SEMTECH CORPSMTC
SEMTECH CORP Income Taxes Disclosure
Income Taxes
The Company's regional income before income taxes and equity in net gains (losses) of equity method investments was as follows:
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | January 25, 2026 | January 26, 2025 | January 28, 2024 | ||||||||||||||
| Domestic | $ | (45,923) | $ | (183,751) | $ | (306,039) | |||||||||||
| Foreign | 24,743 | 390 | (735,516) | ||||||||||||||
| Total | $ | (21,180) | $ | (183,361) | $ | (1,041,555) | |||||||||||
The provision for income taxes consisted of the following:
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | January 25, 2026 | January 26, 2025 | January 28, 2024 | ||||||||||||||
| Current income tax (benefit) provision | |||||||||||||||||
| Federal | $ | (613) | $ | (10,416) | $ | 1,758 | |||||||||||
| State | 485 | 1,513 | 1 | ||||||||||||||
| Foreign | 14,111 | 9,949 | 8,750 | ||||||||||||||
| Subtotal | 13,983 | 1,046 | 10,509 | ||||||||||||||
| Deferred income tax (benefit) provision | |||||||||||||||||
| Federal | — | — | 50,938 | ||||||||||||||
| State | — | — | 51 | ||||||||||||||
| Foreign | 5,849 | (23,058) | (10,979) | ||||||||||||||
| Subtotal | 5,849 | (23,058) | 40,010 | ||||||||||||||
| Provision for income taxes | $ | 19,832 | $ | (22,012) | $ | 50,519 | |||||||||||
The Company adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" on a prospective basis beginning with the year ended January 25, 2026. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended January 25, 2026:
| Fiscal Year Ended | |||||||||||
| (in thousands) | January 25, 2026 | ||||||||||
| U.S. Federal statutory rate | $ | (4,448) | 21.0% | ||||||||
| State and local taxes, net of federal income tax effect | |||||||||||
| New York | (245) | 1.2% | |||||||||
| Other | (78) | 0.4% | |||||||||
| Foreign tax effects | |||||||||||
| Switzerland | |||||||||||
| Tax rate differential | (3,582) | 16.9% | |||||||||
| Shared-based compensation | (2,652) | 12.5% | |||||||||
| Rate change on deferreds | (2,425) | 11.4% | |||||||||
| Other adjustments | 274 | (1.3)% | |||||||||
| Canada | |||||||||||
| Tax rate differential | (2,639) | 12.5% | |||||||||
| Impact of audit settlements | 409 | (1.9)% | |||||||||
| Research and development credits | (6,335) | 29.9% | |||||||||
| Goodwill impairment | 8,968 | (42.3)% | |||||||||
| Valuation allowance | 16,117 | (76.1)% | |||||||||
| Other adjustments | 688 | (3.2)% | |||||||||
| United Kingdom | |||||||||||
| Research and development credits | (495) | 2.3% | |||||||||
| Other adjustments | (925) | 4.4% | |||||||||
| France | |||||||||||
| Goodwill impairment | 2,121 | (10.0)% | |||||||||
| Impact of audit settlements | 1,280 | (6.0)% | |||||||||
| Other adjustments | 85 | (0.4)% | |||||||||
| Australia | |||||||||||
| Goodwill impairment | 2,280 | (10.8)% | |||||||||
| Other adjustments | 459 | (2.2)% | |||||||||
| Other foreign jurisdictions | |||||||||||
| Goodwill impairment | 904 | (4.3)% | |||||||||
| Other adjustments | 231 | (1.1)% | |||||||||
| Effects of Cross-Border tax laws | |||||||||||
| Global intangible low-taxes income (GILTI) | 5,808 | (27.4)% | |||||||||
| Foreign derived intangible income (subpart F) | 160 | (0.8)% | |||||||||
| Section 78 gross up | 2,540 | (12.0)% | |||||||||
| Foreign tax credit | (6,750) | 31.9% | |||||||||
| Tax credits | |||||||||||
| Research and development credit | 327 | (1.5)% | |||||||||
| Valuation allowance | (8,790) | 41.5% | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Debt Extinguishment | 5,430 | (25.6)% | |||||||||
| Share-based compensation | (1,864) | 8.8% | |||||||||
| Disallowed executive compensation | 3,278 | (15.5)% | |||||||||
| Goodwill impairment | 6,517 | (30.8)% | |||||||||
| Other Adjustments | |||||||||||
| Return to provision adjustments | 3,230 | (15.3)% | |||||||||
| Other adjustments | (46) | 0.2% | |||||||||
| Effective tax rate | $ | 19,832 | (93.6)% | ||||||||
The following table presents the required disclosures prior to the Company's adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for the fiscal years ended January 26, 2025 and January 28, 2024:
| Fiscal Year Ended | |||||||||||
| (in thousands) | January 26, 2025 | January 28, 2024 | |||||||||
| Federal income tax at statutory rate | $ | (38,506) | $ | (218,726) | |||||||
