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Income Taxes

12 Months Ended

Jan. 31, 2022

Notes to Financial Statements

Income Taxes

Note 18 - Income Taxes

Income before income taxes is earned in the following tax jurisdictions:

​	​	​	​	​	​	​
Year Ended		January 31,		January 31,		January 31,
​	​	2022	​	2021	​	2020
​	​	​	​	​	​	​
Canada		36,312		31,307		19,557
United States		32,338		26,072		19,962
Other countries		33,960		12,990		8,516
​		102,610		70,369		48,035

​

Income tax expense is incurred in the following jurisdictions:

​	​	​	​	​	​	​
Year Ended		January 31,		January 31,		January 31,
​	​	2022	​	2021	​	2020
Current income tax expense	​		​		​
Canada		1,817		1,875		1,020
United States		8,689		(3,050)		3,496
Other countries		4,308		4,921		779
​		14,814		3,746		5,295
Deferred income tax expense (recovery)
Canada		8,381		7,047		5,008
United States		1,941		9,537		1,390
Other countries		(8,808)		(2,061)		(655)
​		1,514		14,523		5,743
​		16,328		18,269		11,038

​

Income tax expense for 2022, 2021 and 2020 was 16%, 26% and 23% of income before income taxes, respectively, with current income tax expense being 14%, 5% and 11% of income before income taxes, respectively.

Current income tax expense increased in 2022 compared to 2021 primarily due to a current tax recovery in 2021 related to a voluntary change in accounting for deferred revenue for income tax purposes in the United States elected by the Company.

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.

Deferred income tax expense decreased in 2022 compared to 2021 primarily due to additional deferred tax expense in 2021 related to a voluntary change in accounting for deferred revenue for income tax purposes in the United States elected by the Company as well as a release in valuation allowances recorded in 2022 related to tax losses in EMEA carried forward from previous periods.

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.

The components of the deferred income tax assets and liabilities are as follows:

​

​	​	​	​	​
​		January 31,		January 31,
​	​	2022	​	2021
Assets	​		​
Accrued liabilities not currently deductible		5,408		4,471
Accumulated net operating losses		10,594		12,866
Corporate minimum taxes		2,346		1,596
Difference between tax and accounting basis of property and equipment		12,021		23,754
Research and development and other tax credits and expenses		1,172		1,649
Total deferred income tax assets		31,541		44,336
Liabilities
Difference between tax and accounting basis of intangible assets		(47,255)		(45,030)
Difference between tax and accounting basis of property and equipment		—		—
Other temporary differences		(2,886)		(2,109)
Total deferred income tax liabilities		(50,141)		(47,139)
Net deferred income taxes		(18,600)		(2,803)
Valuation allowance		(1,961)		(11,365)
Net deferred income taxes, net of valuation allowance		(20,561)		(14,168)
​	​	​	​	​

​

As at January 31, 2022, we have not accrued for foreign withholding taxes and Canadian income taxes applicable to approximately $573.0 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,
​	​	2022	​	2021	​	2020
Income before income taxes	​	102,610	​	70,369	​	48,033
​	​	​	​	​	​	​	​
Combined basic Canadian statutory rates		26.5	%	26.5	%	26.5	%
​	​	​	​	​	​	​	​
Income tax expense based on the above rates		27,192		18,648		12,729	​
Increase (decrease) in income taxes resulting from:							​
Permanent differences		3,467		875		(673)	​
Effect of differences between Canadian and foreign tax rates		(1,855)		(600)		(274)	​
Effect of rate changes on current year timing differences		(1,085)		(1,063)		(609)	​
Adjustments relating to previous periods		(569)		(1,034)		94	​
Increase (decrease) in accruals for uncertain tax positions		(849)		1,289		(1,042)	​
Valuation allowance		(9,102)		254		692	​
Stock based compensation		—		100		352	​
Other, including foreign exchange		(871)		(200)		(231)	​
Income tax expense		16,328		18,269		11,038	​

​

We have income tax loss carry forwards which expire as follows:

​

​	​	​	​	​	​	​	​	​	​	​
Expiry year		Canada		United States		EMEA		Asia Pacific		Total
2023	​	—	​	—	​	—	​	49	​	49
2024	​	—	​	—	​	—	​	186	​	186
2025		—		—		40		67		107
2026		—		—		—		—		—
2027		—		417		—		352		769
Thereafter		8,022		1,473		33,054		1,553		44,102
​		8,022		1,890		33,094		2,207		45,213

​

The following is a tabular reconciliation of the total estimated liability associated with uncertain tax positions taken:

​	​	​	​	​
​		January 31,		January 31,
​	​	2022	​	2021
Liability, beginning of year	​	8,393	​	6,650
Gross increases – current period		333		2,502
Lapsing due to statutes of limitations		(1,372)		(759)
Liability, end of year		7,354		8,393

​

We have identified accruals of $7.4 million with respect to uncertain tax positions as at January 31, 2022. It is possible that these accruals for uncertain tax positions will not be required in which case up to $7.4 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 $2.1 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, 2022 and January 31, 2021, 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	2019 and prior
Canada	2017 and prior
United Kingdom	2019 and prior
Sweden	2015 and prior
Norway	2020 and prior
Netherlands	2014 and prior
Belgium	2018 and prior
Germany	2017 and prior
Switzerland	2016 and prior
Brazil	2016 and prior

​

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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.

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