Income taxes

12 Months Ended

Dec. 31, 2019

Income taxes

Income taxes

21.  INCOME TAXES

The amounts disclosed within the income tax footnote represent those attributable to continuing operations.

The components of income (loss) before income taxes were:

	Year Ended December 31,
	2019		2018		2017
U.S.	$	77	$	(806)	$	(181)
Non-U.S.		—		(117)		(42)
Income (loss) before taxes	$	77	$	(923)	$	(223)

Income tax expense (benefit) is comprised of the following:

	Year Ended December 31,
	2019		2018		2017
Current tax expense
U.S.	$	5	$	—	$	1
Non-U.S.		—		—		—
		5		—		1
Deferred tax benefit
U.S.		—		(2)		(145)
Non-U.S.		—		(46)		(24)
		—		(48)		(169)
Income tax expense (benefit)	$	5	$	(48)	$	(168)

For the year ended December 31, 2018, the applicable statutory tax rate was the Canadian statutory income tax rate. Following the U.S. Domestication, the applicable statutory tax rate for the year ended December 31, 2019 is the U.S. federal income tax rate. A reconciliation of the U.S. federal tax rate to our effective income tax rate is as follows:

	Year Ended December 31,
	2019			2018			2017
U.S. statutory income tax rate		21	%		21	%		35	%
Expected income tax expense (benefit) at statutory rate	$	16		$	(194)		$	(78)
Impact of Tax Cuts and Jobs Act of 2017		—			—			26
Change in statutory tax rates		—			—			(1)
Non-deductible expenses		15			6			9
Tax on international operations		(1)			(45)			(24)
Change in valuation allowance		(108)			96			(93)
Base Erosion and Anti-Abuse Tax		5			—			—
Outside basis difference in assets held for sale		78			—			—
Tax credits		(1)			(9)			(8)
Non-deductible goodwill impairment		—			98			—
Other		1			—			1
Income tax expense (benefit)	$	5		$	(48)		$	(168)
Effective income tax rate		6	%		5	%		75	%

The Tax Cuts and Jobs Act ("2017 Tax Act") was enacted on December 22, 2017. The 2017 Tax Act includes a broad range of tax reform proposals affecting businesses, including a reduction in the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a one-time mandatory deemed repatriation tax on earnings of certain foreign subsidiaries that were previously tax deferred, limitations on interest expense deductions, a new base erosion focused

minimum tax applicable to certain payments to foreign related parties and the creation of new taxes on earnings of non-U.S. subsidiaries. In the fourth quarter of 2017, the Company made a reasonable estimate of the impact of the 2017 Tax Act on the existing deferred tax balances and the one-time mandatory deemed repatriation tax. The re-measurement of the deferred tax assets and liabilities, net of valuation allowance, and the estimate of the one-time mandatory deemed repatriation tax was not material.

Significant components of deferred tax assets and liabilities are as follows:

	Year Ended December 31,
	2019		2018		2017
Tax benefit of losses carried forward	$	219	$	222	$	198
Research and development tax credits		82		91		72
Construction contract liabilities		89		77		67
Property and equipment		—		15		3
Trade and other payables		41		38		25
Employee benefits		41		49		53
Unrealized foreign exchange gains and losses		6		6		5
Other		18		21		8
Deferred tax assets		496		519		431
Valuation allowance		(231)		(304)		(134)
Deferred tax assets, net of valuation allowance		265		215		297
Property and equipment		(47)		—		—
Goodwill and intangibles		(124)		(213)		(301)
Outside basis difference in assets held for sale		(78)		—		—
Other		(10)		(2)		—
Deferred tax liabilities		(259)		(215)		(301)
Deferred tax assets and (liabilities), net	$	6	$	—	$	(4)

The Company assesses the deferred tax assets for recoverability and based upon all available evidence establishes a valuation allowance to reduce the deferred tax assets to the amount that is more-likely-than-not realizable. The valuation allowance decreased $73 million from December 31, 2018 to December 31, 2019. This decrease was the result of a change in the Company’s assertion regarding the permanent reinvestment of its investment in MDA as well as the impact of current year operations. This decrease was offset by an adjustment to prior year deferred taxes, primarily related to goodwill, for which no income tax expense was recorded.

During 2019, in connection with the MDA Transaction, the Company has re-evaluated its prior permanent reinvestment assertion and concluded that it can no longer assert that the basis difference related to its investment is permanently reinvested. Accordingly, the Company has established a deferred tax liability of approximately $78 million on the taxable temporary difference associated with its investment. The establishment of the deferred tax liability resulted in a corresponding release of valuation allowance, as mentioned above.

Net operating losses carried forward as of December 31, 2019 were $1,665 million. Of these, $870 million relate to federal losses, set to expire between 2024 and 2039 and $795 million relate to state losses set to expire between 2022 and 2038. Of the federal losses, $264 million have no expiry and are subject to an annual limitation of 80% of taxable income. The U.S. Domestication does not impact the availability of the losses carried forward to future years.

The Company also has U.S. federal and state tax credits carried forward of $74 million and $2 million as of December 31, 2019, relating to research and development expenditures set to expire between 2024 and 2039 and California

research credits with no expiry. Additionally, the Company has U.S. foreign tax credits carried forward of $6 million set to expire between 2020 and 2026.

The following table summarizes the changes in unrecognized tax benefits:

	Year Ended December 31,
	2019		2018		2017
Balance, beginning of year	$	—	$	—	$	—
Gross increases related to prior period tax positions		6		—		—
Gross increases related to current period tax positions		1		—		—
Balance, end of year	$	7	$	—	$	—

As of December 31, 2019, there were $7 million of unrecognized tax benefits that, if recognized, would be offset by changes in the deferred tax assets. It is not anticipated that a reduction of unrecognized tax benefits will occur within the next twelve months.

The Company and its subsidiaries file income tax returns in the United States, and various foreign jurisdictions. With some exceptions, the Company remains subject to income tax examination in the United States for years after 2004.

The Company records interest and penalties accrued or recovered in relation to unrecognized tax benefits in income tax expense. The Company has not recognized any interest and penalties in the three year comparative period due to available attributes.