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Note 18 - Income Taxes | 12 Months Ended
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Jan. 31, 2021
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, |
|  |  | 2021 |  |  |  | 2020 |  |  |  | 2019 |
Canada |  |  | 31,307 |  |  |  | 19,557 |  |  |  | 16,715 |
United States |  |  | 26,072 |  |  |  | 19,962 |  |  |  | 11,077 |
Other countries |  |  | 12,990 |  |  |  | 8,516 |  |  |  | 11,718 |
|  |  | 70,369 |  |  |  | 48,035 |  |  |  | 39,510 |
Income tax expense is incurred in the following jurisdictions:
Year Ended |  |  | January 31, |  |  |  | January 31, |  |  |  | January 31, |
|  |  | 2021 |  |  |  | 2020 |  |  |  | 2019 |
Current income tax expense |  |  |  |  |  |  |  |  |  |  |  |
Canada |  |  | 1,875 |  |  |  | 1,020 |  |  |  | 3,037 |
United States |  |  | (3,050 | ) |  |  | 3,496 |  |  |  | 1,298 |
Other countries |  |  | 4,921 |  |  |  | 779 |  |  |  | 1,707 |
|  |  | 3,746 |  |  |  | 5,295 |  |  |  | 6,042 |
Deferred income tax expense (recovery) |  |  |  |  |  |  |  |  |  |  |  |
Canada |  |  | 7,047 |  |  |  | 5,008 |  |  |  | 2,531 |
United States |  |  | 9,537 |  |  |  | 1,390 |  |  |  | 67 |
Other countries |  |  | (2,061 | ) |  |  | (655 | ) |  |  | (407 | )
|  |  | 14,523 |  |  |  | 5,743 |  |  |  | 2,191 |
|  |  | 18,269 |  |  |  | 11,038 |  |  |  | 8,233 |
Income tax expense for 2021, 2020 and 2019 was 26%, 23% and 21% of income before income taxes, respectively, with current income tax expense being 5%, 11% and 15% of income before income taxes, respectively. Current income tax expense decreased in 2021 compared to 2020 primarily due to a voluntary change we elected to adopt in accounting for deferred revenue for income tax purposes in the United States. This change resulted in a decrease of $9.3 million in current income tax expense in 2021 and a corresponding increase in the deferred income tax expense for the same period. This decrease was partially offset by an increase in income before tax in other jurisdictions as a result of growth in the business. Current income tax expense decreased in 2020 compared to 2019 primarily due to utilization of tax attributes acquired in 2020. Deferred income tax expense increased in 2021 compared to 2020 primarily due to a voluntary change we elected to adopt in accounting for deferred revenue for income tax purposes in the United States. This increase was partially offset by a release in valuation allowance for other jurisdictions. Deferred income tax expense increased in 2020 compared to 2019 primarily due to utilization of tax attributes acquired in 2020. The components of the deferred income tax assets and liabilities are as follows:
|  |  | January 31, |  |  |  | January 31, |
|  |  | 2021 |  |  |  | 2020 |
Assets |  |  |  |  |  |  |  |
Accrued liabilities not currently deductible |  |  | 4,471 |  |  |  | 14,838 |
Accumulated net operating losses |  |  | 12,866 |  |  |  | 10,579 |
Corporate minimum taxes |  |  | 1,596 |  |  |  | - |
Difference between tax and accounting basis of property and equipment |  |  | 23,754 |  |  |  | 33,929 |
Research and development and other tax credits and expenses |  |  | 1,649 |  |  |  | 756 |
Total deferred income tax assets |  |  | 44,336 |  |  |  | 60,102 |
Liabilities |  |  |  |  |  |  |  |
Difference between tax and accounting basis of intangible assets |  |  | (45,030 | ) |  |  | (41,381 | )
Difference between tax and accounting basis of property and equipment |  |  | - |  |  |  | - |
Other temporary differences |  |  | (2,109 | ) |  |  | (1,716 | )
