During the three months ended December 31, 2023, we completed intra-entity transfers of certain intellectual property rights primarily to align with current and future international operations. Each transfer resulted in a step-up in tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets based on the fair value of the transferred intellectual property rights. Foreign deferred tax assets increased by $611.4 million, inclusive of the reversal of certain deferred tax liabilities. This benefit was offset by an increase in uncertain tax positions of $318.6 million, and an incremental valuation allowance of $164.0 million for amounts not more-likely-than-not to be realized based on available objective evidence. As such, a net change in deferred tax asset of $128.9 million was recognized along with a corresponding foreign income tax benefit.

During 2020 and 2021, we completed an intra-entity transfer of certain intellectual property rights primarily to align with current and future international operations. The transaction was executed using transfer pricing guidelines issued by the relevant taxing authorities. Significant estimates and assumptions were required to compute the valuation of this transaction. These estimates and assumptions include, but are not limited to, estimated future revenue growth and discount rates, which by their nature are inherently uncertain, and, therefore, may ultimately differ materially from our actual results.

We have recorded certain tax reserves to address potential differences involving our income tax positions. These potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations by different taxing jurisdictions. While our tax position is not uncertain, because of the significant estimates used in the value of certain intellectual property rights, our tax reserves contain assumptions based on past experiences and judgments about the interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from these matters may be materially more or less than the amount that we estimated.

In order to support and sustain the amortizable tax basis for these transactions (and associated deferred tax asset, net of uncertain tax position), we must demonstrate economic ownership, including the appropriate authority and expertise to manage the IP owned and serviced in the Netherlands and Singapore. The determination of economic substance is a judgment that has to be evaluated by management on a continual basis requiring understanding and expertise of local laws of each associated tax jurisdiction. The Netherlands and Singapore subsidiaries serve as the primary corporate headquarters outside of the U.S. and already perform significant functions in support of the economic ownership of the IP. In 2023, we undertook many additional activities to align business operations that support the economic substance of the IP.


	Year Ended December 31,
	2023		2022		2021
	(in thousands)
Income before taxes:
U.S.	$	309,098	$	312,501	$	510,706
Foreign	567,174		406,007		153,143
Total income before taxes	$	876,272	$	718,508	$	663,849
Income tax expense (benefit):
Current income taxes:
U.S. federal	$	85,075	$	76,092	$	94,548
U.S. state	21,884		19,257		28,460
Foreign	387,066		87,760		56,430
Total current income taxes	494,025		183,109		179,438
Deferred income taxes:
U.S. federal	(12,873)		(12,032)		791
U.S. state	(1,662)		861		32
Foreign	(395,784)		6,411		(242,106)
Total deferred income taxes	(410,319)		(4,760)		(241,283)
Total income tax expense (benefit)	$	83,706	$	178,349	$	(61,845)

The following table sets forth income reconciliations of the statutory federal income tax rate to actual rates based on income or loss before income taxes:


	Year Ended December 31,
	2023				2022				2021
	(in thousands)
Income tax expense and rate attributable to:
Federal income tax rate	$	184,017	21.0	%	$	150,887	21.0	%	$	139,408	21.0	%
State income tax rate, net of federal benefit	16,854		1.9	%	15,981		2.2	%	22,952		3.5	%
Foreign income tax rate differential	31,495		3.6	%	12,405		1.7	%	18,890		2.8	%
GILTI, net	44,003		5.0	%	4,834		0.7	%	14,157		2.1	%
Non-deductible / non-taxable items	(1,129)		(0.1)	%	3,743		0.5	%	9,637		1.5	%
Change in valuation allowance	156,312		17.8	%	4,414		0.6	%	(192,337)		(29.0)	%
U.S. tax on foreign earnings	1,752		0.2	%	16,822		2.3	%	—		—	%
Foreign tax credits	(55,648)		(6.4)	%	(28,087)		(3.9)	%	(19,925)		(3.0)	%
Research and development credits	(6,754)		(0.8)	%	(5,488)		(0.8)	%	(13,104)		(2.0)	%
Uncertain tax positions	330,819		37.8	%	3,952		0.6	%	21,341		3.2	%
Share-based compensation	(2,097)		(0.2)	%	(1,231)		(0.2)	%	(11,930)		(1.8)	%
Intra-Entity IP Transfer	(611,403)		(69.8)	%	—		—	%	(41,858)		(6.3)	%
Enacted changes in tax law	—		—	%	—		—	%	(9,554)		(1.4)	%
Other	(4,515)		(0.4)	%	117		0.1	%	478		0.1	%
Effective income tax expense and rate	$	83,706	9.6	%	$	178,349	24.8	%	$	(61,845)	(9.3)	%

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table sets forth deferred income tax assets and liabilities as of the date shown:


	December 31,
	2023		2022
	(in thousands)
Non-current deferred tax assets:
Share-based compensation expense	$	3,248	$	3,130
Accruals, reserves, and other expenses	27,914		24,324
Net operating loss	47,951		21,455
Intangible assets	737,976		438,712


Foreign tax credit	28,053		45,746
Operating lease liabilities	71,012		55,624
Other	43,661		25,354
Valuation allowance	(183,545)		(28,118)
Total non-current deferred tax assets	$	776,270	$	586,227
Non-current deferred tax liabilities:
Unrealized gain on foreign currency	$	—	$	(1,760)
Property and equipment	(13,948)		(2,381)
Right-of-use assets	(59,806)		(47,641)
Intangible assets	(46,177)		(307,474)
Other	(1,280)		(723)
Total non-current deferred tax liabilities	$	(121,211)	$	(359,979)

The intra-entity transfers of intellectual property rights resulted in an increase in the intangible assets deferred tax asset of $352.4 million and an increase in the valuation allowance of $163.9 million. The intra-entity transfers of intellectual property rights resulted in a decrease in the intangible asset deferred tax liability of $259.0 million.

