Income Taxes

Income tax provision was a benefit of $2.2 million and an expense $2.2 million for the three months ended September 30, 2017 and 2016, respectively. Income tax provision was an expense of $2.9 million and a benefit $83.0 million for the nine months ended September 30, 2017 and 2016, respectively. Our effective tax rate was 30.9% and 12.9% for the three months ended September 30, 2017 and 2016, respectively, and 11.3% for the nine months ended September 30, 2017. Given the level of our pre-tax book income for the nine months ended September 30, 2016 and the release of a significant portion of our valuation allowance, our effective tax rate for the nine months ended September 30, 2016 is not meaningful. Our effective tax rates differ from the U.S. corporate statutory tax rate of 35.0%, primarily due to the mix of our pretax income or loss generated in various jurisdictions, permanent items, uncertain tax positions, and changes in our valuation allowances. During the nine months ended September 30, 2017 and 2016, our pretax earnings in the Netherlands, Sweden, and Finland decreased our effective tax rate due to the statutory rates of 25.0%, 22.0%, and 20.0%, respectively.

The provision for income taxes differs from the amount computed by applying the U.S. corporate statutory income tax rate to income (loss) before income taxes for the reasons set forth below.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Income taxes at the statutory rate	$	2,455		$	(5,964	)	$	(8,985	)	$	(9,181	)
State taxes, net of federal benefit	25			(1,114		)	117			(521		)
Foreign tax rate differential	(3,403		)	2,436			2,263			6,018
Permanent differences	1,464			2,934			3,190			265
Uncertain tax positions	1,821			(292		)	666			(928		)
Valuation allowance	13			(176		)	330			87,404
Return to provision adjustments	(512		)	(33		)	(509		)	(33		)
Other	302			11			21			—
Income tax benefit (expense)	$	2,165		$	(2,198	)	$	(2,907	)	$	83,024



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Income taxes at the statutory rate	(35.0	)%	(35.0	)%	(35.0	)%	(35.0	)%
State taxes, net of federal benefit	(0.4	)	(6.5	)	0.5		(2.0	)
Foreign tax rate differential	48.5		14.3		8.8		22.9
Permanent differences	(20.9	)	17.2		12.4		1.0
Uncertain tax positions	(26.0	)	(1.7	)	2.6		(3.5	)
Valuation allowance	(0.2	)	(1.0	)	1.3		333.2
Return to provision adjustments	7.3		(0.2	)	(2.0	)	(0.1	)
Other	(4.2	)	—		0.1		—
Effective tax rate	(30.9	)%	(12.9	)%	(11.3	)%	316.5	%

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We consider all available material evidence, both positive and negative, in assessing the appropriateness of a valuation allowance for our deferred tax assets. In determining whether a valuation allowance is required during the period, we evaluate primarily (a) cumulative earnings and losses in recent years, (b) historical taxable income or losses as it relates to our ability to utilize operating loss and tax credit carryforwards within the expiration period, (c) trends indicating earnings or losses expected in future years along with our ability in prior years to reasonably project these future trends or operating results, (d) length of the carryback and carryforward period, and (e) prudent and feasible tax-planning strategies, particularly related to operational changes and the impact on the timing or taxability of relative amounts.

As of September 30, 2017 and December 31, 2016, we recorded a valuation allowance of $44.4 million and $44.7 million, respectively, against our net operating loss carryforwards and other deferred tax assets. We did not have a material change in our valuation allowances for the three months ended September 30, 2017. During the nine months ended September 30, 2016, we released $56.2 million of the valuation allowances, of which $87.4 million primarily related to our U.S. net operating loss carryforwards and other deferred tax assets, partially offset by $31.2 million of new valuation allowances assumed in connection with the Arizona Chemical Acquisition.

Following the acquisition of Arizona Chemical on January 6, 2016, we released $87.0 million of the valuation allowance related to the U.S. net operating loss carryforwards and other deferred tax assets. In assessing the appropriateness of the U.S. valuation allowance as of the acquisition date, we considered the significant cumulative earnings in recent years as well as consistent historical taxable income of our U.S. combined operations. Additionally, we consider our ability to utilize net operating loss carryforwards to offset future taxable income generated by our U.S. combined operations. Under U.S. tax law, we are permitted to utilize tax loss carryforwards as an offset to taxable income generated by members of our U.S. consolidated group, with the exception of a few separate state regulations. We do not expect any tax loss limitations under IRC §382 that would impact our utilization of the federal carryforwards in the future. We project that we will have sufficient combined pre-tax earnings in the U.S. to utilize net operating loss carryforwards within the expiration period. We maintain valuation allowance for carryforwards related to our foreign tax credits and certain state tax losses.

As of September 30, 2017 and December 31, 2016, we had total unrecognized tax benefits of $24.4 million and $24.5 million, respectively, related to uncertain tax positions, all of which, if recognized, would impact our effective tax rate. During the three and nine months ended September 30, 2017, we had a decrease of $1.5 million and $0.1 million, respectively, primarily related to our uncertain tax positions in the U.S. and Europe. During the three and nine months ended September 30, 2016, we had a decrease in uncertain tax positions of $2.5 million and an increase of $6.8 million primarily related to assumed uncertain tax positions in the U.S. in connection with the Arizona Chemical Acquisition. We recorded interest and penalties related to unrecognized tax benefits within the provision for income taxes.

We file income tax returns in the U.S. and foreign jurisdictions. For our U.S. federal income tax returns, the statute of limitations has expired through the tax year ended December 31, 2003. As a result of net operating loss carryforwards from 2004, the statute of limitations remains open for all years subsequent to 2003. In addition, open tax years for state and foreign jurisdictions remain subject to examination.