Total deferred income tax liabilities |  |  | (47,139 | ) |  |  | (43,097 | )
Net deferred income taxes |  |  | (2,803 | ) |  |  | 17,005 |
Valuation allowance |  |  | (11,365 | ) |  |  | (10,470 | )
Net deferred income taxes, net of valuation allowance |  |  | (14,168 | ) |  |  | 6,535 |
As at January 31, 2021, we have not accrued for foreign withholding taxes and Canadian income taxes applicable to approximately $432.7 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, |
|  |  | 2021 |  |  |  | 2020 |  |  |  | 2019 |
Income before income taxes |  |  | 70,369 |  |  |  | 48,033 |  |  |  | 39,510 |
Combined basic Canadian statutory rates |  |  | 26.5 | % |  |  | 26.5 | % |  |  | 26.5 | %
Income tax expense based on the above rates |  |  | 18,648 |  |  |  | 12,729 |  |  |  | 10,470 |
Increase (decrease) in income taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
Permanent differences including amortization of intangible assets |  |  | 875 |  |  |  | (673 | ) |  |  | (133 | )
Effect of differences between Canadian and foreign tax rates |  |  | (600 | ) |  |  | (274 | ) |  |  | (172 | )
Effect of rate changes on current year timing differences |  |  | (1,063 | ) |  |  | (609 | ) |  |  | (245 | )
Adjustments relating to previous periods |  |  | (1,034 | ) |  |  | 94 |  |  |  | (973 | )
Increase (decrease) in accruals for uncertain tax positions |  |  | 1,289 |  |  |  | (1,042 | ) |  |  | (515 | )
Valuation allowance |  |  | 254 |  |  |  | 692 |  |  |  | (344 | )
Stock based compensation |  |  | 100 |  |  |  | 352 |  |  |  | 231 |
Other, including foreign exchange |  |  | (200 | ) |  |  | (231 | ) |  |  | (86 | )
Income tax expense |  |  | 18,269 |  |  |  | 11,038 |  |  |  | 8,233 |
We have income tax loss carry forwards which expire as follows:
Expiry year |  |  | Canada |  |  |  | United States |  |  |  | EMEA |  |  |  | Asia Pacific |  |  |  | Total |
2022 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 285 |  |  |  | 285 |
2023 |  |  | - |  |  |  | 3 |  |  |  | 341 |  |  |  | 50 |  |  |  | 394 |
2024 |  |  | - |  |  |  | 16 |  |  |  | 138 |  |  |  | 67 |  |  |  | 221 |
2025 |  |  | - |  |  |  | 51 |  |  |  | - |  |  |  | - |  |  |  | 51 |
2026 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Thereafter |  |  | 6,969 |  |  |  | 2,807 |  |  |  | 47,832 |  |  |  | 2,434 |  |  |  | 60,042 |
|  |  | 6,969 |  |  |  | 2,877 |  |  |  | 48,311 |  |  |  | 2,836 |  |  |  | 60,993 |
The following is a tabular reconciliation of the total estimated liability associated with uncertain tax positions taken:
|  |  | January 31, |  |  |  | January 31, |
|  |  | 2021 |  |  |  | 2020 |
Liability, beginning of year |  |  | 6,650 |  |  |  | 7,824 |
Gross increases – current period |  |  | 2,502 |  |  |  | 139 |
Lapsing due to statutes of limitations |  |  | (759 | ) |  |  | (1,313 | )
Liability, end of year |  |  | 8,393 |  |  |  | 6,650 |
We have identified accruals of $8.4 million with respect to uncertain tax positions as at January 31, 2021. It is possible that these accruals for uncertain tax positions will not be required in which case up to $8.2 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 $1.5 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, 2021 and January 31, 2020, 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 | 2017 and prior
Canada | 2018 and prior
United Kingdom | 2017 and prior
Sweden | 2014 and prior
Norway | 2019 and prior
Netherlands | 2014 and prior
Belgium | 2016 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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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