MICROCHIP TECHNOLOGY INCMCHP
MICROCHIP TECHNOLOGY INC Income Taxes Disclosure
Income Taxes
The income tax provision (benefit) consists of the following (amounts in millions):
| Fiscal Year Ended March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Income before income taxes: | |||||||||||||||||
| U.S. | $ | (33.8) | $ | (131.5) | $ | 555.5 | |||||||||||
| Foreign | 307.3 | 170.4 | 1,810.4 | ||||||||||||||
| Total income before income taxes | $ | 273.5 | $ | 38.9 | $ | 2,365.9 | |||||||||||
| Current provision: | |||||||||||||||||
| U.S. federal | $ | 51.7 | $ | 127.5 | $ | 347.5 | |||||||||||
| State | 3.5 | — | 20.0 | ||||||||||||||
| Foreign | 52.9 | 55.2 | 118.7 | ||||||||||||||
| Total current provision | $ | 108.1 | $ | 182.7 | $ | 486.2 | |||||||||||
| Deferred provision (benefit): | |||||||||||||||||
| U.S. federal | $ | (21.6) | $ | (101.0) | $ | (106.4) | |||||||||||
| State | (2.2) | (5.5) | (12.3) | ||||||||||||||
| Foreign | (40.8) | (36.8) | 91.5 | ||||||||||||||
| Total deferred provision (benefit) | (64.6) | (143.3) | (27.2) | ||||||||||||||
| Income tax provision | $ | 43.5 | $ | 39.4 | $ | 459.0 | |||||||||||
The Company has elected to prospectively adopt the guidance in ASU 2023-09. The following table presents the required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to the Company's actual global effective amount and rate for the fiscal year ended March 31, 2026 (amounts in millions):
| Fiscal Year Ended March 31, 2026 | |||||||||||
Amount | Percent | ||||||||||
| U.S. federal statutory income tax rate | $ | 57.4 | 21.0 | % | |||||||
Domestic state and local income taxes, net of federal effect (1) | (1.8) | (0.7) | % | ||||||||
| Domestic federal | |||||||||||
| Tax credits | |||||||||||
| Research and development credits | (24.5) | (9.0) | % | ||||||||
| Cross-border tax laws | |||||||||||
| GILTI | 43.0 | 15.7 | % | ||||||||
| Foreign income tax credits | (16.5) | (6.0) | % | ||||||||
| Other | (2.6) | (0.9) | % | ||||||||
| Fiscal Year Ended March 31, 2026 | |||||||||||
Amount | Percent | ||||||||||
| Other | 8.4 | 3.1 | % | ||||||||
| Foreign tax effects | |||||||||||
| Malta | |||||||||||
| Statutory income tax rate differential | 36.7 | 13.4 | % | ||||||||
| Notional interest deduction | (83.0) | (30.3) | % | ||||||||
| Other | (3.2) | (1.2) | % | ||||||||
| Canada | |||||||||||
| Research and development credits | (13.4) | (4.9) | % | ||||||||
| Imputed interest income | 6.8 | 2.5 | % | ||||||||
| Other | 9.2 | 3.4 | % | ||||||||
| Ireland | |||||||||||
| Statutory income tax rate differential | 11.0 | 4.0 | % | ||||||||
| Withholding and other taxes | 7.7 | 2.8 | % | ||||||||
| Other | 0.9 | 0.3 | % | ||||||||
| Thailand | |||||||||||
| Nontaxable and nondeductible Items | (8.8) | (3.2) | % | ||||||||
| Income tax holidays | (5.1) | (1.9) | % | ||||||||
| Other | 1.1 | 0.4 | % | ||||||||
| Taiwan | |||||||||||
| Withholding and other taxes | 9.4 | 3.5 | % | ||||||||
| Other | 0.1 | — | |||||||||
| Other foreign jurisdictions | 6.0 | 2.2 | % | ||||||||
| Change in uncertain tax positions | 4.7 | 1.7 | % | ||||||||
| Effective tax rate | $ | 43.5 | 15.9 | % | |||||||
(1) State taxes in Arizona and California comprise the majority of the tax effect in this category.
