Kyndryl Holdings, Inc. Income Taxes Disclosure
NOTE 5. TAXES
Income (loss) before income taxes by geography was as follows:
Year Ended March 31, | |||||||||
(Dollars in millions) |
| 2025 |
| 2024 |
| 2023 | |||
Income (loss) before income taxes: | |||||||||
U.S. operations | $ | (158) | $ | (678) | $ | (1,543) | |||
Non-U.S. operations | 593 | 510 | 692 | ||||||
Total income (loss) before income taxes | $ | 435 | $ | (168) | $ | (851) | |||
The components of the provision for income taxes by taxing jurisdiction were as follows:
Year Ended March 31, | |||||||||
(Dollars in millions) |
| 2025 |
| 2024 |
| 2023 | |||
U.S. federal: | |||||||||
Current | $ | 1 | $ | 39 | $ | — | |||
Deferred | (18) | (10) | (19) | ||||||
$ | (17) | $ | 29 | $ | (19) | ||||
U.S. state and local: | |||||||||
Current | $ | 4 | $ | 2 | $ | 2 | |||
Deferred | 2 | 1 | (4) | ||||||
$ | 6 | $ | 3 | $ | (2) | ||||
Non-U.S.: | |||||||||
Current | $ | 177 | $ | 142 | $ | 236 | |||
Deferred | 18 | (2) | 308 | ||||||
$ | 195 | $ | 140 | $ | 545 | ||||
Total provision for income taxes | $ | 184 | $ | 172 | $ | 524 | |||
A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate from continuing operations was as follows:
Year Ended March 31, | |||||||||
| 2025 |
| 2024 |
| 2023 | ||||
Statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||
Tax differential on foreign income | 4.5 | % | (17.4) | % | (3.9) | % | |||
State and local taxes | 0.7 | % | 17.8 | % | 5.7 | % | |||
Valuation allowances | (4.1) | % | (67.7) | % | (72.0) | % | |||
Reserves for uncertain tax positions | 14.2 | % | (7.8) | % | (6.5) | % | |||
Global Intangible Low-Taxed Income (GILTI) | 1.5 | % | — | % | (2.0) | % | |||
Undistributed foreign earnings | (2.5) | % | 2.2 | % | 1.5 | % | |||
Impact of foreign operations | 20.9 | % | (43.6) | % | (8.6) | % | |||
Basis adjustment | — | % | (6.2) | % | — | % | |||
Tax credits | (13.1) | % | 28.7 | % | 4.7 | % | |||
Return to provision | (3.1) | % | (19.3) | % | 0.3 | % | |||
Nondeductible items | 1.9 | % | (8.6) | % | (2.0) | % | |||
Other | — | % | (1.4) | % | — | % | |||
Effective tax rate | 41.9 | % | (102.2) | % | (61.6) | % | |||
The provision for income taxes for the year ended March 31, 2025 was $184 million as compared to $172 million for the year ended March 31, 2024. The increase in income tax expense was primarily driven by an increase in pretax book income. The provision for income taxes for the year ended March 31, 2024 was $172 million as compared to $524 million for the year ended March 31, 2023. The decrease in income tax expense was primarily driven by valuation allowances established in fiscal year 2023, changes in uncertain tax positions during fiscal year 2024 as a result of audit settlements and statutes of limitations lapsing, offset by increases in taxes on foreign operations.
The Company’s effective tax rate for the year ended March 31, 2025 was higher than the Company’s statutory tax rate primarily due to the Company’s pretax income in fiscal year 2025, compared to a pretax loss in fiscal year 2024. The Company’s effective tax rate for the year ended March 31, 2024 was lower (more negative) than the Company’s statutory tax rate primarily due to the Company’s pretax loss being significantly lower in fiscal year 2024 and current year losses not benefitted due to the existing valuation allowances. The Company’s effective tax rate for the year ended March 31, 2023 was lower than the Company’s statutory tax rate primarily due to changes in valuation allowances, taxes on foreign operations and uncertain tax positions. The Organization for Economic Cooperation and Development’s Pillar Two rules, effective beginning in fiscal year 2025, did not significantly affect the Company’s tax rate or cash flows for the year ending March 31, 2025.
