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Note 18 - Income Taxes | 12 Months Ended
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Jan. 31, 2020
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | Note 18 - Income Taxes Income before income taxes is earned in the following tax jurisdictions:
Year Ended |  |  | January 31, |  |  |  | January 31, |  |  |  | January 31, |
|  |  | 2020 |  |  |  | 2019 |  |  |  | 2018 |
Canada |  |  | 19,557 |  |  |  | 16,715 |  |  |  | 17,964 |
United States |  |  | 19,962 |  |  |  | 11,077 |  |  |  | 6,203 |
Other countries |  |  | 8,516 |  |  |  | 11,718 |  |  |  | 10,581 |
|  |  | 48,035 |  |  |  | 39,510 |  |  |  | 34,748 |
Income tax expense is incurred in the following jurisdictions:
Year Ended |  |  | January 31, |  |  |  | January 31, |  |  |  | January 31, |
|  |  | 2020 |  |  |  | 2019 |  |  |  | 2018 |
Current income tax expense |  |  |  |  |  |  |  |  |  |  |  |
Canada |  |  | 1,020 |  |  |  | 3,037 |  |  |  | 1,243 |
United States |  |  | 3,496 |  |  |  | 1,298 |  |  |  | 494 |
Other countries |  |  | 779 |  |  |  | 1,707 |  |  |  | 4,835 |
|  |  | 5,295 |  |  |  | 6,042 |  |  |  | 6,572 |
Deferred income tax expense (recovery) |  |  |  |  |  |  |  |  |  |  |  |
Canada |  |  | 5,008 |  |  |  | 2,531 |  |  |  | 2,051 |
United States |  |  | 1,390 |  |  |  | 67 |  |  |  | 1,876 |
Other countries |  |  | (655 | ) |  |  | (407 | ) |  |  | (2,630 | )
|  |  | 5,743 |  |  |  | 2,191 |  |  |  | 1,297 |
|  |  | 11,038 |  |  |  | 8,233 |  |  |  | 7,869 |
Income tax expense for 2020, 2019 and 2018 was 23%, 21% and 23% of income before income taxes, respectively, with current income tax expense being 11%, 15% and 19% of income before income taxes, respectively. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). Although the legislative changes contained in the Tax Act are extensive and the interpretation of several aspects of the Tax Act are still unclear, we recorded an income tax benefit of $0.7 million in 2018 to reflect the reduced U.S. tax rate from 35% to 21% and other effects of the Tax Act. There was no material adjustment to income tax expense in 2019 or 2020 related to the Tax Act. Current income tax expense decreased in 2020 compared to 2019 primarily due to utilization of tax attributes acquired in 2020. Current income tax expense decreased in 2019 compared to 2018 primarily due to benefits recorded in 2019 from the completion of certain prior year tax audits partially offset by higher current income tax expense as a result of the higher pre-tax income generated in 2019. Deferred income tax expense increased in 2020 compared to 2019 primarily due to utilization of tax attributes acquired in 2020. Deferred income tax expense increased in 2019 compared to 2018 primarily due to the adoption of Accounting Standards Update 2016 - 16 during 2019. The components of the deferred income tax assets and liabilities are as follows:
|  |  | January 31, |  |  |  | January 31, |
|  |  | 2020 |  |  |  | 2019 |
Assets |  |  |  |  |  |  |  |
Accrued liabilities not currently deductible |  |  | 14,838 |  |  |  | 11,483 |
Accumulated net operating losses |  |  | 10,579 |  |  |  | 11,081 |
Difference between tax and accounting basis of property and equipment |  |  | 33,929 |  |  |  | – |
Research and development and other tax credits and expenses |  |  | 756 |  |  |  | 911 |
Total deferred income tax assets |  |  | 60,102 |  |  |  | 23,475 |
Liabilities |  |  |  |  |  |  |  |
Difference between tax and accounting basis of intangible assets |  |  | (41,381 | ) |  |  | (23,974 | )
Difference between tax and accounting basis of property and equipment |  |  | – |  |  |  | (909 | )
Other temporary differences |  |  | (1,716 | ) |  |  | (574 | )
Total deferred income tax liabilities |  |  | (43,097 | ) |  |  | (25,457 | )
Net deferred income taxes |  |  | 17,005 |  |  |  | (1,982 | )
Valuation allowance |  |  | (10,470 | ) |  |  | (9,927 | )
Net deferred income taxes, net of valuation allowance |  |  | 6,535 |  |  |  | (11,909 | )
As at January 31, 2020, we have not accrued for foreign withholding taxes and Canadian income taxes applicable to approximately $381.3 million of unremitted earnings of subsidiaries operating outside of Canada. These earnings, which we consider to be invested indefinitely, will become subject to these taxes if and when they are remitted as dividends or if we sell our stock in the subsidiaries. If we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside Canada. The provision (recovery) for income taxes varies from the expected provision at the statutory rates for the reasons detailed in the table below:
