Dell Technologies Inc.DELL
Dell Technologies Inc. Income Taxes Disclosure
INCOME AND OTHER TAXES
The following table presents components of the income tax expense (benefit) recognized for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 31, 2025 | February 2, 2024 | February 3, 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (84) | $ | 161 | $ | 605 | |||||||||||
| State/local | (21) | 33 | 176 | ||||||||||||||
| Foreign | 785 | 612 | 739 | ||||||||||||||
| Current | 680 | 806 | 1,520 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (220) | (106) | (483) | ||||||||||||||
| State/local | (12) | (42) | (103) | ||||||||||||||
| Foreign | 24 | 57 | (131) | ||||||||||||||
| Deferred | (208) | (91) | (717) | ||||||||||||||
| Income tax expense | $ | 472 | $ | 715 | $ | 803 | |||||||||||
The following table presents components of income (loss) before income taxes for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 31, 2025 | February 2, 2024 | February 3, 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Domestic | $ | (73) | $ | (52) | $ | (1,316) | |||||||||||
| Foreign | 5,121 | 4,139 | 4,541 | ||||||||||||||
| Income before income taxes | $ | 5,048 | $ | 4,087 | $ | 3,225 | |||||||||||
The following table presents a reconciliation of the Company’s effective tax rate to the statutory U.S. federal tax rate for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 31, 2025 | February 2, 2024 | February 3, 2023 | |||||||||||||||
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes, net of federal tax benefit | 1.4 | (0.2) | 2.0 | ||||||||||||||
| Tax impact of foreign operations | 0.6 | 2.1 | (0.8) | ||||||||||||||
| Change in valuation allowance | 1.1 | 0.3 | 0.4 | ||||||||||||||
| Non-deductible transaction-related costs | 0.1 | — | 0.8 | ||||||||||||||
| Stock-based compensation expense | (4.0) | (0.9) | (2.4) | ||||||||||||||
| U.S. R&D tax credits | (1.7) | (4.3) | (2.6) | ||||||||||||||
| Lapse of U.S. statutes of limitations | (8.5) | — | — | ||||||||||||||
| Class V transaction litigation settlement | — | — | 5.8 | ||||||||||||||
| Other | (0.6) | (0.5) | 0.7 | ||||||||||||||
| Total | 9.4 | % | 17.5 | % | 24.9 | % | |||||||||||
Changes related to the Company’s effective tax rates for the fiscal years ended January 31, 2025, February 2, 2024, and February 3, 2023 were primarily attributable to discrete tax items and a change in the Company’s jurisdictional mix of income related to the tax impact of foreign operations and benefits from U.S. research and development tax credits. The Company’s effective tax rate for the fiscal year ended January 31, 2025 included discrete tax benefits of $0.4 billion related to the expiration of certain U.S. statutes of limitations and $0.2 billion related to stock-based compensation. The Company’s effective tax rate for the fiscal year ended February 3, 2023 included the impact of a $0.9 billion expense recognized in connection with the agreement to settle the Class V transaction litigation described in Note 11 of the Notes to the Consolidated Financial Statements.
The differences between the effective income tax rates and the U.S. federal statutory rate of 21% principally result from the geographical distribution of income, differences between the book and tax treatment of certain items, and discrete tax items. In certain jurisdictions, the Company’s tax rate is significantly lower than the applicable statutory rate as a result of tax holidays. The majority of the Company’s foreign income subject to these tax holidays and lower tax rates is attributable to Singapore and China. Starting in the fiscal year ended January 31, 2025, the benefits of these tax holidays were limited by the impact of the Organisation for Economic Co-operation and Development’s Pillar Two global minimum tax. For the fiscal years ended January 31, 2025, February 2, 2024, and February 3, 2023, the income tax benefits attributable to the tax status of the affected subsidiaries were immaterial to the Company’s provision for income taxes and earnings per share.
As of January 31, 2025, the Company has undistributed earnings of certain foreign subsidiaries of approximately $36.9 billion that remain indefinitely reinvested, and as such has not recognized a deferred tax liability. Determination of the amount of unrecognized deferred income tax liability related to these undistributed earnings is not practicable. The Company believes that a significant portion of the Company’s undistributed earnings as of January 31, 2025 will not be subject to further U.S. federal taxation.