| State income taxes, net of federal benefit | 1,173 | (9,989) | |||||||||
| Foreign taxes differential, including withholding taxes | (1,027) | (36,408) | |||||||||
| Tax credits generated | (9,436) | (6,054) | |||||||||
| Changes in valuation allowance | 23,847 | 149,209 | |||||||||
| Gain on intra-entity asset transfer of intangible assets | 11,430 | — | |||||||||
| Changes in uncertain tax positions | (9,856) | 1,877 | |||||||||
| True-up on impairment losses | (26,903) | — | |||||||||
| Equity compensation | 1,825 | 2,929 | |||||||||
| Nondeductible loss on debt extinguishment | 30,384 | — | |||||||||
| Rate change on deferreds | (10,382) | (2,667) | |||||||||
| GILTI and Subpart F income | 7,227 | — | |||||||||
| Goodwill impairment | 2,019 | 193,699 | |||||||||
| Nondeductible officers compensation | 1,650 | 741 | |||||||||
| Other | (5,457) | (24,092) | |||||||||
| Provision for income taxes | $ | (22,012) | $ | 50,519 | |||||||
The Company’s tax expense benefited from its operations in lower tax jurisdictions, such as Switzerland, research and foreign tax credits, equity compensation windfall and the impact of a change in tax rates on deferred tax assets. The Company's tax expense increased due to a change in valuation allowance, nondeductible loss on extinguishment of debt, impairment losses on goodwill, taxes related to disallowed executive compensation and an increase in global intangible low-tax income ("GILTI"), driven by the capitalization of R&D costs as mandated by the Tax Cuts and Job Act (the "Tax Act").
Historically, the Company benefited from a Swiss tax holiday that commenced on January 30, 2017. However, Switzerland implemented the OECD Pillar Two rules effective from January 1, 2024. These rules, guided by OECD administrative updates in December 2023, impose a global minimum tax of 15% on multination enterprises with an annual revenue exceeding €750 million in at least two out of the last four years. As of the fourth quarter of fiscal year 2025, the Company reached this threshold and does not benefit from the tax holiday from fiscal year 2025 onwards. The Company recorded the impact as part of our provision for income taxes in fiscal year 2025.
The Creating Helpful Incentives to Produce Semiconductors and Science Act ("CHIPS Act") provides for various incentives and tax credits, including the Advanced Manufacturing Investment Credit ("AMIC"), which equals 25% of qualified investments in an advanced manufacturing facility that is placed in service after December 31, 2022. At least a portion of our current and future capital expenditures and research and development costs are expected to qualify for this credit, which benefits us by allowing us to net the credit received against our costs. The AMIC credit is accounted for outside of ASC 740 as a reduction to the depreciable basis of the assets used in operations and will not have an impact on our effective tax rate.
The Tax Act imposed a U.S. tax on GILTI income that is earned by certain foreign affiliates owned by a U.S. stockholder. In accordance with guidance issued by the FASB, the Company has made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred.
Prior to the enactment of the Tax Act, with few exceptions, U.S. federal income and foreign withholding taxes had not been provided on the excess of the amount for financial reporting over the tax basis of investments in the Company’s foreign subsidiaries that were essentially permanent in duration. With the enactment of the Tax Act, all historic and current foreign earnings are taxed in the U.S. Depending on the jurisdiction, these foreign earnings are potentially subject to a withholding tax, if repatriated. As of January 25, 2026, the historical undistributed earnings of the Company’s foreign subsidiaries are intended to be permanently reinvested outside of the U.S.
Notwithstanding the U.S. taxation of these amounts, the Company has determined that none of its current foreign earnings will be permanently reinvested. If the Company needed to remit all or a portion of its historical undistributed earnings to the U.S. for
investment in its domestic operations, any such remittance could result in increased tax liabilities and a higher effective tax rate. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable.