During 2023, valuation allowances recorded against deferred tax assets increased by $155.4 million. The change in the valuation allowance includes an increase of $156.3 million related to income tax expense and a decrease of $0.9 million that does not impact the tax provision because this amount reflects the cumulative impact of unrecorded tax attributes related to changes in cumulative translation adjustments. During 2022, valuation allowances increased by $1.7 million. The change in the valuation allowance includes $4.4 million related to income tax benefit and $2.8 million that does not impact the tax provision because this amount reflects the impact of unrecorded tax attributes related to changes in cumulative translation adjustments.

Our valuation allowances are primarily the result of uncertainties regarding the future realization of tax attributes recorded in various jurisdictions. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results and the availability of prudent and feasible tax planning strategies. In assessing our valuation allowance we considered all available evidence, including the magnitude of recent and current operating results, the duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these jurisdictions and our assessment regarding the sustainability of their profitability. The weight we give to any particular item is, in part, dependent upon the degree to which it can be objectively verified. Separate from the intra-entity transfers of intellectual property rights the company released immaterial valuation allowances in various jurisdictions. Valuation allowances recorded against deferred tax assets increased by a net $155.4 million.

In certain other jurisdictions, we recorded additional attributes, primarily driven by operational losses recognized based on local tax accounting requirements. These carryforwards were generated in jurisdictions where results indicate it is not more likely than not the deferred tax assets would be realized. We maintain a valuation allowance against the majority of these balances.

We have included in the table above deferred tax assets related to U.S. federal tax carryforwards of foreign tax credits and various state tax credits which expire starting in 2030 of $3.8 million and $0 million at December 31, 2023 and 2022, respectively. We have included in the table above deferred tax assets related to U.S. state tax net operating loss carryforwards, some of which expire at various dates beginning in 2034 and others of which do not expire, of $0.3 million and $1.4 million at December 31, 2023 and 2022, respectively. We have recorded deferred tax assets related to foreign tax carryforwards, including foreign tax credits and net operating losses, which expire starting in 2024 and those which do not expire of $73.3 million and $66.4 million as of December 31, 2023 and 2022, respectively.

The transition tax in the Tax Act imposed a tax on undistributed and previously untaxed foreign earnings at various tax rates. This tax largely eliminated the differences between the financial reporting and income tax basis of foreign undistributed earnings. Furthermore, as of December 31, 2023, foreign withholding taxes have not been provided on unremitted earnings of subsidiaries operating outside of the U.S. as these amounts are considered to be indefinitely reinvested.

The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits:


	Year Ended December 31,
	2023		2022		2021
	(in thousands)
Unrecognized tax benefit as of January 1	$	219,363	$	218,399	$	206,209
Additions in tax positions taken in prior period	3,690		1,697		6,169
Reductions in tax positions taken in prior period	(7)		(904)		(963)
Additions in tax positions taken in current period	325,058		2,948		23,061
Settlements	—		(375)		(763)
Lapse of statute of limitations	(148)		(510)		(342)
Current year acquisitions	—		10,426		—
Cumulative foreign currency translation adjustment	8,526		(12,318)		(14,972)
Unrecognized tax benefit as of December 31	$	556,482	$	219,363	$	218,399

We recorded a net expense of $330.8 million related to increases in 2023 unrecognized tax benefits. The intra-entity transfers of intellectual property rights resulted in an increase in unrecognized tax benefits of $318.6 million. The primary impact of uncertain tax benefits on the rate reconciliation includes net increases in position changes and accrued interest expense.

Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Our assessments are based on estimates and assumptions using the best available information to management. However, our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible change related to our uncertain tax positions, and such changes could be significant.

Interest and penalties related to income tax liabilities are included in ‘Income tax expense (benefit)’ in the consolidated statements of operations. For the years ended December 31, 2023, 2022, and 2021, we recorded approximately $3.2 million, $3.8 million, and $1.0 million, respectively, of penalties and interest. During the year ended December 31, 2023, we released $0.1 million of interest from settlements, lapse of statutes, and change in certainty. The cumulative accrued balance of penalties and interest was $8.8 million, $5.6 million, and $2.0 million, as of December 31, 2023, 2022, and 2021, respectively.

U.S state tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states. As such, U.S. state income tax returns for us are generally subject to examination for the years 2018 to 2023. Although the timing of income tax audit resolutions and negotiations with taxing authorities is highly uncertain, we do not anticipate a significant change in the total amount of unrecognized tax benefits within the next twelve months.