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Income Taxes | 6 Months Ended
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Sep. 30, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company’s effective tax rate (“ETR”) was 24.6% and 19.6% for the three months ended September 30, 2021 and September 30, 2020, respectively, and 46.0% and 16.2% for the six months ended September 30, 2021 and September 30, 2020, respectively. For the three months ended September 30, 2021, the primary drivers of the ETR were the global mix of income and a decrease in unrecognized tax benefits due to income tax audit settlements and statute expirations. For the six months ended September 30, 2021, the primary drivers of the ETR were the global mix of income, gain on sale of HPS business, tax rate changes in non-U.S. jurisdictions and a decrease in unrecognized tax benefits due to income tax audit settlements and statute expirations. For the three and six months ended September 30, 2020, the primary drivers of the ETR were the global mix of income, foreign tax credits and adjustment of the prior tax provisions due to the filing of tax returns in the U.S. and the non-U.S. jurisdictions. The majority of our global unremitted foreign earnings have been taxed in the U.S. or would be exempt from U.S. tax upon repatriation. Such earnings and all current foreign earnings are not indefinitely reinvested. The following foreign earnings are considered indefinitely reinvested: approximately $518 million that could be subject to U.S. federal tax when repatriated to the U.S. under section 1.245A-5(b) of the final Treasury regulations; and our accumulated earnings in India as of March 31, 2021. A portion of these indefinitely reinvested earnings may be subject to foreign and U.S. state tax consequences when remitted. The Company will continue to evaluate its position in the future based on its future strategy and cash needs. In connection with the HPES Merger, the Company entered into a tax matters agreement with HPE. HPE generally will be responsible for tax liabilities arising prior to the HPES Merger, and DXC is liable to HPE for income tax receivables it receives related to pre-HPES Merger periods. Pursuant to the tax matters agreement, the Company recorded $34 million of tax indemnification receivable related to uncertain tax positions, $68 million of tax indemnification receivable related to other tax payables and $120 million of tax indemnification payable related to other tax receivables. In connection with the spin-off of the Company’s former U.S. public sector business (the “USPS Separation”), the Company entered into a tax matters agreement with Peraton (formerly Perspecta Inc). The Company generally will be responsible for tax liabilities arising prior to the USPS Separation, and Perspecta is liable to the Company for income tax receivables related to pre-spin-off periods. Income tax liabilities transferred to Peraton primarily relate to pre-HPES Merger periods, for which the Company is indemnified by HPE pursuant to the tax matters agreement between the Company and HPE. The Company remains liable to HPE for tax receivables transferred to Perspecta related to pre-HPES Merger periods. Pursuant to the tax matters agreement, the Company has recorded a tax indemnification receivable from Peraton of $73 million related to other tax payable and a tax indemnification payable to Peraton of $29 million related to income tax and other tax liabilities. In connection with the sale of HPS business, the Company entered into a tax matters agreement with Dedalus. Pursuant to the tax matters agreement, the Company generally will be responsible for tax liabilities arising prior to the sale of HPS business. The Internal Revenue Service (the “IRS”) is examining the Company’s federal income tax returns for fiscal 2008 through the tax year ended October 31, 2018. With respect to CSC’s fiscal 2008 through 2017 federal tax returns, the Company has entered settlement negotiations with the IRS Office of Appeals. The IRS examined several issues for these tax years that resulted in various audit adjustments. The Company and the IRS Office of Appeals have an agreement in principle as to some of these adjustments, and we disagree with the IRS’ disallowance of certain losses and deductions resulting from restructuring costs and tax planning strategies in previous years. As we believe we will ultimately prevail on the technical merits of the disagreed items and intend to challenge them in the IRS Office of Appeals or Tax Court, these matters are not fully reserved and would result in a federal and state tax expense of $438 million (including estimated interest and penalties) for the unreserved portion of these items and related cash cost if we do not prevail. We do not expect these matters that proceed to Tax Court to be resolved in the next 12 months. We have received a notice of deficiency with respect to fiscal 2010, 2011 and 2013 and have filed petitions in Tax Court with respect to fiscal 2011 and 2013. We expect to file a petition in Tax Court for fiscal 2010 by the fourth quarter of fiscal 2022. We also expect fiscal 2009 to proceed to Tax Court. The Company has agreed to extend the statute of limitations for fiscal years 2008 through 2010 to April 30, 2022, for fiscal years 2014 through fiscal 2017 to October 31, 2022, and for the tax year ended October 31, 2017 to September 30, 2022, to provide the IRS time to complete their review. The statute of limitations for fiscal years 2011 through 2013 has expired. However, as previously noted, fiscal years 2011 and 2013 are in Tax Court and consequently these years will remain open until the Tax Court proceedings have concluded. The Company expects to reach a resolution for fiscal years 2008 through 2013 no earlier than fiscal 2025, except for agreed issues related to fiscal 2008 through 2010, and to reach resolution for fiscal years 2014 through 2017, which are expected to be resolved within twelve months. The Company may settle certain other tax examinations or have lapses in statutes of limitations for different amounts than the Company has accrued as uncertain tax positions. Consequently, the Company may need to accrue and ultimately pay additional amounts for tax positions that previously met a more-likely-than-not standard if such positions are not upheld. Conversely, the Company could settle positions by payment with the tax authorities for amounts lower than those that have been accrued or extinguish a position through less payment than previously estimated. In the second quarter of fiscal 2022, the Company’s liability for uncertain tax positions decreased by $29 million (excluding interest and penalties and related tax attributes) primarily due to income tax audit settlements and statute expirations. The Company believes the outcomes that are reasonably possible within the next 12 months may result in a reduction in liability for uncertain tax positions of $43 million, excluding interest, penalties, and tax carry-forwards.

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