The components of the net deferred income tax assets and liabilities at January 25, 2026 and January 26, 2025 were as follows:
| (in thousands) | January 25, 2026 | January 26, 2025 | |||||||||
| Non-current deferred tax assets: | |||||||||||
| Deferred revenue | $ | 2,645 | 2,351 | ||||||||
| Inventory reserve | 7,951 | $ | 7,501 | ||||||||
| Bad debt reserve | 731 | 405 | |||||||||
| Foreign tax credits | 767 | 1,790 | |||||||||
| Research credit carryforward | 89,563 | 91,214 | |||||||||
| NOL carryforward | 134,089 | 128,595 | |||||||||
| Payroll and related accruals | 10,503 | 7,989 | |||||||||
| Share-based compensation | 5,685 | 4,608 | |||||||||
| Foreign pension deferred | 315 | 793 | |||||||||
| Accrued sales reserves | 3,471 | 4,332 | |||||||||
| Research and development charges | 22,134 | 20,374 | |||||||||
| Leasing deferred assets | 6,244 | 5,930 | |||||||||
| OID interest | 2,052 | 9,692 | |||||||||
| Other reserves | 1,129 | 1,463 | |||||||||
| Section 163(J) Limitation | 37,556 | 34,072 | |||||||||
| Other deferred assets | 4,261 | 3,558 | |||||||||
| Intangibles | 61,060 | 67,397 | |||||||||
| Valuation allowance | (336,266) | (328,203) | |||||||||
| Total non-current deferred tax assets | 53,890 | 63,861 | |||||||||
| Non-current deferred tax liabilities: | |||||||||||
| Property, plant and equipment | (4,788) | (7,135) | |||||||||
| Goodwill and other intangibles | (8,242) | (7,700) | |||||||||
| Leasing deferred liabilities | (5,532) | (5,334) | |||||||||
| Other non-current deferred tax liabilities | (1,241) | (3,318) | |||||||||
| Total non-current deferred tax liabilities | (19,803) | (23,487) | |||||||||
| Net deferred tax assets | $ | 34,087 | $ | 40,374 | |||||||
As of January 25, 2026, the Company had U.S. gross federal and state research credits available of approximately $10.9 million and $23.1 million, respectively, which are available to offset taxable income. In connection with the Sierra Wireless Acquisition, the Company acquired approximately $4.1 million of fully reserved U.S. research credit carryforwards. The Company's U.S. credits will expire between fiscal years 2029 through 2046. The Company also had gross Canadian research credits available of approximately $70.0 million. Included in the $70.0 million are $56.2 million of Canadian research credit carryforwards that were acquired in connection with the Sierra Wireless Acquisition. The Company's Canadian credits will expire by fiscal year 2046.
As of January 25, 2026, the Company had U.S. gross state NOL carryforwards of $157.5 million, which, subject to certain limitations, are available to offset future taxable income through fiscal year 2046. These will expire at various dates through 2038 for losses generated prior to tax year 2018.
Additionally, the Company had fully reserved gross NOLs in Canada and France, for $108.9 million and $272.3 million respectively, for companies acquired during the Sierra Wireless Acquisition. The Company also has a gross Swiss NOL of $164.6 million, and a gross UK NOL of $10.0 million.
As of January 25, 2026 and January 26, 2025, the Company had approximately $370.4 million and $368.6 million of net deferred tax assets, respectively, the majority of which are in the U.S., Canada and France. The Company has recorded valuation allowances of $336.3 million and $328.2 million against its deferred tax assets at January 25, 2026 and January 26, 2025, respectively, based on the Company's assessment of its ability to utilize its deferred tax assets. The Company reassessed the valuation allowances and evaluated the recoverability of its deferred tax assets, considering all available evidence such as
earnings history and tax planning strategies. After weighing all positive and negative evidence, the Company maintains a valuation allowance for assets if it is more likely than not that some, or all, of its deferred tax assets will not be realized. Positive evidence considered included reversing taxable temporary differences. Negative evidence considered included the cumulative pre-tax losses recorded during the three-year period ended January 25, 2026, on both an annual and cumulative basis. In jurisdictions where the Company has cumulative losses, the Company has recorded a full valuation allowance on deferred tax assets. As of January 26, 2025, the Company continues to maintain full valuation allowance on DTAs in the U.S. and France, as well as a partial valuation allowance on DTAs in Canada. As a result of the Company’s recent performance, there is a reasonable possibility that a portion of the Company’s valuation allowance is no longer needed in future periods. A release of the valuation allowance will likely result in a material tax benefit recognized in the quarter of the release.