The following table presents required disclosures prior to the adoption of ASU 2023-09 and displays the reconciliation between statutory federal income taxes and the total income tax provision (benefit) for the fiscal years ended March 31, 2025 and 2024 (amounts in millions):
| Fiscal Year Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Computed expected income tax provision | $ | 8.2 | $ | 496.8 | |||||||
| State income taxes, net of federal benefit | (2.1) | 15.7 | |||||||||
| Effects of foreign operations - rate differential | (19.2) | (149.3) | |||||||||
| Effects of foreign operations - other, net of foreign tax credits | 55.0 | 212.2 | |||||||||
| Foreign-derived intangible income (FDII) | (3.1) | (3.6) | |||||||||
| Business realignment of intellectual property rights | 5.7 | 0.4 | |||||||||
| Change in uncertain tax positions | 45.1 | 5.8 | |||||||||
| Share-based compensation | (14.1) | (8.4) | |||||||||
| R&D tax credits | (60.1) | (69.8) | |||||||||
| Income tax holidays | (12.0) | (22.5) | |||||||||
| Nondeductible Expenses | 6.0 | 7.7 | |||||||||
| Other | 13.4 | 2.6 | |||||||||
| Change in valuation allowance | 16.6 | (28.6) | |||||||||
| Income tax provision | $ | 39.4 | $ | 459.0 | |||||||
The foreign tax rate differential benefit primarily relates to the Company's operations in Malta and Ireland. The Company's Thailand manufacturing operations are currently subject to numerous tax holidays granted to the Company based on its investment in property, plant, and equipment in Thailand. The Company's tax holiday periods in Thailand expire between fiscal 2027 and 2034, however, the Company actively seeks to obtain new tax holidays. The Company does not expect the future expiration of any of its tax holiday periods in Thailand to have a material impact on its effective tax rate. The aggregate dollar benefit derived from these tax holidays approximated $5.1 million, $12.0 million, and $22.5 million in
fiscal 2026, fiscal 2025, and fiscal 2024, respectively. The impact of the tax holidays increased each of the basic and diluted net income per common share by $0.01 in fiscal 2026, $0.02 in fiscal 2025, and $0.04 in fiscal 2024.
The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets and deferred tax liabilities are as follows (amounts in millions):
| March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
| Accrued expenses | $ | 51.8 | $ | 51.8 | |||||||
| Capital loss carryforward | 10.1 | 9.8 | |||||||||
| Disallowed expense carryforwards | 377.5 | 242.8 | |||||||||
| Income tax credits | 260.9 | 266.8 | |||||||||
| Intangible assets | 1,081.1 | 1,192.1 | |||||||||
| Inventory valuation | 144.5 | 130.4 | |||||||||
| Property, plant and equipment | 15.4 | — | |||||||||
| Lease liabilities | 33.4 | 33.2 | |||||||||
| Net operating loss carryforward | 62.4 | 59.3 | |||||||||
| Share-based compensation | 67.0 | 53.5 | |||||||||
| Other | 20.5 | 25.6 | |||||||||
| Gross deferred tax assets | 2,124.6 | 2,065.3 | |||||||||
| Valuation allowances | (291.6) | (287.4) | |||||||||
| Deferred tax assets, net of valuation allowances | 1,833.0 | 1,777.9 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | (33.9) | (50.3) | |||||||||
| ROU assets | (31.7) | (31.7) | |||||||||
| Property, plant and equipment | — | (1.6) | |||||||||
| Deferred tax liabilities | (65.6) | (83.6) | |||||||||
| Net deferred tax asset | $ | 1,767.4 | $ | 1,694.3 | |||||||
| Reported as: | |||||||||||
| Non-current deferred tax assets | $ | 1,792.5 | $ | 1,728.1 | |||||||
| Non-current deferred tax liability | (25.1) | (33.8) | |||||||||
| Net deferred tax asset | $ | 1,767.4 | $ | 1,694.3 | |||||||
In assessing whether it is more likely than not that deferred tax assets will be realized, the Company considers all available evidence, both positive and negative, including its recent cumulative earnings experience and expectations of future available taxable income of the appropriate character by taxing jurisdiction, tax attribute carryback and carryforward periods available for tax reporting purposes, and prudent and feasible tax planning strategies.