The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:
March 31, | ||||||
(Dollars in millions) |
| 2025 |
| 2024 | ||
Deferred tax assets | ||||||
Retirement benefits | $ | 106 | $ | 121 | ||
Leases | 253 | 308 | ||||
Stock-based and other compensation | 75 | 90 | ||||
U.S. tax loss/credit carryforwards | 520 | 441 | ||||
Deferred income | 38 | 65 | ||||
Foreign tax loss/credit carryforwards | 75 | 66 | ||||
Allowance for credit losses | 9 | 12 | ||||
Goodwill and intangible assets | 61 | 59 | ||||
Workforce rebalancing charges | 8 | 15 | ||||
Limitation on deductibility of interest | 88 | 79 | ||||
Accruals | 99 | 94 | ||||
Other | 52 | 57 | ||||
Gross deferred tax assets | $ | 1,384 | $ | 1,406 | ||
Less: valuation allowance | (749) | (748) | ||||
Net deferred tax assets | $ | 634 | $ | 657 | ||
Deferred tax liabilities | ||||||
Fixed assets and depreciation | $ | 97 | $ | 34 | ||
Leases and right-of-use assets | 242 | 294 | ||||
Undistributed foreign earnings | 5 | 16 | ||||
Deferred transition costs | 121 | 131 | ||||
Prepaids | 2 | 4 | ||||
Other | 15 | 16 | ||||
Gross deferred tax liabilities | $ | 482 | $ | 494 | ||
As of March 31, 2025, the Company had tax-affected U.S. and foreign net operating loss/credit carryforwards deferred tax assets of $520 million and $75 million, respectively. As of March 31, 2024, the Company had tax-affected U.S. and foreign net operating loss/credit carryforwards deferred tax assets of $441 million and $66 million, respectively. If not utilized, the U.S. state and foreign net operating loss carryforwards will begin to expire in 2026. The U.S. federal net operating losses incurred post 2017 can be carried forward indefinitely. Certain of our acquired U.S. net operating losses and general business credits are subject to limitations under IRC Section 382 and will begin to expire in 2029.
The valuation allowances as of March 31, 2025 and 2024 were $749 million and $748 million, respectively. The increase in valuation allowances from March 31, 2024 to March 31, 2025 was $1 million. The change in valuation allowances primarily reflects an increase in the U.S. due to current-year tax credit carryforwards generated and the impact of purchase accounting related to acquired net operating losses, which are not more likely than not to be realized. This increase was partially offset by the release and reduction in the valuation allowance for certain foreign jurisdictions resulting from the reversal of deductible temporary differences. Estimates of future taxable income could change, perhaps materially, which may require us to revise our assessment of the recoverability of the deferred tax asset at that time.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
Year Ended March 31, | |||||||||
(Dollars in millions) |
| 2025 |
| 2024 |
| 2023 | |||
Balance at beginning of period | $ | 108 | $ | 104 | $ | 55 | |||
Additions based on tax positions related to the current year | 35 | 36 | 46 | ||||||
Additions for tax positions of prior years | 28 | — | 3 | ||||||
Reductions for tax positions of prior years (including impacts due to a lapse of statute) | (3) | (32) | — | ||||||
Balance at end of period | $ | 168 | $ | 108 | $ | 104 | |||
Liabilities related to unrecognized tax benefits for which the Company is liable are reported within the Consolidated Balance Sheet based upon tax authorities’ ability to assert the Company may be the primary obligor for historical taxes, among other factors.
With limited exceptions, the Company is generally subject to income tax audits for tax years subsequent to September 1, 2021, or post-Separation, including in the U.S., Germany, Japan and Spain. Pursuant to the terms of the Separation, any tax liabilities attributable to the tax period (or portion thereof) ending on or before November 3, 2021, are generally not the Company’s liability. As of March 31, 2025, the Company is not aware of any material open income tax audits that would result in a liability owed by the Company. The Company does not expect a significant increase or decrease in unrecognized tax benefits within the next twelve months. The net amount of $168 million unrecognized tax benefits, if recognized, would favorably affect the Company’s effective tax rate. Interest and penalties related to income tax liabilities are included in income tax expense. During the year ended March 31, 2025, the Company recognized $12.5 million in interest expense and penalties. The Company had $4 million for interest and penalties accrued at March 31, 2024.
Pursuant to the terms of the Separation, there were certain tax refunds related to estimated tax payments and refundable value-added taxes for which we would have been required to reimburse our former Parent as the refunds were received, as well as certain tax benefits related to net operating losses that were transferred to the Company for which we would have been required to pay to our former Parent as the tax benefits were realized. In addition, our former Parent had obligations to indemnify the Company for tax liabilities attributable to tax periods (or portions thereof) ending on or before November 3, 2021. During fiscal year 2025, an agreement was executed with our former Parent that resolved both parties’ obligations related to the Separation. The agreement did not have a material impact on the Company’s financial statements.
As of March 31, 2025, the Company’s undistributed earnings from certain non-U.S. subsidiaries were not indefinitely reinvested. Accordingly, the Company recorded a deferred tax liability of $4 million for the estimated taxes associated with the repatriation of these earnings. The Company intends to repatriate certain foreign earnings that have been taxed in the U.S. and undistributed earnings to the extent the foreign earnings are not restricted by local laws and can be accessed in a cost-effective manner.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | May 30, 2025 | Showing above |
| 2024 | May 30, 2024 | |
| 2023 | May 26, 2023 | |
| 2021 | Mar 10, 2022 | |
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.