Income Taxes (Note)

12 Months Ended

Dec. 31, 2019

Income Taxes

The sources of income before income taxes for the years ended December 31, 2019, 2018 and 2017 are presented as follows:



	Year Ended December 31,
(in thousands)	2019		2018		2017
Income before taxes:
United States	$	44,290	$	35,467	$	55,117
Foreign	389,517		259,449		201,218
Total income before income taxes	$	433,807	$	294,916	$	256,335

The Company's income tax expense for the years ended December 31, 2019, 2018 and 2017 consisted of the following:



	Year Ended December 31,
(in thousands)	2019			2018			2017
Current tax expense (benefit):
U.S.	$	(4,885	)	$	(8,711	)	$	29,620
Foreign	83,792			70,244			79,475
Total current	78,907			61,533			109,095
Deferred tax expense (benefit):
U.S.	(8,424		)	6,871			14,056
Foreign	16,629			(5,619		)	(23,756		)
Total deferred	8,205			1,252			(9,700		)
Total tax expense	$	87,112		$	62,785		$	99,395

The following is a reconciliation of the federal statutory income tax rates of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017 to the effective income tax rate for the same years:



	Year Ended December 31,
(dollar amounts in thousands)	2019			2018			2017
U.S. federal income tax expense at applicable statutory rate	$	91,099		$	61,932		$	89,684
Tax effect of:
State income tax expense (benefit) at statutory rates	5,101			1,680			968
Non-deductible expenses	2,896			3,457			5,648
Share-based compensation	(2,875		)	(13,750		)	(4,845		)
Other permanent differences	(864		)	(6,141		)	8,458
Difference between U.S. federal and foreign tax rates	12,281			9,843			(24,270		)
Provision in excess of statutory rates	3,565			3,737			8,426
Change in federal and foreign valuation allowance	2,144			3,075			(30,224		)
Impairment of goodwill and acquired intangibles assets	—			83			8,248
GILTI, net of tax credits	6,471			14,111			—
U.S. Tax Reform - transition tax and rate change	(25,728		)	(12,262		)	41,597
Tax credits	(4,500		)	—			—
Other	(2,478		)	(2,980		)	(4,295		)
Total income tax expense	$	87,112		$	62,785		$	99,395
Effective tax rate	20.1		%	21.3		%	38.8		%

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.

In 2017, the Company initially recorded a net provisional tax expense of $41.6 million resulting from the enactment of U.S. Tax Reform. In the fourth quarter of 2018, the Company adjusted its accounting for the tax effects of U.S. Tax Reform. The net provisional tax expense was decreased in that period by approximately $12.3 million to $29.3 million largely due to changes in the transition tax calculations. In the fourth quarter of 2019 after additional regulatory guidance was issued by applicable taxing authorities, the Company elected to claim U.S. tax credits on foreign tax paid on foreign source income, which reduced the net tax expense by $25.7 million.

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)	2019			2018
Deferred tax assets:
Tax loss carryforwards	$	34,357		$	30,689
Share-based compensation	7,366			7,395
Accrued expenses	19,048			17,242
Property and equipment	8,602			16,377
Goodwill and intangible amortization	8,143			10,619
Intercompany notes	5,977			6,913
Accrued revenue	24,721			36,273
Tax credits	65,063			—
Lease accounting	89,965			—
Other	15,379			11,876
Gross deferred tax assets	278,621			137,384
Valuation allowance	(83,184		)	(21,857		)
Net deferred tax assets	195,437			115,527
Deferred tax liabilities:
Intangible assets related to purchase accounting	(16,379		)	(22,877		)
Goodwill and intangible amortization	(20,806		)	(16,115		)
Accrued expenses	(29,084		)	(28,274		)
Intercompany notes	(10,498		)	(14,034		)
Accrued interest	(27,902		)	(32,372		)
Capitalized research and development	(6,048		)	(8,299		)
Property and equipment	(15,467		)	(8,408		)
Accrued revenue	(4,727		)	(4,388		)
Lease accounting	(89,965		)	—
Other	(8,997		)	(5,841		)
Total deferred tax liabilities	(229,873		)	(140,608		)
Net deferred tax liabilities	$	(34,436	)	$	(25,081	)

Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2019 are expected to be allocated to income taxes in the Consolidated Statements of Income.

As of December 31, 2019, and 2018, the Company's foreign tax loss carryforwards were $119.1 million and $109.8 million, respectively, and U.S. state tax loss carryforwards were $97.6 million and $91.8 million, respectively. In 2019, the Company has recognized $59.1 million in U.S. foreign tax credits which are largely not expected to be utilized in future periods.

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, 2019.

As of December 31, 2019, the Company had foreign tax net operating loss carryforwards of $119.1 million, which will expire as follows:



(in thousands)	Gross		Tax Effected
Year ending December 31,
2020	$	1,274	$	315
2021	3,790		934
2022	2,800		720
2023	2,577		605
2024	8,713		2,152
Thereafter	39,040		9,851
Unlimited	60,935		14,427
Total	$	119,129	$	29,004

In addition, the Company's state tax net operating loss carryforwards of $97.6 million will expire periodically from 2020 through 2039, U.S. foreign tax credit carryforwards of $59.1 million that will expire periodically from 2021 through 2027, U.S. research and expenditure credit carryforwards of $3.2 million that will expire over an indefinite number of years, and foreign tax credits of $2.8 million that will expire over an indefinite number of years.

While U.S. tax expense has been recognized as a result of the transition tax and Global Intangible Low-Taxed Income ("GILTI") provisions of U.S. Tax Reform, the Company has not provided additional deferred taxes with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or additional state taxes, if any, on undistributed earnings attributable to foreign subsidiaries and it is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely. Gross undistributed earnings reinvested indefinitely in foreign subsidiaries aggregated approximately $1,810 million as of December 31, 2019.

Accounting for uncertainty in income taxes

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2019 and 2018 is as follows:



	Year Ended December 31,
(in thousands)	2019			2018
Beginning balance	$	30,915		$	28,537
Additions based on tax positions related to the current year	15,569			4,787
Additions for tax positions of prior years	6			966
Reductions for tax positions of prior years	(1,703		)	(1,705		)
Settlements	—			(807		)
Statute of limitations expiration	(252		)	(863		)
Ending balance	$	44,535		$	30,915

As of December 31, 2019 and 2018, approximately $42.7 million and $28.0 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 $5.2 million and $4.4 million as of December 31, 2019 and 2018, respectively. The following income tax years remain open in the Company's major jurisdictions as of December 31, 2019:



Jurisdictions	Periods
U.S. (Federal)	2014 through 2019
Germany	2016 through 2019
Greece	2014 through 2019
Spain	2014 through 2019
U.K.	2009 through 2019

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.