Additions and deductions related to the valuation allowance for deferred tax assets for the three fiscal years were as follows (amounts in millions):
| Balance at Beginning of Year | Additions Charged to Costs and Expenses | Deductions | Balance at End of Year | ||||||||||||||||||||
| Fiscal 2026 | $ | 287.4 | $ | 36.5 | $ | (32.3) | $ | 291.6 | |||||||||||||||
| Fiscal 2025 | $ | 270.8 | $ | 22.2 | $ | (5.6) | $ | 287.4 | |||||||||||||||
| Fiscal 2024 | $ | 299.4 | $ | 6.5 | $ | (35.1) | $ | 270.8 | |||||||||||||||
The Company had federal, state and foreign net operating loss (NOL) carryforwards with an estimated tax effect of $62.4 million available at March 31, 2026, which expire at various times between fiscal 2027 and fiscal 2046, of which a portion of the NOL carryforwards do not expire. The Company had capital loss carryforwards with an estimated tax effect of $10.1 million available at March 31, 2026, which begin to expire in fiscal 2027. The Company had federal, state and foreign credits of $260.9 million available at March 31, 2026, which begin to expire in fiscal 2027. The Company had disallowed expense carryforwards with an estimated tax effect of $377.5 million available at March 31, 2026. These expense carryforwards do not expire.
The enactment of the TCJA imposed a tax on all previously untaxed earnings of non-U.S. subsidiaries of U.S. corporations. Due to this change, the jurisdiction in which the Company's cash is at any given point in time no longer has a significant impact on the Company's liquidity. The Company intends to invest substantially all of the Company's foreign subsidiary earnings, as well as the Company's capital in the Company's foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which the Company would incur significant, additional costs upon repatriation of such amounts. It is not practical to estimate the additional tax that would be incurred, if any, if the permanently reinvested earnings were repatriated.
During fiscal 2018, the Company recognized a one-time transition tax on accumulated unrepatriated foreign earnings, of which the Company expected cash payments of approximately $293.6 million. This tax was payable over a period of eight years, with 8% of the transition tax payable each year for fiscal 2019 through fiscal 2023, and 15%, 20%, and 25%, respectively, payable during fiscal 2024, fiscal 2025 and fiscal 2026. As of March 31, 2026, the Company had no remaining transition tax payable.
The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The Company files U.S. federal, U.S. state, and foreign income tax returns. For U.S. federal, and in general for U.S. state tax returns, the fiscal 2007 and later tax years remain effectively open for examination by tax authorities. For foreign tax returns, the Company is generally no longer subject to income tax examinations for years prior to fiscal 2007.
Significant judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. Although the Company believes that it has appropriately reserved for its uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different than expectations. The Company will adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, tax litigation, interaction with taxing authorities, the closing of a statutory audit period or changes in applicable tax law. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences would impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to the reserves that are considered appropriate, as well as related net interest.
The Company recognizes liabilities for anticipated tax audit issues in the U.S. and other domestic and international tax jurisdictions based on its estimate of whether, and the extent to which, the tax positions are more likely than not to be sustained based on the technical merits. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax laws applied to the facts of each matter.
The Company believes it maintains appropriate reserves to offset potential income tax liabilities for positions that are not more than likely than not to be sustained upon final resolution of matters for open tax years. If such reserve amounts ultimately prove to be unnecessary, the resulting reversal of such reserves could result in tax benefits being recorded in the period the reserves are no longer deemed necessary. If such amounts prove to be less than an ultimate assessment, a future charge to expense would be recorded in the period in which the assessment is determined.
