Note 11 - Income Taxes

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

11

— INCOME TAXES

The Company’s effective tax rate expense (benefit) for the

three

months ended

September 30, 2018

and

2017

was

10.4%

and

18.6%,

respectively, and

3.8%

and

38.2%

for the

nine

months ended

September 30, 2018

and

2017,

respectively. The effective rate differs from the federal statutory rate of

21%

for the

nine

months ended

September 30, 2018

due to: (i) the impact of the newly enacted global intangible low tax income (“GILTI”); (ii) a partial valuation allowance release against the Company’s U.S. deferred tax assets; (iii) forecasted generation of production tax credits; (iv) impact of U.S. permanent tax adjustments; (v) higher tax rate in Kenya of

37.5%

partially offset by a lower tax rate in Israel of

16%

and (vi) a tax credit and tax exemption related to the Company’s subsidiaries in Guatemala and Honduras.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on

December 22, 2017.

The Tax Act (

1

) reduced the U.S. federal corporate income tax rate from

35

percent to

21

percent; (

2

) required companies to include in taxable income an amount on certain unrepatriated earnings of foreign subsidiaries; (

3

) generally eliminated U.S. federal income taxes on dividends from foreign subsidiaries; (

4

) required a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (

5

) eliminated the corporate alternative minimum tax (“AMT”) and changed how existing AMT credits can be realized; (

6

) created the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (

7

) created a new limitation on deductible interest expense; and (

8

) changed rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after

December 31, 2017.

The SEC staff issued SAB 

118,

 which provides guidance on accounting for the tax effects of the Tax Act.  SAB 

118

 provides a measurement period that should 

not

 extend beyond 

one

 year from the Tax Act enactment date for companies to complete the accounting under ASC 

740.

  In accordance with SAB 

118,

 a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 

740

 is complete.  To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 

740

 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company is applying the guidance in SAB

118

when accounting for the enactment date effects of the Act. As of

December 31, 2017,

the Company made provisional estimates related to (

1

) deemed repatriation transition tax; (

2

) GILTI; (

3

) valuation allowance; and (

4

) uncertain tax positions. As of

September 30, 2018,

the Company made updates to its provisional estimates related to GILTI and valuation allowance. The Company will continue to refine the estimates as it continues its analysis of the statutory provisions and related interpretations. Any changes to a provisional estimate of the tax effect of the Tax Act, that were recorded as of

December 31, 2017,

will be recorded as a discrete item in the interim period.

The Company continues to analyze specific provisions of the Act, including the newly created requirement that GILTI earned by controlled foreign corporations (CFCs) must be included currently in gross income of the CFC’s U.S. shareholder. In the

second

quarter of

2018,

certain officials from the Treasury and the IRS made public comments about a plan to propose regulations related to GILTI that will confirm how to allocate certain income in the GILTI calculation. The method of allocation is different than the analysis of the law at

March 31, 2018

and resulted in a year to date tax benefit of

$27.5

million for the decrease of the valuation allowance related to foreign tax credits and production tax credits compared to tax benefit of

$44.4

million at

March 31, 2018. 

This change has been reflected as a discrete item. 

The U.S. Department of the Treasury and the IRS recently published proposed regulations under IRC Section

965

(Transition Tax). The Company recorded a tax expense of

$29.8

million to reflect the reduction of the deferred tax asset related to foreign tax credits. This amount was offset by a tax benefit of the same amount to reflect the reduction to the related valuation allowance. The Company will continue to evaluate this and other guidance as it completes its accounting related to the Tax Cuts and Jobs Act of

2017,

which was enacted on

December 22, 2017.