Year Ended |  |  | January 31, |  |  |  | January 31, |  |  |  | January 31, |
|  |  | 2020 |  |  |  | 2019 |  |  |  | 2018 |
Income before income taxes |  |  | 48,033 |  |  |  | 39,510 |  |  |  | 34,748 |
Combined basic Canadian statutory rates |  |  | 26.5 | % |  |  | 26.5 | % |  |  | 26.5 | %
Income tax expense based on the above rates |  |  | 12,729 |  |  |  | 10,470 |  |  |  | 9,207 |
Increase (decrease) in income taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
Permanent differences including amortization of intangible assets |  |  | (673 | ) |  |  | (133 | ) |  |  | (1,870 | )
Effect of differences between Canadian and foreign tax rates |  |  | (274 | ) |  |  | (172 | ) |  |  | 595 |
Effect of rate changes on current year timing differences |  |  | (609 | ) |  |  | (245 | ) |  |  | (571 | )
Adjustments relating to previous periods |  |  | 94 |  |  |  | (973 | ) |  |  | (152 | )
Increase (decrease) in accruals for uncertain tax positions |  |  | (1,042 | ) |  |  | (515 | ) |  |  | 1,954 |
Valuation allowance |  |  | 692 |  |  |  | (344 | ) |  |  | (1,564 | )
Stock based compensation |  |  | 352 |  |  |  | 231 |  |  |  | (135 | )
Deferred tax charges |  |  | – |  |  |  | – |  |  |  | 179 |
Other, including foreign exchange |  |  | (231 | ) |  |  | (86 | ) |  |  | 226 |
Income tax expense |  |  | 11,038 |  |  |  | 8,233 |  |  |  | 7,869 |
We have income tax loss carry forwards which expire as follows:
Expiry year |  |  | Canada |  |  |  | United States |  |  |  | EMEA |  |  |  | Asia Pacific |  |  |  | Total |
2021 |  |  | – |  |  |  | – |  |  |  | – |  |  |  | 585 |  |  |  | 585 |
2022 |  |  | – |  |  |  | 245 |  |  |  | – |  |  |  | 264 |  |  |  | 509 |
2023 |  |  | – |  |  |  | 253 |  |  |  | 651 |  |  |  | 46 |  |  |  | 950 |
2024 |  |  | – |  |  |  | 245 |  |  |  | 126 |  |  |  | 171 |  |  |  | 542 |
2025 |  |  | – |  |  |  | 245 |  |  |  | – |  |  |  | – |  |  |  | 245 |
Thereafter |  |  | 1,609 |  |  |  | 5,026 |  |  |  | 42,865 |  |  |  | 3,070 |  |  |  | 52,570 |
|  |  | 1,609 |  |  |  | 6,014 |  |  |  | 43,642 |  |  |  | 4,136 |  |  |  | 55,401 |
The following is a tabular reconciliation of the total estimated liability associated with uncertain tax positions taken:
|  |  | January 31, |  |  |  | January 31, |
|  |  | 2020 |  |  |  | 2019 |
Liability, beginning of year |  |  | 7,824 |  |  |  | 8,977 |
Gross increases – current period |  |  | 139 |  |  |  | 493 |
Lapsing due to statutes of limitations |  |  | (1,313 | ) |  |  | (1,646 | )
Liability, end of year |  |  | 6,650 |  |  |  | 7,824 |
We have identified accruals of $6.7 million with respect to uncertain tax positions as at January 31, 2020. It is possible that these accruals for uncertain tax positions will not be required in which case up to $6.5 million of the recorded liability will decrease the effective tax rate in future years if this liability is reversed. We believe that it is reasonably possible that $0.3 million of the uncertain tax positions could decrease tax expense in the next 12 months relating primarily to tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions. We recognize accrued interest and penalties related to uncertain tax positions as a current tax expense. As at January 31, 2020 and January 31, 2019, the unrecognized tax positions have resulted in no material liability for estimated interest and penalties. Descartes and our subsidiaries file their tax returns as prescribed by the tax laws of the jurisdictions within which they operate. We are no longer subject to income tax examinations by tax authorities in our major tax jurisdictions as follows:
|  | Years No Longer Subject to Audit
Tax Jurisdiction |  |
United States Federal |  | 2016 and prior
Canada |  | 2018 and prior
United Kingdom |  | 2016 and prior
Sweden |  | 2013 and prior
Norway |  | 2018 and prior
Netherlands |  | 2014 and prior
Belgium |  | 2015 and prior

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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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