The following table summarizes the activity related to the Company's gross unrecognized tax benefits for the last three fiscal years (amounts in millions):
| March 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Beginning gross unrecognized tax benefits | $ | 821.2 | $ | 792.4 | $ | 848.0 | |||||||||||
| Decreases related to settlements with tax authorities | (62.6) | (0.7) | (5.8) | ||||||||||||||
| Decreases related to statute of limitation expirations | (8.2) | (6.9) | (3.3) | ||||||||||||||
| Increases related to current year tax positions | 16.4 | 27.1 | 37.4 | ||||||||||||||
| Increases (decreases) related to prior year tax positions | (87.0) | 9.3 | (83.9) | ||||||||||||||
| Ending gross unrecognized tax benefits | $ | 679.8 | $ | 821.2 | $ | 792.4 | |||||||||||
As of March 31, 2026 and March 31, 2025, the Company had accrued interest and penalties related to tax contingencies of $120.1 million and $135.8 million, respectively, included within long-term income tax payable on the consolidated balance sheets. During the fiscal year ended March 31, 2026, the Company released previously accrued interest and penalties of $15.7 million, compared to the charges in interest and penalties to operations of $31.2 million in the fiscal year ended March 31, 2025. The total amount of gross unrecognized tax benefits was $679.8 million and $821.2 million as of March 31,
2026, and March 31, 2025, respectively, of which $600.1 million and $706.4 million, respectively, is estimated to impact the Company's effective tax rate, if recognized.
The Company is currently under income tax examination in various tax jurisdictions in which it operates. The years under examination range from fiscal 2007 through fiscal 2024. In some jurisdictions, the Company has received tax assessments in excess of established reserves. The Company is contesting these tax assessments, and will continue to do so, including pursuing all available remedies such as appeals and litigation, if necessary. During fiscal 2026, additional assessments were received for these issues, and the Company’s position remains unchanged.
In the year ending March 31, 2026, due to settlements reached with tax authorities, the Company determined that certain unrecognized tax positions should be remeasured, including the indirect tax effects, penalties, and interest associated with these unrecognized tax positions. The effect of this change in estimate was to record an income tax benefit of $24.4 million, which increased basic net income per common share by $0.05 for the fiscal year ended March 31, 2026, and increased diluted net income per common share by $0.04 for the fiscal year ended March 31, 2026, both of which are a component of income tax provision from continuing operations.
In September 2021, the Company received a Statutory Notice of Deficiency (2007 to 2012 Notice) from the United States Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters. In December 2021, the Company filed a petition in the U.S. Tax Court challenging the 2007 to 2012 Notice. In September 2023, the Company received a Revenue Agent Report (RAR) from the IRS for fiscal 2013 and fiscal 2016. In October 2023, the Company received a Statutory Notice of Deficiency (2014 to 2015 Notice) from the IRS for fiscal 2014 and fiscal 2015. The disputed amounts for fiscal 2013 to fiscal 2016 largely relate to transfer pricing matters. In December 2023, the Company filed a petition in the U.S. Tax Court challenging the 2014 to 2015 Notice. In September 2025, the Company reached a settlement with the IRS for fiscal years 2007 through 2015.
In May 2023, the Company received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, the Company received a Notice of Assessment from the IRB asserting the same proposed income adjustment. In March 2025, the Company entered into a Consent Judgment before the High Court, agreeing that the dispute will be heard before the Special Commissioners of Income Tax (SCIT). It was also agreed that the payment on the taxes assessed is stayed and the IRB will pause all enforcement and proceedings against the collection of the taxes assessed until the appeal before the SCIT is concluded. If the adjustment is upheld by the highest court that has jurisdiction over this matter in Malaysia, it could result in income taxes and penalties up to MYR 1.9 billion (approximately $480.2 million based on the exchange rate as of March 31, 2026). The disputed amounts largely relate to the characterization of certain assets. The timing of adjudicating this matter is uncertain but could commence in the next 18 months.
The Company firmly believes that the IRB assessment is without merit and plans to pursue all available administrative and judicial remedies necessary to resolve the matter. The Company intends to vigorously defend its position and the Company is confident in its ability to prevail on the merits. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of the Company's tax reserves. The ultimate outcome of disputes of this nature is uncertain, and if the IRB were to prevail on its assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on the Company's financial position, results of operations or cash flows.
During the period ending March 31, 2026, the Company resolved its dispute with the German Tax Authority. The resolution did not have a material impact to the financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | May 21, 2026 | Showing above |
| 2025 | May 23, 2025 | |
| 2024 | May 23, 2024 | |
| 2023 | May 25, 2023 | |
| 2022 | May 20, 2022 | |
| 2021 | May 18, 2021 | |
| 2020 | May 22, 2020 | |
| 2019 | May 30, 2019 | |
| 2018 | May 18, 2018 | |
| 2017 | May 30, 2017 | |
| 2016 | May 24, 2016 | |
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.