Changes in the valuation allowance for the three years ended January 25, 2026 are summarized in the table below:
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | January 25, 2026 | January 26, 2025 | January 28, 2024 | ||||||||||||||
| Beginning balance | $ | 328,203 | $ | 304,355 | $ | 156,850 | |||||||||||
| Additions | 20,537 | 35,071 | 147,505 | ||||||||||||||
| Releases | (12,474) | (11,223) | — | ||||||||||||||
| Ending balance | $ | 336,266 | $ | 328,203 | $ | 304,355 | |||||||||||
The current year activity of $8.1 million primarily consists of valuation allowance on deferred tax assets related to disallowed interest expense carried forward in the U.S. and Canada, as well as NOL and R&D credit deferred tax assets in those regions. The change in the valuation allowance of $8.1 million is included in the fiscal year 2026 provision for income taxes in the Consolidated Statements of Operations.
Uncertain Tax Positions
The Company uses a two-step approach to recognize and measure uncertain tax positions ("UTP"). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before federal impact of state items) is as follows:
| Fiscal Year Ended | |||||||||||
| (in thousands) | January 25, 2026 | January 26, 2025 | |||||||||
| Beginning balance | $ | 20,966 | $ | 36,548 | |||||||
| Net additions based on tax positions related to the current year | 1,868 | 1,356 | |||||||||
| Additions based on tax positions related to prior years | 438 | 646 | |||||||||
| Reductions as a result of lapsed statutes | (2,119) | (17,584) | |||||||||
| Reductions for settlements with tax authorities | (639) | — | |||||||||
| Ending balance | $ | 20,514 | $ | 20,966 | |||||||
Included in the balance of gross unrecognized tax benefits at January 25, 2026 and January 26, 2025, are $4.6 million and $4.8 million, respectively, of net tax benefits (after federal impact of state items) that, if recognized, would impact the effective tax rate. During fiscal year 2026, the Company released a reserve due to the lapse of a statute of limitations. The Company believes that it is reasonably possible that its balance of gross unrecognized tax benefits may decrease by approximately $0.8 million within the next twelve months.
The liability for UTP is reflected on the Balance Sheets as follows:
| Fiscal Year Ended | |||||||||||
| (in thousands) | January 25, 2026 | January 26, 2025 | |||||||||
| Deferred tax assets - non-current | $ | 13,943 | $ | 14,255 | |||||||
| Other long-term liabilities | 4,625 | 4,775 | |||||||||
| Total uncertain tax positions | $ | 18,568 | $ | 19,030 | |||||||
The Company’s policy is to include net interest and penalties related to unrecognized tax benefits within the provision for taxes in the Statements of Operations. The Company had approximately $0.5 million of net interest and penalties accrued at January 25, 2026.
Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the IRS except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns in the U.S., the Company is generally not subject to income tax examinations for years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2020. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
Cash Taxes Paid
The Company adopted ASU 2023-09 and has included the following table as a result of the adoption. A reconciliation of the income taxes paid (net of refunds received) is as follows:
| (in thousands) | January 25, 2026 | ||||
| Federal taxes | $ | (997) | |||
| State taxes | 439 | ||||
| Foreign taxes: | |||||
| Australia | 5,546 | ||||
| France | (1,199) | ||||
| Hong Kong | 457 | ||||
| India | 1,065 | ||||
| Japan | 242 | ||||
| Mexico | 317 | ||||
| Sweden | 1,176 | ||||
| Switzerland | 359 | ||||
| UK | (3,806) | ||||
| Other Foreign | 477 | ||||
| Total cash taxes paid | $ | 4,076 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 23, 2026 | Showing above |
| 2025 | Mar 25, 2025 | |
| 2024 | Mar 28, 2024 | |
| 2023 | Mar 30, 2023 | |
| 2022 | Mar 16, 2022 | |
| 2021 | Mar 24, 2021 | |
| 2020 | Mar 20, 2020 | |
| 2019 | Mar 21, 2019 | |
| 2018 | Mar 22, 2018 | |
| 2017 | Mar 23, 2017 | |
| 2016 | Mar 31, 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.