INCOME TAXES

Income/(loss) before provision for income taxes

Income before provision for income taxes included losses from domestic operations and income from foreign operations based on geographic location as disclosed in the table below:



	For the Years Ended December 31,
	2017			2016			2015
Income/(loss) before provision for income taxes:
Domestic	$	(6,595	)	$	(9,300	)	$	(7,687	)
Foreign	180,900			135,766			113,757
Total	$	174,305		$	126,466		$	106,070

Provision for income taxes

The provision for income taxes consists of the following:



	For the Years Ended December 31,
	2017			2016			2015
Current
Federal	$	65,571		$	13,324		$	19,851
State	(204		)	(63		)	2,563
Foreign	23,617			17,243			14,528
Deferred
Federal	7,235			(3,581		)	(13,361		)
State	(90		)	312			(1,891		)
Foreign	5,416			(35		)	(76		)
Total	$	101,545		$	27,200		$	21,614

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“U.S. Tax Act”). The U.S. Tax Act significantly changes U.S. corporate income tax laws including a reduction of the U.S. corporate income tax rate from 35.0% to 21.0% effective January 1, 2018 and the creation of a territorial tax system with a one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. In addition, the U.S. Tax Act creates new taxes on certain foreign-sourced earnings and certain related party payments, which are referred to as the global intangible low-taxed income tax (“GILTI”) and the base erosion and anti-abuse tax, respectively.

Due to the timing of the enactment and the complexity involved in applying the provisions of the U.S. Tax Act, we have made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 31, 2017. As we collect and prepare necessary data and interpret the U.S. Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, and further refine our calculations, we may make adjustments to the provisional amounts recorded. We expect to complete our analysis during the second half of 2018. Any adjustments during this measurement period will be included in the provision for income taxes in the reporting period when such adjustments are determined.

The one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax requires us to pay U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8.0% on the remaining earnings. As a result, the Company recorded a provisional income tax expense and corresponding income taxes payable of $64,321 to be paid over the next 8 years. Of this amount, $59,175 is classified as Taxes payable, noncurrent as of December 31, 2017. In addition, the Company provisionally reduced its net deferred tax assets by $10,311 reflecting the impact of the change in the U.S. statutory tax rate from 35.0% to 21.0% in the periods in which the net deferred tax assets are expected to be realized as a result of the U.S. Tax Act.

The U.S. Tax Act subjects a U.S. shareholder to GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. At December 31, 2017, because we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we are unable to make a reasonable estimate and have not reflected any adjustments related to GILTI in our financial statements.

As of December 31, 2017 and in light of the U.S. Tax Act, the Company reassessed its accumulated foreign earnings and determined $97,000 of its accumulated earnings in Belarus are no longer indefinitely reinvested. As a result, the Company recorded a charge of $4,850 in its provision for income taxes during the year ended December 31, 2017 reflecting the withholding tax that will be payable to Belarus when the earnings are expatriated. As of December 31, 2017, the Company has determined that all other accumulated foreign earnings of $642,149 are expected to be indefinitely reinvested. Due to the enactment of the U.S. Tax Act and the one-time transition tax on accumulated foreign subsidiary earnings, these accumulated foreign earnings are no longer expected to be subject to U.S. federal income tax if repatriated but could be subject to state and foreign income and withholding taxes.

Effective tax rate reconciliation

The reconciliation of the provision for income taxes at the federal statutory income tax rate to our effective income tax rate is as follows:



	For the Years Ended December 31,
	2017			2016			2015
Provision for income taxes at federal statutory rate	$	61,007		$	44,263		$	37,125
Increase/ (decrease) in taxes resulting from:
Impact from U.S. Tax Act	74,632			—			—
Foreign tax expense and tax rate differential	(39,997		)	(33,477		)	(31,094		)
Effect of change in accounting for excess tax benefits relating to stock-based compensation (Note 2)	(9,307		)	—			—
Stock-based compensation expense	6,908			9,535			7,591
Subsidiary withholding tax liability	4,850			—			—
Effect of permanent differences	3,205			5,042			7,314
Change in valuation allowance	783			—			—
Change in foreign tax rates	29			—			9
State taxes, net of federal benefit	(116		)	1,192			341
Other	(449		)	645			328
Provision for income taxes	$	101,545		$	27,200		$	21,614

The Company’s worldwide effective tax rate for years ended December 31, 2017, 2016 and 2015 was 58.3%, 21.5% and 20.4%, respectively. The income tax in 2017 was unfavorably impacted by U.S. Tax Reform which was partially offset by the recognition of excess tax benefits following the adoption of ASU No. 2016-09 on January 1, 2017. See Note 2 “Recent Accounting Pronouncements” for further information.