The following table presents the components of the Company’s net deferred tax assets (liabilities) as of the dates indicated:
| January 31, 2025 | February 2, 2024 | ||||||||||
| (in millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Deferred revenue and warranty provisions | $ | 1,769 | $ | 1,878 | |||||||
| Credit carryforwards | 670 | 554 | |||||||||
| Loss carryforwards | 697 | 619 | |||||||||
| Operating and compensation related accruals | 482 | 478 | |||||||||
| Capitalized research and development | 291 | 302 | |||||||||
| Other | 256 | 320 | |||||||||
| Deferred tax assets (a) | 4,165 | 4,151 | |||||||||
| Valuation allowance | (1,368) | (1,232) | |||||||||
| Deferred tax assets, net of valuation allowance | 2,797 | 2,919 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Leasing and financing | (285) | (397) | |||||||||
| Property and equipment | (273) | (377) | |||||||||
| Intangibles | (240) | (338) | |||||||||
| Other | (393) | (375) | |||||||||
| Deferred tax liabilities (a) | (1,191) | (1,487) | |||||||||
| Net deferred tax assets | $ | 1,606 | $ | 1,432 | |||||||
____________________
(a)Deferred tax assets and deferred tax liabilities are included in other non-current assets and other non-current liabilities in the Consolidated Statements of Financial Position.
The following tables present the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets with related valuation allowances recognized as of the dates indicated:
| January 31, 2025 | |||||||||||||||||||||||
| Deferred Tax Assets | Valuation Allowance | Net Deferred Tax Assets | First Year Expiring | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Credit carryforwards | $ | 670 | $ | (664) | $ | 6 | Fiscal 2026 | ||||||||||||||||
| Loss carryforwards | 697 | (484) | 213 | Fiscal 2026 | |||||||||||||||||||
| Other deferred tax assets | 2,798 | (220) | 2,578 | NA | |||||||||||||||||||
| Total | $ | 4,165 | $ | (1,368) | $ | 2,797 | |||||||||||||||||
| February 2, 2024 | |||||||||||||||||||||||
| Deferred Tax Assets | Valuation Allowance | Net Deferred Tax Assets | First Year Expiring | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Credit carryforwards | $ | 554 | $ | (549) | $ | 5 | Fiscal 2025 | ||||||||||||||||
| Loss carryforwards | 619 | (405) | 214 | Fiscal 2025 | |||||||||||||||||||
| Other deferred tax assets | 2,978 | (278) | 2,700 | NA | |||||||||||||||||||
| Total | $ | 4,151 | $ | (1,232) | $ | 2,919 | |||||||||||||||||
The Company’s credit carryforwards as of January 31, 2025 and February 2, 2024 relate primarily to U.S. tax credits and include state tax credits associated with research and development, as well as foreign tax credits associated with the U.S. Tax Cuts and Jobs Act. The Company assessed the realizability of these U.S. tax credits and has recorded a valuation allowance against the credits it does not expect to utilize. The Company’s loss carryforwards as of January 31, 2025 and February 2, 2024 include net operating loss carryforwards from federal, state, and foreign jurisdictions. The valuation allowances for other deferred tax assets as of January 31, 2025 and February 2, 2024 primarily relate to foreign jurisdictions, the changes in which are included in the tax impact of foreign operations in the Company’s effective tax reconciliation. The Company has determined that it will be able to realize the remainder of its deferred tax assets.
