AGILYSYS INC Income Taxes Disclosure

9. Income Taxes

We have elected to account for global intangible low-taxed income (GILTI) inclusions in the period in which they are incurred.

The fiscal 2025 tax provision results primarily from the benefits of U.S. R&D credits, GILTI, the rate change of Special Economic Zone deferred taxes and the release of the valuation allowances against foreign deferred tax assets. The fiscal 2025 tax provision differs from the statutory rate primarily due to the release of foreign valuation allowances and the benefit of U.S. R&D credits.

The fiscal 2024 tax provision results primarily from the release of the valuation allowances against U.S. Federal and State deferred tax assets. The fiscal 2025 tax provision differs from the statutory rate primarily due to the release of the valuation allowances.

At March 31, 2025, we had $29.7 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2036 to 2039, and $42.5 million of federal net operating loss carryforwards that can be carried forward indefinitely. Our Hong Kong, Singapore, Malaysia and the U.A.E. subsidiaries have $0.6 million, $0.6 million, $0.1 million and $0.1 million of net operating loss carryforwards, respectively. The losses for Hong Kong, Singapore and the U.A.E. can be carried forward indefinitely. Canada losses can be carried back three years and carried forward 20 years. Our India subsidiary operates in a “Special Economic Zone” (“SEZ”). One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first 5 years of operations which included fiscal 2018 through fiscal 2022. The India subsidiary is then subject to 50% of regular India income taxes during the second five years of operations which includes fiscal 2023 through fiscal 2027. The aggregate value of the benefit of the SEZ during the current fiscal year is $4.0 million as of March 31, 2025. The Company has paid minimum alternative taxes during the period of regular tax relief resulting in a credit of $1.7 million as of March 31, 2025.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a stimulus bill which was in response to economic consequences of the COVID-19 pandemic. The CARES Act provided an employee retention credit, which is a refundable tax credit against certain employment taxes. During the twelve months ended March 31, 2025, we recorded $0.5 million of employee retention credits received in cash as other charges, net, in the Consolidated Statements of Operations.

At March 31, 2025 we also had $111.5 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2026 through 2043.

We have recorded valuation allowances offsetting certain deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. At March 31, 2025, the total valuation allowance against deferred tax assets of $1.3 million was comprised of $1.2 million for U.S. state deferred tax assets, and $0.1 million associated with deferred tax assets in the U.A.E. The ultimate realization of deferred tax assets depends on various factors including the generation of taxable income during the future periods in which the underlying temporary differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected earnings, and tax planning strategies in our assessment of positive and negative evidence supporting the likelihood of deferred tax asset realization. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances.

The undistributed earnings of our foreign subsidiaries are not subject to U.S. federal and state income taxes unless such earnings are distributed in the form of dividends or otherwise to the extent of current and accumulated earnings and profits. The undistributed earnings of foreign subsidiaries are permanently reinvested and totaled $32.8 million and $30.1 million as

of March 31, 2025 and 2024, respectively. We made the determination of permanent reinvestment on the basis of sufficient evidence that demonstrates we will invest the undistributed earnings overseas indefinitely for use in working capital, as well as foreign expansion. The determination of the amount of the unrecognized deferred U.S. income tax liability related to the undistributed earnings is not practicable.

We recognize interest accrued on any uncertain tax positions as a component of income tax expense. Penalties are recognized as a component of general and administrative expenses. For the year ended March 31, 2025, we accrued interest and penalty of $0.3 million and a corresponding indemnification asset. For the year ended March 31, 2024, we reduced accrued interest and penalty by $0.6 million. We recognized interest and penalty expense of less than $0.1 million for the year ended March 31, 2023.

We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.

In the U.S. we file federal and state income tax returns where statutes of limitations generally range from three to five years. Although we have resolved examinations with the IRS through tax year ended March 31, 2010, U.S. federal tax years are open from 2011 forward due to attribute carryforwards. The statute of limitations is open from fiscal year 2020 forward in certain state jurisdictions. We also file income tax returns in international jurisdictions where statutes of limitations generally range from three to seven years. Years beginning after 2018 are open for examination by certain foreign taxing authorities.