|12 Months Ended|
Dec. 31, 2019
|Income Tax Disclosure [Abstract]|
|Income Taxes||dated income from continuing operations before income taxes consisted of the following:
The components of the provision (benefit) for income taxes consisted of the following:
The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:
Effects of the TCJA
On December 22, 2017, the United States Government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act ("TCJA"). The TCJA made broad and complex changes to the United States tax code, including, but not limited to:
•reducing the United States federal corporate tax rate from 35% to 21%;
•requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries;
•generally eliminating United States federal income taxes on dividends from foreign subsidiaries;
•requiring a current inclusion in United States federal taxable income of certain earnings of controlled foreign corporations;
•eliminating the corporate alternative minimum tax ("AMT") and changing how existing AMT credits can be realized;
•creating the base erosion anti-abuse tax;
•a new provision designed to tax global intangible low-taxed income ("GILTI");
•creating a new limitation on deductible interest expense; and
•changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
In conjunction with the enactment of the TCJA, the SEC staff issued Staff Accounting Bulletin 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting for the effects of the TCJA.
Any legislative changes, including the final Section 965 transition tax regulations issued on January 15, 2019, the impacts of which are currently being assessed due to the complexity and interdependency of the legislative provisions, as well as other new or proposed Treasury regulations, may result in additional income tax impacts which could be material in the period any such changes are enacted.
For the year ended December 31, 2017, in accordance with SAB 118, the Company reflected the income tax effects in the financial statements for those aspects of the TCJA for which the accounting was complete and recorded an incremental provisional net tax expense of $95.6 million for those aspects for which the accounting was incomplete but able to determine a reasonable estimate.
For the year ended December 31, 2018, the Company recorded an incremental tax expense of $5.1 million as adjustments to the provisional tax expense. Details related to the incremental expenses in 2018 are outlined below.
Reduction of United States federal corporate tax rate
The TCJA reduces the United States federal corporate tax rate from 35% to 21%, effective January 1, 2018. For the year ended December 31, 2017, the Company recorded a provisional decrease to net deferred tax assets of $15.0 million, for certain deferred tax assets and liabilities, with a corresponding charge to deferred income tax expense of $15.0 million. In 2018, the Company determined the provisional amount was affected by other analyses related to the TCJA, including, but not limited to, the Company's calculation of deemed repatriation of foreign income and the state tax effect of adjustments made to federal temporary differences. As a result, in the year ended December 31, 2018, the Company recorded an increase to net deferred tax assets of $1.5 million for certain deferred tax assets and liabilities, with a corresponding charge to deferred income tax expenses of $1.5 million to finalize the accounting for this element of the TCJA.
Transition tax on foreign earnings
The Deemed Repatriation Transition Tax ("Transition Tax") is a United States tax on the Company's previously untaxed accumulated and current earnings and profits ("E&P") of certain of the Company's foreign subsidiaries. For the year ended December 31, 2017, the Company recorded a provisional obligation of $49.9 million. In 2018, the Company determined, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-United States income taxes paid on such earnings. As a result, in the year ended December 31, 2018, the Company recorded $5.4 million to a liability account to finalize the accounting for this element of the TCJA. The Transition Tax will be paid over an eight year period beginning for the tax year ending December 31, 2017.
Deferred tax liability associated with future repatriations
For the year ended December 31, 2017, the Company recorded a provisional estimate of $23.7 million related to the tax effects on future repatriations of foreign earnings. In 2018, the Company completed additional analysis of the effects of the TCJA and of its applicable foreign earnings. As a result, in the year ended December 31, 2018, the Company recorded $1.6 million of income tax expense to finalize the accounting for this element of the TCJA.
Disallowance of foreign tax credits
The Company repatriated foreign earnings in 2017 for which certain foreign tax credits were no longer allowable under the TCJA. As a result, for the year ended December 31, 2017, the Company recorded a provisional estimate of $7.0 million of income tax expense. In 2018, the Company completed additional analysis of the effects of the TCJA and recorded a decrease of $0.6 million in the year ended December 31, 2018 to finalize the accounting for this element of the TCJA.
Global intangible low-taxed income ("GILTI") tax
For the year ended December 31, 2017, the Company did not record a provision related to the new GILTI tax under the TCJA because of the complexity of the new tax rules and the lack of clarity surrounding the application of the relevant accounting guidance. In 2018, the Company elected an accounting policy with respect to the GILTI tax rules, which is to treat GILTI as a period cost.
Deferred Income Tax Balances
Significant components of the Company's deferred taxes consisted of the following (in thousands):
The Company has foreign net operating loss carryforwards of $84.3 million as of December 31, 2019, of which $73.5 million have an unlimited carryforward period and $10.8 million expire between 2025 and 2039. The net operating losses result in deferred tax assets of $23.7 million and $18.8 million at December 31, 2019 and 2018, respectively. These deferred tax assets were subject to a valuation allowance of $21.9 million and $16.5 million at December 31, 2019 and 2018, respectively.
At December 31, 2019, the Company has accumulated undistributed earnings generated by the Company's foreign subsidiaries of $420.6 million. As $174.8 million of such earnings have previously been subject to the one-time transition tax on foreign earnings by the TCJA, any additional taxes due with respect to such earnings would generally be limited to foreign and state taxes and have been recorded as a deferred tax liability. However, the Company intends to indefinitely reinvest the earnings generated after January 1, 2018 and expects future domestic cash generation to be sufficient to meet future domestic cash needs.
Unrecognized Tax Benefits
The Company conducts business globally, and, as a result, the Company or one or more of its subsidiaries file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Japan, South Korea, Switzerland, and the United States. The Company has effectively settled Canadian tax examinations of all years through 2012, United States tax examinations of all years through 2013, Japanese tax examinations of all years through 2014, France tax examinations of all years through 2014, Swiss tax examinations of all years through 2014, Italy tax examinations of all years through 2016, and China tax examinations of all years through 2018. The Korean National Tax Service concluded an audit of the Company's 2009 through 2013 corporate income tax returns in 2014, and an audit of the Company's 2014 corporate income tax return in 2016. Due to the nature of the findings in both of these audits, the Company has invoked the Mutual Agreement Procedures outlined in the United States-Korean
income tax treaty. The Company does not anticipate that adjustments relative to these findings, or any other ongoing tax audits, will result in material changes to its financial condition, results of operations or cash flows. Other than the findings previously noted, the Company is not currently under examination in any major jurisdiction.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following December 31, 2019 by a range of zero to $1.9 million. Open tax years, including those previously mentioned, contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle.
Unrecognized tax benefits of $11.5 million, $9.1 million and $6.9 million would affect the effective tax rate if recognized at December 31, 2019, 2018 and 2017, respectively.
The Company recognizes interest expense and penalties related to income tax matters in income tax expense. The Company recognized a net reversal of accrued interest and penalties of $0.5 million in 2019, and a net increase of accrued interest and penalties of $0.4 million in 2018 and a net reversal of accrued interest and penalties of $1.4 million in 2017, all of which related to uncertain tax positions. The Company had $1.5 million and $2.1 million of accrued interest and penalties related to uncertain tax positions at December 31, 2019 and 2018, respectively.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef