $29 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 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 state and foreign net operating loss carryforwards and credits will expire in various years from fiscal 2023 through 2042. The federal net operating loss carryforwards, the California research credit and the 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 29, 2022

 

 

April 30, 2021

 

 

April 24, 2020

 

Balance at beginning of period

 

$

221

 

 

$

211

 

 

$

296

 

Additions based on tax positions related to the current year

 

 

11

 

 

 

7

 

 

 

5

 

Additions for tax positions of prior years

 

 

—

 

 

 

11

 

 

 

1

 

Decreases for tax positions of prior years

 

 

(2

)

 

 

—

 

 

 

(10

)

Settlements

 

 

(10

)

 

 

(8

)

 

 

(81

)

Balance at end of period

 

$

220

 

 

$

221

 

 

$

211

 

 

As of April 29, 2022, we had $220 million of gross unrecognized tax benefits, of which $131 million has been recorded in other long-term liabilities. Unrecognized tax benefits of $130 million, including penalties, interest and indirect benefits, would affect our provision for income taxes if recognized.

We recognized expense for increases to accrued interest and penalties related to unrecognized tax benefits in the income tax provision of approximately $4 million in fiscal 2022 and $1 million in fiscal 2021, and we recognized a benefit of $8 million in fiscal 2020. Accrued interest and penalties of $15 million and $11 million were recorded in the consolidated balance sheets as of April 29, 2022 and April 30, 2021, 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 29, 2022

 

2016 — 2022

 

United States — federal income tax

2018 — 2022

 

United States — state and local income tax

2020 — 2022

 

Australia

2015 — 2022

 

Germany

2007 — 2022

 

India

2017 — 2022

 

The Netherlands

2016 — 2022

 

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). 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. On May 3, 2021, the DHC reached a decision resulting in NetApp prevailing on the predominate distribution made in 2005. The smaller distribution made in

2006 was ruled in favor of the Danish Tax Authorities. On May 28, 2021, the Danish Tax Authorities appealed the DHC decision to the Danish Supreme Court. We believe it is more likely than not that our distributions were not subject to withholding tax and we will continue to support our position in the appeals process with the Danish Supreme Court.

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.

As of April 29, 2022, we continue to record a deferred tax liability related to state taxes on unremitted earnings of certain foreign entities. 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.