The following table presents the changes in the valuation allowance for deferred tax assets for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 31, 2025 | February 2, 2024 | February 3, 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Balance at beginning of period | $ | 1,232 | $ | 1,535 | $ | 1,423 | |||||||||||
| Charged to income tax provision | 277 | (299) | 84 | ||||||||||||||
| Charged to other accounts | (141) | (4) | 28 | ||||||||||||||
| Balance at end of period | $ | 1,368 | $ | 1,232 | $ | 1,535 | |||||||||||
The following table presents a reconciliation of the Company’s beginning and ending balances of unrecognized tax benefits for the periods indicated:
| Fiscal Year Ended | |||||||||||||||||
| January 31, 2025 | February 2, 2024 | February 3, 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Beginning Balance | $ | 2,367 | $ | 1,812 | $ | 1,595 | |||||||||||
| Increases related to tax positions of the current year | 121 | 4 | 132 | ||||||||||||||
| Increases related to tax position of prior years | 37 | 828 | 181 | ||||||||||||||
| Reductions for tax positions of prior years | (129) | (177) | (46) | ||||||||||||||
| Lapse of statutes of limitations | (388) | (35) | (41) | ||||||||||||||
| Audit settlements | (32) | (65) | (9) | ||||||||||||||
| Ending Balance | $ | 1,976 | $ | 2,367 | $ | 1,812 | |||||||||||
The table above does not include accrued interest and penalties of $0.2 billion as of January 31, 2025 and $0.4 billion as of both February 2, 2024 and February 3, 2023. The table also does not include certain tax benefits associated with interest and state tax deductions and other indirect jurisdictional effects of uncertain tax positions, which were $1.3 billion, $1.4 billion, and $0.9 billion as of January 31, 2025, February 2, 2024, and February 3, 2023, respectively.
After taking these items into account, the Company’s net unrecognized tax benefits were $0.9 billion as of January 31, 2025 and $1.3 billion as of February 2, 2024 and February 3, 2023, and are included in other non-current liabilities in the Consolidated Statements of Financial Position.
The unrecognized tax benefits in the table above include $0.9 billion, $1.2 billion, and $1.1 billion as of January 31, 2025, February 2, 2024, and February 3, 2023, respectively, that, if recognized, would have impacted income tax expense. Interest and penalties related to income tax liabilities are included in income tax expense. The impact of interest and penalties on the Company’s tax provision was immaterial for the fiscal years ended January 31, 2025, February 2, 2024, and February 3, 2023.
In June 2023, the Company received a Revenue Agent’s Report for the federal income tax examination by the Internal Revenue Service (“IRS”) of fiscal years 2018 through 2019. The IRS proposed adjustments primarily relating to certain transactions the Company completed as part of its business integration efforts. In August 2023, the Company submitted a written protest to the IRS relating to certain assessments. The Company received a rebuttal from the IRS to its written protest in April 2024. The Company disagrees with the IRS’s proposed adjustments and will contest them through the IRS administrative appeals procedures. The Company anticipates that the appeals process for the resolution of these matters will extend beyond the next twelve months. The IRS is also currently conducting a federal income tax examination of fiscal years 2020 through 2022.
The Company is also currently under income tax audits in various U.S. state and foreign taxing jurisdictions. The Company is undergoing negotiations, and in some cases contested proceedings, relating to tax matters with the taxing authorities in these jurisdictions. With respect to major U.S. state and foreign taxing jurisdictions, the Company is generally not subject to tax examinations for years prior to the fiscal year ended February 2, 2018. The Company believes that it has provided adequate reserves related to all matters contained in tax periods open to examination, including the IRS audits described above. Although the Company believes it has made adequate provisions for the uncertainties with respect to these audits, should the Company experience unfavorable outcomes, such outcomes could have a material impact on its results of operations, financial position, and cash flows.
Judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s provision for income taxes. The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.
The Company takes certain non-income tax positions in the jurisdictions in which it operates and has received certain non-income tax assessments from various jurisdictions. The Company believes that a material loss in these matters is not probable and that it is not reasonably possible that a material loss exceeding amounts already accrued has been incurred. The Company believes its positions in these non-income tax litigation matters are supportable and that it ultimately will prevail in the matters. In the normal course of business, the Company’s positions and conclusions related to its non-income taxes could be challenged and assessments may be made. To the extent new information is obtained and the Company’s views on its positions, probable outcomes of assessments, or litigation change, changes in estimates to the Company’s accrued liabilities would be recorded in the period in which such a determination is made. In the resolution process for income tax and non-income tax audits, the Company is required in certain situations to provide collateral guarantees or indemnification to regulators and tax authorities until the matter is resolved.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.