Dynatrace, Inc.DT
Dynatrace, Inc. Income Taxes Disclosure
Income Taxes
Income before income taxes includes the following (in thousands):
| Fiscal Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Domestic | $ | 66,058 | $ | 138,333 | $ | 82,033 | |||||||||||
| Foreign | 233,703 | 85,096 | 72,882 | ||||||||||||||
| Total | $ | 299,761 | $ | 223,429 | $ | 154,915 | |||||||||||
The income tax provision includes the following (in thousands):
| Fiscal Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Current tax position: | |||||||||||||||||
| Federal | $ | 75,229 | $ | 93,563 | $ | 44,568 | |||||||||||
| State | 955 | 5,530 | (6,236) | ||||||||||||||
| Foreign | 35,840 | 33,729 | 21,839 | ||||||||||||||
| Total current tax position | 112,024 | 132,822 | 60,171 | ||||||||||||||
| Deferred tax provision: | |||||||||||||||||
| Federal | 8,844 | (58,527) | (52,712) | ||||||||||||||
| State | 1,119 | (4,201) | (3,500) | ||||||||||||||
| Foreign | 15,105 | (330,349) | (3,676) | ||||||||||||||
| Total deferred tax provision | 25,068 | (393,077) | (59,888) | ||||||||||||||
| Total income tax expense (benefit) | $ | 137,092 | $ | (260,255) | $ | 283 | |||||||||||
During the year ended March 31, 2025, the Company completed an intra-entity asset transfer of the global economic rights of Dynatrace IP from a wholly-owned U.S. subsidiary to a wholly-owned Swiss subsidiary, more closely aligning the Company’s IP rights with its business operations (the “IP Transfer”). The transaction is taxable in the U.S. through 2044. In Switzerland, the transaction resulted in a step-up of tax-deductible basis in the transferred assets, and accordingly, created a temporary difference where the tax basis exceeded the financial statement basis of such intangible assets, which resulted in the recognition of a tax benefit and related deferred tax asset of $320.9 million. The Company determined the estimated value of the transferred IP based principally on the present value of projected income related to the IP, requiring management to make significant assumptions related to the discount rate and the forecast of future revenues and expenses. The tax-deductible amortization related to the transferred IP rights will be recognized through 2035. The deferred tax asset and the tax benefit were measured based on the enacted tax rates expected to apply in the years the asset is expected to be realized. The Company expects to realize the deferred tax asset resulting from the IP Transfer.
In accordance with ASU 2023-09 disclosure requirements, the Company’s income tax expense differs from the amounts computed by applying the U.S. federal income tax rate of 21% to pre-tax income for the year ended March 31, 2026 as a result of the following (in thousands, except for percentages):
| Fiscal Year Ended March 31, 2026 | |||||||||||
| Amount | Percent | ||||||||||
| Income tax expense at U.S. federal statutory income tax rate | $ | 62,950 | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect (1) | 4,151 | 1.4 | % | ||||||||
| Foreign tax effects | |||||||||||
| Austria | |||||||||||
| Employee compensation | (4,893) | (1.6) | % | ||||||||
| Other | (1,465) | (0.5) | % | ||||||||
| Brazil | |||||||||||
| Withholding tax | 4,618 | 1.5 | % | ||||||||
| Other | (54) | — | % | ||||||||
| Israel | |||||||||||
| Tax effect of intercompany IP transfer | 3,304 | 1.1 | % | ||||||||
| Changes in valuation allowances | (3,758) | (1.3) | % | ||||||||
| Other | 646 | 0.2 | % | ||||||||
| Poland | |||||||||||
| Research and development tax credits | (4,875) | (1.6) | % | ||||||||
| Changes in valuation allowances | 4,290 | 1.4 | % | ||||||||
| Other | (578) | (0.2) | % | ||||||||
| Switzerland | |||||||||||
| Statutory tax rate difference between Switzerland and U.S. | (23,412) | (7.8) | % | ||||||||
| Cantonal and communal income taxes | 6,821 | 2.3 | % | ||||||||
| Other | 306 | 0.1 | % | ||||||||
| Other foreign jurisdictions | 18,770 | 6.3 | % | ||||||||
| Effect of cross-border tax laws | |||||||||||
| GILTI, net of credits | 26,548 | 8.8 | % | ||||||||
| Impact of foreign branches, net of credits | 19,398 | 6.5 | % | ||||||||
| U.S. tax on foreign IP royalties | 6,235 | 2.1 | % | ||||||||
| Other | (2,416) | (0.8) | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Employee compensation | 12,964 | 4.3 | % | ||||||||
| Other | 2,374 | 0.8 | % | ||||||||
| Changes in unrecognized tax benefits | 3,325 | 1.1 | % | ||||||||
| Other adjustments | 1,843 | 0.6 | % | ||||||||
| Total income tax expense | $ | 137,092 | 45.7 | % | |||||||
(1) State and local tax in California, Washington D.C., Illinois, Michigan, and Detroit, Michigan made up the majority (greater than 50%) of the tax effect in this category.
