Income Taxes

Tax Cuts and Jobs Act of 2017

We calculate our provision for federal, state and international income taxes based on current tax law. On December 22, 2017, the U.S. enacted into law what is informally called the Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform"). The most significant provisions of U.S. Tax Reform are the transition tax on previously undistributed foreign earnings of foreign subsidiaries, the reduction of the U.S. corporate statutory income tax rate from 35% to 21% beginning on January 1, 2018, and new taxes on certain foreign sourced earnings.

Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of U.S. Tax Reform. SAB 118 provides a measurement period of up to one year from enactment date for companies to complete their accounting. In accordance with SAB 118, the Company recorded a net provisional tax expense of $41.6 million resulting from the enactment of U.S. Tax Reform. Included in the net tax expense was a current tax expense of $28.1 million. The remaining tax expense of $13.5 million was largely the required remeasurement of the Company's U.S. deferred tax assets and liabilities considering the new statutory tax rate. In the fourth quarter of 2018 the Company completed its accounting for the tax effects of U.S. Tax Reform. The net tax expense decreased by approximately $12.3 million to $29.3 million largely due to changes in the transition tax calculations. The current tax expense is $15.0 million and the deferred tax expense is $14.3 million. The Company elected to pay the transition tax over 8 years.

The Company continues to evaluate the indefinite reinvestment assertion on foreign earnings in conjunction with the tax effects of U.S. Tax Reform. This includes the tax impacts of the global intangible low-taxed income ("GILTI") provision on current foreign earnings. The FASB issued guidance that allows for either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as current period expenses when incurred. The Company elected to recognize the tax effects of GILTI as a current period expense.

The sources of income before income taxes for the years ended December 31, 2018, 2017 and 2016 are presented as follows:



	Year Ended December 31,
(in thousands)	2018		2017		2016
Income before taxes:
United States	$	35,467	$	55,117	$	41,804
Foreign	259,449		201,218		191,089
Total income before income taxes	$	294,916	$	256,335	$	232,893

The Company's income tax expense for the years ended December 31, 2018, 2017 and 2016 consisted of the following:



	Year Ended December 31,
(in thousands)	2018			2017			2016
Current tax expense (benefit):
U.S.	$	(8,711	)	$	29,620		$	(2,886	)
Foreign	70,244			79,475			59,515
Total current	61,533			109,095			56,629
Deferred tax expense (benefit):
U.S.	6,871			14,056			9,908
Foreign	(5,619		)	(23,756		)	(7,742		)
Total deferred	1,252			(9,700		)	2,166
Total tax expense	$	62,785		$	99,395		$	58,795

The following is a reconciliation of the federal statutory income tax rates of 21% for the year ended December 31, 2018 and 35% for the years ended December 31, 2017 and 2016 to the effective income tax rate for the same years:



	Year Ended December 31,
(dollar amounts in thousands)	2018			2017			2016
U.S. federal income tax expense at applicable statutory rate	$	61,932		$	89,684		$	81,513
Tax effect of:
State income tax expense (benefit) at statutory rates	1,680			968			1,341
Non-deductible expenses	3,457			5,648			3,482
Share-based compensation	(13,750		)	(4,845		)	(1		)
Other permanent differences	(6,141		)	8,458			(4,929		)
Difference between U.S. federal and foreign tax rates	9,843			(24,270		)	(18,432		)
Provision in excess of statutory rates	3,737			8,426			2,490
Change in federal and foreign valuation allowance	3,075			(30,224		)	(8,163		)
Impairment of goodwill and acquired intangibles assets	83			8,248			—
GILTI, net of tax credits	14,111			—			—
U.S. Tax Reform - transition tax and rate change	(12,262		)	41,597			—
Other	(2,980		)	(4,295		)	1,494
Total income tax expense	$	62,785		$	99,395		$	58,795
Effective tax rate	21.3		%	38.8		%	25.2		%

The tax effect of temporary differences and carryforwards that give rise to deferred tax assets and liabilities from continuing operations are as follows:



