Income Taxes

Income (loss) before income taxes is attributable to the following geographic locations for the years ended December 31, (in thousands):



	2018		2017		2016
Domestic	$	298,009	$	148,500	$	215,010
Foreign	135,029		138,332		(55,151		)
Income from continuing operations before income taxes	$	433,038	$	286,832	$	159,859

The tax benefit (expenses) for income taxes consisted of the following components for the years ended December 31, (in thousands):



	2018			2017			2016
Current:
Federal	$	7,085		$	9,346		$	(16,365	)
State and local	(2,663		)	(849		)	(2,147		)
Foreign	(118,175		)	(109,032		)	(62,278		)
Subtotal	(113,753		)	(100,535		)	(80,790		)
Deferred:
Federal	(27,874		)	9,684			(11,184		)
State and local	(1,165		)	2,018			(3,328		)
Foreign	75,113			34,983			49,851
Subtotal	46,074			46,685			35,339
Provision for income taxes	$	(67,679	)	$	(53,850	)	$	(45,451	)

State and foreign taxes not based on income are included in general and administrative expenses and the aggregate amounts were not significant for the years ended December 31, 2018, 2017 and 2016.

The fiscal 2018, 2017 and 2016 income tax benefit (expenses) differed from the amounts computed by applying the U.S. federal income tax rate of 21%, 35% and 35%, respectively, to pre-tax income as a result of the following for the years ended December 31 (in thousands):



	2018			2017			2016
Federal tax at statutory rate	$	(90,938	)	$	(100,391	)	$	(55,951	)
State and local tax (expense) benefit	(3,616		)	1,000			(4,895		)
Deferred tax assets generated in current year not benefited	(3,777		)	(7,643		)	(6,246		)
Foreign income tax rate differential	(4,072		)	26,151			22,016
Non-deductible expenses	(756		)	(2,629		)	(15,828		)
Stock-based compensation expense	(2,308		)	(616		)	(5,890		)
Change in valuation allowance	38,684			(716		)	11,995
Foreign financing activities	(17,548		)	1,319			(26,708		)
Loss on debt extinguishment	—			(1,604		)	(8,288		)
Gain on divestments	—			—			8,828
Uncertain tax positions reserve	(20,440		)	(66		)	(9,371		)
Tax adjustments related to REIT	32,189			41,973			45,060
Enactment of the US tax reform	—			(6,513		)	—
Other, net	4,903			(4,115		)	(173		)
Total income tax expense	$	(67,679	)	$	(53,850	)	$	(45,451	)

Legislation commonly referred to as the Tax Cuts and Jobs Act ("TCJA"), which was signed into law on December 22, 2017, contained many significant changes to the U.S. federal income tax laws. Among other things, the TCJA reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, limited the tax deductibility of interest expense, accelerated expensing of certain business assets and transitioned the U.S. international taxation from a worldwide tax system to a territorial tax system by imposing a one-time mandatory repatriation of undistributed foreign earnings. As a result of the reduced corporate tax rate, the Company recognized an income tax expense of $6.5 million during the fourth quarter of 2017 as a provisional estimate due to the remeasurement of the net deferred tax assets in the U.S. TRS. In the fourth quarter of 2018, the Company has completed the analysis of the TCJA's income tax effects and recorded an additional $1.3 million as an adjustment to the provisional amount related to the remeasurement of the net deferred tax assets in the U.S. TRS.

The TCJA mandated a one-time deemed repatriation of undistributed foreign earnings, which increased the Company's 2017 taxable income, as well as its required REIT distribution. In the fourth quarter of 2017, the Company estimated a provisional amount of $195.0 million as the one-time mandatory repatriation of its cumulative foreign earnings that was not previously included in the U.S. taxable income. In the fourth quarter of 2018, the Company completed the analysis based on the interpretation and guidance issued during 2018 and determined the one-time mandatory repatriation of its cumulative foreign earnings to be $271.8 million. The Company had an option of including the entire amount in its 2017 taxable income or spreading the amount over 8 years in its taxable income. The Company has included the entire amount in its 2017 taxable income. The Company believes the mandatory repatriation resulted in no financial statement impact because the Company satisfied its REIT distribution requirement and paid out such amounts (net of the permitted one-time participation deduction) to its stockholders.

The TCJA included a Global Intangible Low-Taxed Income ("GILTI") provision that increases U.S. federal taxable income by certain foreign subsidiary income in the year it is earned. The Company's accounting policy is to treat any tax on GILTI inclusions as a current period cost included in the tax expense in the year incurred. The Company believes the GILTI inclusion provision will result in no financial statement impact provided the Company satisfies its REIT distribution requirement with respect to the GILTI inclusions.