In accordance with disclosure requirements prior to the adoption of ASU 2023-09, the Company’s income tax (benefit) expense differs from the amounts computed by applying the U.S. federal income tax rate of 21% to pre-tax income for the years ended March 31, 2025 and 2024 as a result of the following (in thousands):
| Fiscal Year Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Income tax expense at U.S. federal statutory income tax rate | $ | 46,920 | $ | 32,532 | |||||||
| State and local tax expense, net of federal benefits | 7,296 | 306 | |||||||||
| Foreign tax rate differential | 2,129 | 3,318 | |||||||||
| U.S. effects of foreign branch income | 12,147 | 8,662 | |||||||||
| Non-taxable income and non-deductible expenses | 860 | 1,742 | |||||||||
| Tax credits | (58,761) | (41,740) | |||||||||
GILTI inclusion and foreign-derived intangible income deduction | (14,563) | (13,905) | |||||||||
| Employee compensation | 8,622 | (7,188) | |||||||||
| Changes in uncertain tax positions | 6,534 | (14,835) | |||||||||
| Changes in valuation allowance | 27,116 | 13,080 | |||||||||
| Foreign withholding tax | 18,414 | 18,469 | |||||||||
| Inflation and currency related adjustments | 100 | 851 | |||||||||
| IP Transfer | (320,902) | — | |||||||||
| Other adjustments | 3,833 | (1,009) | |||||||||
| Total income tax (benefit) expense | $ | (260,255) | $ | 283 | |||||||
In accordance with ASU 2023-09 disclosure requirements, cash paid for income taxes, net of refunds received, by jurisdiction for the year ended March 31, 2026 includes the following (in thousands):
| Fiscal Year Ended March 31, 2026 | |||||
| U.S. federal | $ | 70,826 | |||
| U.S. state and local | 6,229 | ||||
| Foreign: | |||||
| Austria | 6,778 | ||||
| Brazil | 7,058 | ||||
| Other | 26,693 | ||||
| Total foreign | 40,529 | ||||
| Total cash paid for income taxes, net of refunds | $ | 117,584 | |||
Cash paid for income taxes, net of refunds, for the years ended March 31, 2025 and 2024 was $118.0 million and $81.4 million, respectively.
Temporary differences and carryforwards that give rise to a significant portion of deferred tax assets and liabilities are as follows (in thousands):
| March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
| Deferred revenue | $ | 32,386 | $ | 32,055 | |||||||
| Capitalized research and development costs | 147,630 | 155,368 | |||||||||
| Accrued expenses | 25,619 | 21,829 | |||||||||
| Share-based compensation | 28,586 | 28,012 | |||||||||
| Operating lease liabilities | 57,481 | 24,249 | |||||||||
| Net operating loss carryforwards | 26,736 | 24,312 | |||||||||
| Intangible assets | 270,453 | 303,835 | |||||||||
| Tax credit carryforwards | 69,392 | 59,599 | |||||||||
| Other | 5,544 | 4,683 | |||||||||
| Total deferred tax assets | 663,827 | 653,942 | |||||||||
| Valuation allowance | (71,573) | (68,222) | |||||||||
| Total deferred tax assets, net valuation allowance | 592,254 | 585,720 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use assets | 49,219 | 22,267 | |||||||||
| Deferred contract costs | 34,271 | 33,632 | |||||||||
| Other | 1,965 | 690 | |||||||||
| Total deferred tax liabilities | 85,455 | 56,589 | |||||||||
| Net deferred tax assets | $ | 506,799 | $ | 529,131 | |||||||
As of March 31, 2026, the Company continues to maintain a valuation allowance of $39.7 million with respect to certain U.S. federal and state deferred tax assets that, due to their nature, are not likely to be realized. In addition, the Company continues to maintain a valuation allowance of $31.9 million with respect to its deferred tax assets in certain non-U.S. jurisdictions. The net change in the valuation allowance during the year ended March 31, 2026 was $3.4 million, of which $1.5 million impacted tax expense.
