Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	2023		2022		2021
Domestic	$	278,470	$	334,486	$	137,492
Foreign	845,760		494,883		471,460
Income before income taxes	$	1,124,230	$	829,369	$	608,952

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

	2023		2022		2021
Current:
Federal	$	299	$	1,679	$	7,753
State and local	(526)		(892)		(156)
Foreign	(150,179)		(83,210)		(76,450)
Subtotal	(150,406)		(82,423)		(68,853)
Deferred:
Federal	(136)		(16,284)		11,060
State and local	196		(5,024)		(1,411)
Foreign	(4,904)		(21,061)		(50,020)
Subtotal	(4,844)		(42,369)		(40,371)
Income tax expense	$	(155,250)	$	(124,792)	$	(109,224)

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, 2023, 2022 and 2021.

Income tax benefit (expenses) for the years ended December 31, 2023, 2022 and 2021 differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pre-tax income as a result of the following for the years ended December 31 (in thousands):

	2023		2022		2021
Federal tax at statutory rate	$	(236,088)	$	(174,168)	$	(127,880)
State and local tax expense	(331)		(5,916)		(1,513)
Deferred tax assets generated in current year not benefited	(33,810)		(39,196)		(19,703)
Foreign income tax rate differential	(13,634)		(12,379)		(18,918)
Non-deductible expenses	(6,470)		(5,995)		(10,579)
Stock-based compensation expense	(8,981)		(8,321)		(1,385)
Change in valuation allowance	1,744		(19,793)		(595)
Foreign financing activities	(3,642)		(5,519)		(4,805)
Uncertain tax positions reserve	20,683		45,317		50,059
Tax adjustments related to REIT	131,757		107,312		39,164
Change in deferred tax adjustments	(2,572)		(239)		(1,251)
Effect of tax rate change on deferred tax assets	(1,872)		(3,126)		(12,297)
Other, net	(2,034)		(2,769)		479
Total income tax expense	$	(155,250)	$	(124,792)	$	(109,224)

Of the unrecognized tax benefits being realized in the years ended December 31, 2023, 2022 and 2021, approximately $1.6 million, $2.0 million and $32.0 million, respectively, are related to the uncertain tax position inherited from the acquisition of Metronode in 2018. The uncertain tax position was covered by an indemnification agreement with the seller. As such, the realization of the unrecognized tax benefit resulted in an impairment of the indemnification asset for the same amount, which has been included in Other Income (Expense) on the Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021.

Our accounting policy is to treat any tax on Global Intangible Low-Taxed Income ("GILTI") inclusions as a current period cost included in the tax expense in the year incurred. We believe the GILTI inclusion provision will result in no material financial statement impact provided we satisfy our REIT distribution requirement with respect to the GILTI inclusions.

As a result of our conversion to a REIT effective January 1, 2015, it is no longer our 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 material U.S. taxes in the post-REIT conversion periods due to the fact that the majority of our foreign subsidiaries are either QRSs or owned directly by our REIT and QRSs, and the foreign withholding tax effect would be immaterial. We continue to assess the foreign withholding tax impact of our current policy and do not believe the distribution of our foreign earnings would trigger any significant foreign withholding taxes, as the majority of the foreign jurisdictions where we operate 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 our deferred tax assets and liabilities are set out below as of December 31 (in thousands):

	2023		2022
Deferred tax assets:
Stock-based compensation expense	$	9,073	$	9,002
Net unrealized losses	10,843		3,988
Operating lease liabilities	220,745		253,005
Finance lease liabilities	14,591		—
Deferred revenue	16,625		13,887
Goodwill	—		20,511
Loss carryforwards and tax credits	232,471		142,270
Others, net	6,600		32,543
Gross deferred tax assets	510,948		475,206
Valuation allowance	(220,848)		(166,594)
Total deferred tax assets, net	290,100		308,612
Deferred tax liabilities:
Finance lease liabilities	—		(8,033)
Property, plant and equipment	(252,434)		(221,343)
Right-of-use assets	(224,253)		(256,837)
Deferred income	(26,116)		(28,314)
Goodwill	(3,074)		—
Intangible assets	(116,070)		(132,816)
Total deferred tax liabilities	(621,947)		(647,343)
Net deferred tax liabilities	$	(331,847)	$	(338,731)

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 $2.7 billion as of December 31, 2023.

Our accounting for deferred taxes involves weighing positive and negative evidence concerning the realizability of our deferred tax assets in each taxing jurisdiction. After considering evidence such as the nature, frequency and severity of current and cumulative financial reporting losses, the sources of future taxable income, taxable income in carryback years permitted by the tax laws and tax planning strategies, we concluded that valuation allowances were required in certain jurisdictions. The operations in most of the jurisdictions for which a valuation allowance has been established have a history of significant losses as of December 31, 2023. As such, we do not believe these operations have established a sustained history of profitability and that a valuation allowance is, therefore,

necessary. We also provided a valuation allowance against certain gross deferred tax assets in certain taxing jurisdictions 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, 2023, 2022 and 2021 are as follows (in thousands):

	2023		2022		2021
Beginning balance	$	166,594	$	100,746	$	82,344
Amounts from acquisitions	10,459		13,458		964
Amounts recognized into income	(1,744)		22,905		595
Current increase	44,002		36,513		19,539
Impact of foreign currency exchange	1,537		(7,028)		(2,696)
Ending balance	$	220,848	$	166,594	$	100,746

Our net operating loss carryforwards for federal, state and foreign tax purposes which expire, if not utilized, at various intervals from 2024, are outlined below (in thousands):

Expiration Date	Federal		State		Foreign (1) (2)		Total
2024	$	819	$	24	$	9,736	$	10,579
2025 to 2027	2,457		—		34,463		36,920
2028 to 2030	—		—		40,604		40,604
2031 to 2033	—		667		9,845		10,512
2034 to 2036	2,441		324		20,286		23,051
2037 to 2039	2,886		2,618		19,177		24,681
Thereafter	248,941		89,574		624,744		963,259
	$	257,544	$	93,207	$	758,855	$	1,109,606

(1)In certain jurisdictions, the net operating loss carryforwards can only be used to offset a percentage of taxable income in a given year.

(2)If certain substantial changes in the entity's ownership occur or have determined to have occurred, there may be a limitation on the amount of the carryforwards that can be utilized.

As of December 31, 2023, we had tax credit carryforwards of $5.7 million, which expire, if not utilized, from 2024 to 2031. We also had capital losses of $7.6 million, which can be carried forward indefinitely.

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

	2023		2022		2021
Beginning balance	$	89,237	$	148,300	$	207,759
Gross increases related to prior year tax positions	2,989		1,401		4,547
Gross decreases related to prior year tax positions	(16,767)		(43,575)		(58,356)
Gross increases related to current year tax positions	4,395		7,004		10,000
Decreases resulting from expiration of statute of limitation	(10,138)		(11,969)		(10,561)
Decreases resulting from settlements	—		(11,924)		(5,089)
Ending balance	$	69,716	$	89,237	$	148,300

We recognize interest and penalties related to unrecognized tax benefits within income tax expense in the consolidated statements of operations. We accrued $7.2 million, $6.5 million, and $13.6 million for interest and penalties as of December 31, 2023, 2022 and 2021, respectively.

The unrecognized tax benefits of $69.7 million as of December 31, 2023, if subsequently recognized, will affect our effective tax rate favorably at the time when such a benefit is recognized.

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

In general, our income tax returns for the years from 2020 through the current year remain open to examination by federal and state taxing authorities. In addition, our tax years of 2005 through current year remain open and subject to examination by local tax authorities in certain foreign jurisdictions in which we have major operations.