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Income Taxes

12 Months Ended

Jan. 31, 2023

Income Taxes.

Income Taxes

Note 18 - Income Taxes

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

​

​	​	​	​	​	​	​
​		January 31,		January 31,		January 31,
Year Ended	​	2023	​	2022	​	2021
​	​	​	​	​	​	​
Canada		49,158		36,312		31,307
United States		51,268		32,338		26,072
Other countries		33,302		33,960		12,990
​		133,728		102,610		70,369

​

Income tax expense is incurred in the following jurisdictions:

​

​	​	​	​	​	​	​
​		January 31,		January 31,		January 31,
Year Ended	​	2023	​	2022	​	2021
Current income tax expense
Canada		9,673		1,817		1,875
United States		13,085		8,689		(3,050)
Other countries		5,490		4,308		4,921
​		28,248		14,814		3,746
Deferred income tax expense (recovery)
Canada		5,059		8,381		7,047
United States		(1,888)		1,941		9,537
Other countries		73		(8,808)		(2,061)
​		3,244		1,514		14,523
​		31,492		16,328		18,269

​

Income tax expense for 2023, 2022 and 2021 was 24%, 16% and 26% of income before income taxes, respectively, with current income tax expense being 21%, 14% and 5% of income before income taxes, respectively.

Current income tax expense increased in 2023 compared to 2022 primarily due to the impact of the loss restriction rules in the UK and lower tax attributes available in Canada and US to deduct against income, in 2023.

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.

Deferred income tax expense increased in 2023 compared to 2022 primarily due to a release in valuation allowances on tax losses carried forward in the comparative period, partially offset against a recovery of certain deferred tax attributes in the US recorded in 2023, as well as normal course changes in timing differences in Canada.

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.

​

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

​

​	​	​	​	​
​		January 31,		January 31,
​	​	2023	​	2022
Assets
Accrued liabilities not currently deductible		5,506		5,408
Accumulated net operating losses		7,577		10,594
Corporate minimum taxes		—		2,346
Difference between tax and accounting basis of property and equipment		7,400		12,021
Research and development expenditures and tax credits		3,339		1,172
Total deferred income tax assets		23,822		31,541
Liabilities		​
Difference between tax and accounting basis of intangible assets		(42,958)		(47,255)
Temporary difference on equity derivative		(3,077)		(2,886)
Total deferred income tax liabilities		(46,035)		(50,141)
Net deferred income taxes		(22,213)		(18,600)
Valuation allowance		(1,704)		(1,961)
Net deferred income taxes, net of valuation allowance		(23,917)		(20,561)

​

As at January 31, 2023, we have not accrued for foreign withholding taxes and Canadian income taxes applicable to approximately $755.0 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:

​

​	​	​	​	​	​	​	​
​		January 31,		January 31,		January 31,
Year Ended	​	2023	​	2022	​	2021
Income before income taxes		133,728		102,610		70,369	​
​	​	​	​	​	​	​	​
Combined basic Canadian statutory rates		26.5	%	26.5	%	26.5	%
​	​	​	​	​	​	​	​
Income tax expense based on the above rates		35,438		27,192		18,648	​
Increase (decrease) in income taxes resulting from:							​
Permanent differences		590		3,467		875	​
Effect of differences between Canadian and foreign tax rates		(1,859)		(1,855)		(600)	​
Effect of rate changes on current year timing differences		(219)		(1,085)		(1,063)	​
Adjustments relating to previous periods		(972)		(569)		(1,034)	​
Increase (decrease) in accruals for uncertain tax positions		(1,181)		(849)		1,289	​
Valuation allowance		(155)		(9,102)		254	​
Stock based compensation		—		—		100	​
Other, including foreign exchange		(150)		(871)		(200)	​
Income tax expense		31,492		16,328		18,269	​

​

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

​

​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	United	​	​	​	​	​	​
Expiry year		Canada		States		EMEA		Asia Pacific		Total
2024	​	—	​	—	​	—	​	175	​	175
2025		—		—		—		63		63
2026		—		—		—		—		—
2027		—		279		34		449		762
2028		—		138		—		85		223
Thereafter		8,128		882		19,504		385		28,899
​		8,128		1,299		19,538		1,157		30,122

​

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

​

​	​	​	​	​
​		January 31,		January 31,
​	​	2023	​	2022
Liability, beginning of year		7,354		8,393
Gross increases – current period		640		333
Lapsing due to statutes of limitations		(1,874)		(1,372)
Liability, end of year		6,120		7,354

​

We have identified accruals of $6.1 million with respect to uncertain tax positions as at January 31, 2023. It is possible that these accruals for uncertain tax positions will not be required in which case up to $6.1 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 $1.9 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, 2023 and January 31, 2022, 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		2020 and prior
Norway		2016 and prior
Netherlands		2015 and prior
Belgium		2020 and prior
Germany		2017 and prior
Switzerland		2018 and prior
Brazil		2018 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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