As of March 31, 2026, the Company had non-U.S. net operating loss carryforwards of $204.0 million, of which $190.0 million expire in periods through 2033 if not utilized, and the remaining balance of $14.0 million may be carried forward indefinitely. The Company also had non-U.S. tax credit carryforwards of $24.0 million, of which $23.1 million expire in periods through 2032 if not utilized, and the remaining balance of $0.9 million may be carried forward indefinitely. Deferred tax assets of $25.1 million related to non-U.S. net operating losses and tax credit carryforwards are subject to valuation allowances as of March 31, 2026.
As of March 31, 2026, the Company had U.S. state and local net operating loss carryforwards of $34.1 million, of which $32.4 million expire in periods through 2043 if not utilized, and the remaining balance of $1.7 million may be carried forward indefinitely. The Company also had U.S. federal tax credit carryforwards of $45.4 million, which expire in periods through 2036. Deferred tax assets of $39.7 million primarily related to U.S. federal tax credit carryforwards are subject to valuation allowances as of March 31, 2026.
As of March 31, 2026, the Company had unremitted foreign earnings associated with certain foreign subsidiaries that are not indefinitely reinvested. Any taxes to be incurred upon repatriation of these earnings, as well as any related deferred tax liabilities, are not expected to be material.
The amount of gross unrecognized tax benefits was $23.8 million and $20.2 million as of March 31, 2026 and 2025, respectively, all of which would favorably affect the Company’s effective tax rate if recognized in future periods.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended March 31, 2026, 2025, and 2024 (in thousands):
| Fiscal Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Gross unrecognized tax benefit, beginning of year | $ | 20,168 | $ | 13,668 | $ | 29,110 | |||||||||||
| Gross increases to tax positions for the current period | 5,602 | 6,725 | — | ||||||||||||||
| Gross increases to tax positions for prior periods | 6,948 | 1,689 | 721 | ||||||||||||||
| Gross decreases to tax positions for prior periods | (7,428) | — | (4,277) | ||||||||||||||
| Decreases related to settlements | — | — | (168) | ||||||||||||||
| Decreases due to lapse of statutes of limitations | (1,504) | (1,922) | (11,689) | ||||||||||||||
| Foreign currency translation | $ | (26) | $ | 8 | $ | (29) | |||||||||||
| Gross unrecognized tax benefit, end of year | $ | 23,760 | $ | 20,168 | $ | 13,668 | |||||||||||
As of March 31, 2026 and 2025, the net interest and penalties payable associated with uncertain tax positions was $1.2 million and $0.9 million, respectively. For the years ended March 31, 2026, 2025, and 2024, the Company recognized a benefit of $0.3 million, $0.3 million, and $1.4 million, respectively, related to interest and penalties.
The Company files tax returns in U.S. federal, state, and foreign jurisdictions and the tax returns are subject to examination by various domestic and international tax authorities. As of March 31, 2026, the Company has open U.S. federal tax years back to fiscal year 2023. The Company also has open years in certain significant state jurisdictions back to fiscal year 2019, and foreign jurisdictions back to 2015. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations due to the amount, timing or inclusion of revenue and expenses.Free Sentinel
Track for freeWant the next Dynatrace, Inc. income taxes disclosure the moment it drops?
Set a Sentinel and we'll alert you the moment Dynatrace, Inc.'s next filing hits EDGAR. No credit card, your email never gets sold.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | May 20, 2026 | Showing above |
| 2025 | May 22, 2025 | |
| 2024 | May 23, 2024 | |
| 2023 | May 25, 2023 | |
| 2022 | May 26, 2022 | |
| 2021 | May 28, 2021 | |
| 2020 | May 27, 2020 | |
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.