v3.26.1
Income Taxes
 12 Months Ended
Mar. 31, 2026
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income before income taxes includes the following (in thousands):
Fiscal Year Ended March 31,
202620252024
Domestic$66,058 $138,333 $82,033 
Foreign233,703 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,
202620252024
Current tax position:
Federal$75,229 $93,563 $44,568 
State955 5,530 (6,236)
Foreign35,840 33,729 21,839 
Total current tax position112,024 132,822 60,171 
Deferred tax provision:
Federal8,844 (58,527)(52,712)
State1,119 (4,201)(3,500)
Foreign15,105 (330,349)(3,676)
Total deferred tax provision25,068 (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
AmountPercent
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 tax4,618 1.5 %
Other(54)— %
Israel
Tax effect of intercompany IP transfer3,304 1.1 %
Changes in valuation allowances(3,758)(1.3)%
Other646 0.2 %
Poland
Research and development tax credits(4,875)(1.6)%
Changes in valuation allowances4,290 1.4 %
Other(578)(0.2)%
Switzerland
Statutory tax rate difference between Switzerland and U.S.(23,412)(7.8)%
Cantonal and communal income taxes6,821 2.3 %
Other306 0.1 %
Other foreign jurisdictions18,770 6.3 %
Effect of cross-border tax laws
GILTI, net of credits26,548 8.8 %
Impact of foreign branches, net of credits19,398 6.5 %
U.S. tax on foreign IP royalties6,235 2.1 %
Other(2,416)(0.8)%
Nontaxable or nondeductible items
Employee compensation12,964 4.3 %
Other2,374 0.8 %
Changes in unrecognized tax benefits3,325 1.1 %
Other adjustments1,843 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,
20252024
Income tax expense at U.S. federal statutory income tax rate$46,920 $32,532 
State and local tax expense, net of federal benefits7,296 306 
Foreign tax rate differential2,129 3,318 
U.S. effects of foreign branch income12,147 8,662 
Non-taxable income and non-deductible expenses860 1,742 
Tax credits(58,761)(41,740)
GILTI inclusion and foreign-derived intangible income deduction
(14,563)(13,905)
Employee compensation8,622 (7,188)
Changes in uncertain tax positions6,534 (14,835)
Changes in valuation allowance27,116 13,080 
Foreign withholding tax18,414 18,469 
Inflation and currency related adjustments100 851 
IP Transfer(320,902)— 
Other adjustments3,833 (1,009)
Total income tax (benefit) expense$(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 local6,229 
Foreign:
Austria6,778 
Brazil7,058 
Other26,693 
Total foreign40,529 
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,
20262025
Deferred tax assets:
Deferred revenue$32,386 $32,055 
Capitalized research and development costs147,630 155,368 
Accrued expenses25,619 21,829 
Share-based compensation28,586 28,012 
Operating lease liabilities57,481 24,249 
Net operating loss carryforwards26,736 24,312 
Intangible assets270,453 303,835 
Tax credit carryforwards69,392 59,599 
Other5,544 4,683 
Total deferred tax assets663,827 653,942 
Valuation allowance(71,573)(68,222)
Total deferred tax assets, net valuation allowance592,254 585,720 
Deferred tax liabilities:
Operating lease right-of-use assets49,219 22,267 
Deferred contract costs34,271 33,632 
Other1,965 690 
Total deferred tax liabilities85,455 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,
202620252024
Gross unrecognized tax benefit, beginning of year$20,168 $13,668 $29,110 
Gross increases to tax positions for the current period5,602 6,725 — 
Gross increases to tax positions for prior periods6,948 1,689 721 
Gross decreases to tax positions for prior periods(7,428)— (4,277)
Decreases related to settlements— — (168)
Decreases due to lapse of statutes of limitations(1,504)(1,922)(11,689)
Foreign currency translation$(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.