As a result of the Company's conversion to a REIT effective January 1, 2015, it is no longer the Company's intent to indefinitely reinvest undistributed foreign earnings. However, no deferred tax liability has been recognized to account for this change because the expected recovery of the basis difference will not result in U.S. taxes in the post-REIT conversion periods because none of its foreign subsidiaries is owned by a U.S. taxable REIT subsidiary and the withholding tax effect would be immaterial. The Company continues to assess the foreign withholding tax impact of its current policy and does not believe the distribution of its foreign earnings would trigger any significant foreign withholding taxes, as a majority of the foreign jurisdictions where the Company operates do not impose withholding taxes on dividend distributions to a corporate U.S. parent.

The types of temporary differences that give rise to significant portions of the Company's deferred tax assets and liabilities are set out below as of December 31 (in thousands):



	2018			2017
Deferred tax assets:
Reserves and accruals	$	24,136		$	27,673
Stock-based compensation expense	2,524			1,960
Unrealized losses	1,471			10,768
Operating loss carryforwards	49,169			95,864
Gross deferred tax assets	77,300			136,265
Valuation allowance	(57,003		)	(84,573		)
Total deferred tax assets, net	20,297			51,692
Deferred tax liabilities:
Property, plant and equipment	(50,610		)	(65,825		)
Intangible assets	(159,237		)	(172,123		)
Total deferred tax liabilities	(209,847		)	(237,948		)
Net deferred tax liabilities	$	(189,550	)	$	(186,256	)

The tax basis of REIT assets, excluding investments in TRSs, is greater than the amounts reported for such assets in the accompanying consolidated balance sheet by approximately $1.8 billion as of December 31, 2018.

The Company's accounting for deferred taxes involves weighing positive and negative evidence concerning the realizability of the Company's deferred tax assets in each tax jurisdiction. After considering such evidence as the nature, frequency and severity of current and cumulative financial reporting losses, and the sources of future taxable income and tax planning strategies, the Company concluded that valuation allowances were required in certain foreign jurisdictions. The operations in the jurisdictions for which a valuation allowance has been established have a history of significant losses as of December 31, 2018. As such, the Company does not believe these operations have established a sustained history of profitability and that a valuation allowance is, therefore, necessary. The Company also provided a full valuation allowance against certain gross deferred tax assets acquired in the Metronode Acquisition as these deferred tax assets are not expected to be realizable in the foreseeable future.

Changes in the valuation allowance for deferred tax assets for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands):



	2018			2017		2016
Beginning balance	$	84,573		$	29,167	$	29,894
Amounts from acquisitions	33,070			25,283		5,053
Amounts recognized into income	(38,684		)	716		(11,995		)
Current increase (decrease)	(13,086		)	28,431		6,557
Impact of foreign currency exchange	(8,870		)	976		(342		)
Ending balance	$	57,003		$	84,573	$	29,167

Federal and state tax laws, including California tax laws, impose substantial restrictions on the utilization of NOL and credit carryforwards in the event of an "ownership change" for tax purposes, as defined in Section 382 of the Internal Revenue Code. An ownership change occurred during fiscal year 2002, which resulted in an annual limitation of approximately $0.8 million for NOL carryforwards generated prior to 2003.

The Company's NOL carryforwards for federal, state and foreign tax purposes which expire, if not utilized, at various intervals from 2019, are outlined below (in thousands):



Expiration Date	Federal ⁽¹⁾		State		Foreign		Total
2019	$	—	$	—	$	8,397	$	8,397
2020 to 2022	210,114		—		14,436		224,550
2023 to 2025	26,838		—		13,596		40,434
2026 to 2028	12,186		45		2,297		14,528
Thereafter	—		731		137,333		138,064
	$	249,138	$	776	$	176,059	$	425,973


⁽¹⁾	The total amount of NOL carryforwards that will not be available to offset the Company's future taxable income after dividend paid deduction due to Section 382 limitations was $241.8 million for federal.

The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for the years ended December 31 (in thousands):



	2018			2017			2016
Beginning balance	$	82,390		$	72,187		$	30,845
Gross increases related to prior year tax positions	33,436			6,095			570
Gross increases related to current year tax positions	48,685			19,832			41,972
Decreases resulting from expiration of statute of limitation	(1,276		)	(15,410		)	(826		)
Decreases resulting from settlements	(12,305		)	(314		)	(374		)
Ending balance	$	150,930		$	82,390		$	72,187

The Company recognizes interest and penalties related to unrecognized tax benefits within income tax benefit (expense) in the consolidated statements of operations. The Company has accrued $8.4 million and $2.9 million for interest and penalties as of December 31, 2018 and 2017, respectively.

The unrecognized tax benefits of $114.9 million as of December 31, 2018, if subsequently recognized, will affect the Company's effective tax rate favorably at the time when such a benefit is recognized.

Due to various tax years open for examination, it is reasonably possible that the balance of unrecognized tax benefits could significantly increase or decrease over the next 12 months as the Company may be subject to either examination by tax authorities, tax audit settlements, or a lapse in statute of limitations. The Company is currently unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.

The Company's income tax returns for the years from 2015 through current remain open to examination by federal and state taxing authorities. In addition, the Company's tax years of 2007 through 2018 remain open and subject to examination by local tax authorities in certain foreign jurisdictions in which the Company has major operations.