	As of December 31,
(in thousands)	2018			2017
Deferred tax assets:
Tax loss carryforwards	$	32,564		$	25,494
Share-based compensation	7,395			7,244
Accrued expenses	17,242			14,621
Property and equipment	16,377			14,984
Goodwill and intangible amortization	10,619			13,866
Intercompany notes	6,913			9,596
Accrued revenue	36,273			32,947
Other	11,876			9,631
Gross deferred tax assets	139,259			128,383
Valuation allowance	(21,857		)	(20,257		)
Net deferred tax assets	117,402			108,126
Deferred tax liabilities:
Intangible assets related to purchase accounting	(22,877		)	(29,361		)
Goodwill and intangible amortization	(16,115		)	(11,537		)
Accrued expenses	(28,274		)	(33,728		)
Intercompany notes	(14,034		)	(7,348		)
Accrued interest	(32,372		)	(27,449		)
Capitalized research and development	(8,299		)	(7,020		)
Property and equipment	(8,408		)	(4,717		)
Accrued revenue	(4,388		)	(5,027		)
Other	(5,841		)	(3,227		)
Total deferred tax liabilities	(140,608		)	(129,414		)
Net deferred tax liabilities	$	(23,206	)	$	(21,288	)

Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2018 are expected to be allocated to income taxes in the Consolidated Statements of Income.

As of December 31, 2018, and 2017, the Company's foreign tax loss carryforwards were $109.8 million and $90.2 million, respectively, and U.S. state tax loss carryforwards were $91.8 million and $59.1 million, respectively.

In assessing the Company's ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will only realize the benefits of these deductible differences, net of the existing valuation allowances, as of December 31, 2018.

As of December 31, 2018, the Company had foreign tax net operating loss carryforwards of $109.8 million, which will expire as follows:



(in thousands)	Gross		Tax Effected
Year ending December 31,
2019	$	1,227	$	296
2020	1,926		419
2021	5,931		1,361
2022	1,847		418
2023	3,049		699
Thereafter	58,772		14,555
Unlimited	37,069		8,486
Total	$	109,821	$	26,234

In addition, the Company's state tax net operating loss carryforwards of $91.8 million will expire periodically from 2019 through 2038.

While U.S. tax expense has been recognized as a result of the transition tax and GILTI provisions of U.S. Tax Reform, the Company has not provided additional deferred taxes, if any, on undistributed earnings attributable to foreign subsidiaries that have been considered to be reinvested indefinitely. Gross undistributed earnings reinvested indefinitely in foreign subsidiaries aggregated approximately $1,478 million as of December 31, 2018. Other than the transition tax and GILTI provisions of U.S. Tax Reform, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or additional state taxes have been recognized and it is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.

Accounting for uncertainty in income taxes

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2018 and 2017 is as follows:



	Year Ended December 31,
(in thousands)	2018			2017
Beginning balance	$	28,537		$	17,988
Additions based on tax positions related to the current year	4,787			8,364
Additions for tax positions of prior years	966			3,157
Reductions for tax positions of prior years	(1,705		)	—
Settlements	(807		)	(321		)
Statute of limitations expiration	(863		)	(651		)
Ending balance	$	30,915		$	28,537

As of December 31, 2018 and 2017, approximately $28.0 million and $26.7 million, respectively, of the unrecognized tax benefits would impact the Company's provision for income taxes and effective income tax rate, if recognized. Total estimated accrued interest and penalties related to the underpayment of income taxes was $4.4 million and $3.5 million as of December 31, 2018 and 2017, respectively. The following income tax years remain open in the Company's major jurisdictions as of December 31, 2018:



Jurisdictions	Periods
U.S. (Federal)	2014 through 2018
Spain	2009 through 2018
Australia	2011 through 2018
U.K.	2009 through 2018
Germany	2013 through 2018

It is reasonably possible that the balance of gross unrecognized tax benefits could significantly change within the next twelve months as a result of the resolution of audit examinations and expirations of certain statutes of limitations and, accordingly, materially affect the Company's operating results. At this time, it is not possible to estimate the range of change due to the uncertainty of potential outcomes.