SYNOPSYS INCSNPS
SYNOPSYS INC Income Taxes Disclosure
Income Taxes
The domestic and foreign components of our total income before provision for income taxes are as follows:
| Year Ended October 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| United States | $ | 983,195 | $ | 1,333,132 | $ | 1,144,410 | |||||||||||
| Foreign | 409,947 | 180,726 | 161,060 | ||||||||||||||
Total income before provision for income taxes | $ | 1,393,142 | $ | 1,513,858 | $ | 1,305,470 | |||||||||||
The components of the provision (benefit) for income taxes are as follows:
| Year Ended October 31, | |||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Current: | |||||||||||||||||||||||
| Federal | $ | 376,014 | $ | 345,859 | $ | 252,186 | |||||||||||||||||
| State | 25,041 | 19,808 | 23,042 | ||||||||||||||||||||
| Foreign | 118,696 | 110,021 | 22,869 | ||||||||||||||||||||
| 519,751 | 475,688 | 298,097 | |||||||||||||||||||||
| Deferred: | |||||||||||||||||||||||
| Federal | (339,076) | (312,677) | (191,249) | ||||||||||||||||||||
| State | (109,078) | (39,164) | (219) | ||||||||||||||||||||
| Foreign | (15,606) | (24,129) | (16,441) | ||||||||||||||||||||
| (463,760) | (375,970) | (207,909) | |||||||||||||||||||||
| Provision (benefit) for income taxes | $ | 55,991 | $ | 99,718 | $ | 90,188 | |||||||||||||||||
The provision (benefit) for income taxes differs from the taxes computed with the statutory federal income tax rate as follows:
| Year Ended October 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Statutory federal tax | $ | 292,560 | $ | 317,912 | $ | 274,149 | |||||||||||
| State tax (benefit), net of federal effect | 26,897 | 48,393 | 438 | ||||||||||||||
| Federal tax credits | (64,818) | (70,119) | (60,500) | ||||||||||||||
Tax (benefit) on foreign earnings | 28,008 | 3,316 | (17,571) | ||||||||||||||
| Foreign-derived intangible income deduction | (106,903) | (104,835) | (80,034) | ||||||||||||||
| Tax settlements | — | — | (23,752) | ||||||||||||||
| Stock-based compensation | 20,583 | (43,419) | (39,995) | ||||||||||||||
| Changes in valuation allowance | (148,006) | (57,371) | 29,631 | ||||||||||||||
| Capital loss on the sale of investments | (30,868) | — | — | ||||||||||||||
| Acquisition costs | 17,877 | — | — | ||||||||||||||
| Other | 20,661 | 5,841 | 7,822 | ||||||||||||||
| Provision (benefit) for income taxes | $ | 55,991 | $ | 99,718 | $ | 90,188 | |||||||||||
On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was enacted, which significantly changed prior U.S. tax law and includes numerous provisions that affect our business. Effective in our fiscal 2023 year, the Tax Act requires that research and development expenditures be capitalized and amortized instead of being deducted when incurred. Domestic research is capitalized over five years and foreign research is capitalized over fifteen years. Capitalization of research and development expenditures also results in a corresponding deferred tax benefit and decreased our effective tax rate due to increasing the foreign-derived intangible income deduction.
We have provided for foreign withholding taxes on undistributed earnings of certain of our foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries. Where foreign subsidiaries are considered indefinitely reinvested, and if the tax effect of undistributed earnings and other outside basis differences were recognized, the nature of taxes expected would primarily be withholding, taxes in non-conforming states, and taxes on intermediate holding companies outside of the U.S., net of foreign tax credits where available. As of October 31, 2025, the taxes due, after allowable foreign tax credits, are not expected to be material.
The significant components of deferred tax assets and liabilities are as follows:
As of October 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net deferred tax assets: | |||||||||||
| Deferred tax assets: | |||||||||||
| Deferred revenue | $ | 164,953 | $ | 37,849 | |||||||
| Deferred compensation | 88,079 | 73,869 | |||||||||
| Intangible and depreciable assets | 57,278 | 65,489 | |||||||||
| Capitalized research and development costs | 1,352,914 | 978,085 | |||||||||
| Stock-based compensation | 110,861 | 74,934 | |||||||||
| Tax loss carryovers | 54,854 | 37,787 | |||||||||
| Foreign tax credit carryovers | 43,342 | 42,534 | |||||||||
| Research and other tax credit carryovers | 139,998 | 107,643 | |||||||||
Operating lease liabilities | 127,570 | 108,235 | |||||||||
Accruals and reserves | 117,113 | 49,935 | |||||||||
| Gross deferred tax assets | 2,256,962 | 1,576,360 | |||||||||
| Valuation allowance | (38,900) | (170,672) | |||||||||
| Total deferred tax assets | 2,218,062 | 1,405,688 | |||||||||
| Deferred tax liabilities: | |||||||||||
Intangible assets | 2,982,708 | 80,034 | |||||||||
Operating lease right-of-use-assets | 104,486 | 84,512 | |||||||||
Undistributed earnings of foreign subsidiaries | 24,074 | 8,800 | |||||||||
Other | 269 | 21,641 | |||||||||
| Total deferred tax liabilities | 3,111,537 | 194,987 | |||||||||
Net deferred tax assets (liabilities) | $ | (893,475) | $ | 1,210,701 | |||||||
It is more likely than not that the results of future operations will be able to generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance provided against our deferred tax assets as of October 31, 2025 is mainly attributable to foreign tax credits available to non-U.S. subsidiaries. The valuation allowance decreased by a net of $131.8 million in fiscal 2025, primarily related to realization of California research credits.
We have the following tax loss and credit carryforwards available to offset future income tax liabilities:
| Carryforward | Amount | Expiration Date | |||||||||
| (in thousands) | |||||||||||
| Federal net operating loss carryforward | $ | 11,531 | 2026-2042 | ||||||||
| Federal research credit carryforward | 1,636 | 2026-2035 | |||||||||
| Federal foreign tax credit carryforward | 35,780 | 2031 | |||||||||
| International foreign tax credit carryforward | 3,170 | Indefinite | |||||||||
| International net operating loss carryforward | 196,491 | 2027-Indefinite | |||||||||
| California research credit carryforward | 171,267 | Indefinite | |||||||||
| Other state research credit carryforward | 29,849 | 2026-2045 | |||||||||
| State net operating loss carryforward | 37,840 | 2032-2045 | |||||||||
The federal and state net operating loss carryforward is from acquired companies and the annual use of such loss is subject to significant limitations under Internal Revenue Code Section 382. Foreign tax credits may only be used to offset tax attributable to foreign source income.
The gross unrecognized tax benefits increased by approximately $111.9 million during fiscal 2025 resulting in gross unrecognized tax benefits of $173.7 million as of October 31, 2025. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:
As of October 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Beginning balance | $ | 61,854 | $ | 64,880 | |||||||
| Increases in unrecognized tax benefits related to prior year tax positions | 22,568 | 1,106 | |||||||||
| Decreases in unrecognized tax benefits related to prior year tax positions | (11,686) | (8,639) | |||||||||
| Increases in unrecognized tax benefits related to current year tax positions | 25,664 | 8,036 | |||||||||
| Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations | (4,089) | (4,380) | |||||||||
| Increases in unrecognized tax benefits acquired | 79,321 | 161 | |||||||||
| Changes in unrecognized tax benefits due to foreign currency translation | 102 | 690 | |||||||||
| Ending balance | $ | 173,734 | $ | 61,854 | |||||||
As of October 31, 2025 and 2024, approximately $173.7 million and $61.9 million, respectively, of the unrecognized tax benefits would affect our effective tax rate if recognized upon resolution of the uncertain tax positions.
Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized as a component of income tax expense (benefit) in the consolidated statements of income and totaled approximately $(0.2) million, $(1.0) million and $(10.6) million for fiscal years 2025, 2024 and 2023, respectively. As of October 31, 2025 and 2024, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns were approximately $0.9 million and $1.1 million, respectively.
The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. During the next 12 months, it is reasonably possible that certain audits and ongoing tax litigation will be resolved, or that the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, we estimate a potential decrease in underlying unrecognized tax benefits to be between $0.0 and $29.0 million.
We and/or our subsidiaries remain subject to tax examination in the following jurisdictions:
| Jurisdiction | Year(s) Subject to Examination | ||||
| United States | Fiscal years after 2021 | ||||
| California | Fiscal years after 2020 | ||||
| Ireland | Fiscal years after 2020 | ||||
| Japan | Fiscal years after 2020 | ||||
| Korea | Fiscal years after 2020 | ||||
| Taiwan | Fiscal years after 2023 | ||||
| China | Fiscal years after 2015 | ||||
| India | Fiscal years after 2018 | ||||
In addition, we have made acquisitions with operations in several of our significant jurisdictions which may have years subject to examination different from the years indicated in the above table.
Non-U.S. Examinations
One of our Korean subsidiaries, Ansys Korea, is currently involved in various stages of Tax Tribunal and Korea's High Court appeals regarding Korea's National Tax Service assessments of withholding taxes against Ansys Korea
for calendar tax years 2017-2023. In connection with this matter, we have recorded the net impact of the unrecognized tax benefit and offsetting foreign tax credit.
We are under examinations by the tax authorities in certain jurisdictions. No material assessments have been proposed in these examinations.
Legislative Developments
On July 4, 2025, U.S. President Donald J. Trump signed H.R. 1, the One Big Beautiful Bill Act (OBBB) into law. The OBBB includes many changes to corporate income tax law, including expensing for domestic research expenditures commencing in fiscal 2026 and changes to foreign-derived intangible income deduction in fiscal 2027. We are currently evaluating the impacts of OBBB.
Effective our fiscal 2024, we are subject to the new 15% corporate alternative minimum tax (CAMT) enacted as part of the Inflation Reduction Act of 2022 (the IR Act). As of October 31, 2025, this has not had an impact on our consolidated financial statements. We will monitor regulatory developments and will continue to evaluate the impact, if any, of the CAMT.
The IR Act imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022. In general, the total taxable value of shares repurchased is reduced by the fair market value of any newly issued shares during the taxable year. As of October 31, 2025, this has not had an impact on our consolidated financial statements.
On June 27, 2024, California enacted SB-167, which suspends the use of California net operating loss and limits the use of California research tax credits to $5 million for our fiscal 2025-2027. On June 29, 2024, California enacted SB-175, which provides a refund mechanism effective beginning in our fiscal 2025 for the incremental tax that was paid as a result of SB-167.
The Organisation for Economic Co-operation and Development (the OECD) has model rules for a global minimum tax framework, which is a two-pillar solution to address tax challenges arising from digitalization of the economy. This two-pillar solution includes the Pillar Two Model Rules (Pillar 2) which define global minimum tax rules and imposes a 15% minimum tax rate. Various countries have started to enact new laws related to Pillar 2, including certain new laws effective beginning in fiscal 2025. As of fiscal 2025, the impact of Pillar 2 is not material.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Dec 22, 2025 | Showing above |
| 2024 | Dec 19, 2024 | |
| 2023 | Dec 12, 2023 | |
| 2022 | Dec 12, 2022 | |
| 2021 | Dec 13, 2021 | |
| 2020 | Dec 15, 2020 | |
| 2019 | Dec 20, 2019 | |
| 2018 | Dec 17, 2018 | |
| 2017 | Dec 14, 2017 | |
| 2016 | Dec 12, 2016 | |
| 2015 | Dec 14, 2015 | |
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.