In Belarus, member technology companies of High-Technologies Park have a full exemption from Belarus income tax. This tax holiday was recently extended through January 2049. The aggregate dollar benefits derived from this tax holiday approximated $15.5 million, $13.6 million and $20.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The benefit the tax holiday had on diluted net income per share approximated $0.28, $0.26 and $0.40 for the years ended December 31, 2017, 2016 and 2015, respectively.

Deferred Income Taxes

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. Significant components of the Company’s deferred tax assets and liabilities are as follows:



	December 31, 2017			December 31, 2016
Deferred tax assets:
Property and equipment	$	170		$	203
Intangible assets	1,456			1,525
Accrued expenses	4,392			9,172
Net operating loss carryforward	5,069			5,368
Deferred revenue	1,280			1,165
Stock-based compensation	16,197			19,701
Other assets	1,415			17
Deferred tax assets	$	29,979		$	37,151
Less: valuation allowance	(924		)	—
Total deferred tax assets	$	29,055		$	37,151

Deferred tax liabilities:
Property and equipment	$	1,868		$	1,735
Intangible assets	3,077			4,969
Accrued revenue and expenses	1,352			500
Subsidiary withholding tax liability	4,850			—
Stock-based compensation	1,498			1,606
Other liabilities	239			314
Total deferred tax liabilities	$	12,884		$	9,124
Net deferred tax assets	$	16,171		$	28,027

As of December 31, 2017 and 2016 the Company classified $8,803 and $2,979, respectively, of deferred tax liabilities as Other noncurrent liabilities in the consolidated balance sheet.

Included in the stock-based compensation expense deferred tax asset at December 31, 2017 and 2016 is $8,512 and $11,471, respectively that is related to acquisitions and is amortized for tax purposes over a 10 to 15-year period.

As of December 31, 2017, our domestic and foreign net operating loss (“NOL”) carryforwards for income tax purposes were approximately $6,264 and $14,792, respectively. If not utilized, the domestic NOL carryforwards will begin to expire in 2021. Our foreign NOL carryforwards include $2,454 from jurisdictions with no expiration date, $5,338 that will expire in various countries by 2026, as well as $1,183 and $5,817, for which the Company has recorded a valuation allowance and will expire in 2021 and 2022, respectively. The valuation allowance maintained by the Company as of December 31, 2017 relates primarily to net operating loss carryforwards in certain non-U.S. jurisdictions that we believe are not likely to be realized. The net change in the valuation allowance in the current year was $924.

Uncertain Tax Positions

The liability for unrecognized tax benefits is included in noncurrent taxes payable, within the consolidated balance sheets at December 31, 2017 and 2016. At December 31, 2017 and 2016, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state tax positions) was $699 and $66, respectively. These amounts represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company accrued $148 of interest and penalties resulting from such unrecognized tax benefits at December 31, 2017. There was no accrued interest and penalties resulting from such unrecognized tax benefits at December 31, 2016 and December 31, 2015.

The beginning to ending reconciliation of the gross unrecognized tax benefits is as follows:



	For the Years Ended December 31,
	2017			2016		2015
Balance at January 1	$	66		$	62	$	200
Increases in tax positions in current year	240			4		—
Increases in tax positions in prior year	459			—		—
Decreases due to settlement	(66		)	—		(138		)
Balance at December 31	$	699		$	66	$	62

There were no tax positions for which it was reasonably possible that unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company files income tax returns in the United States and in various state, local and foreign jurisdictions. The Company’s significant tax jurisdictions are the United States, Canada, Russia, Denmark, Germany, Ukraine, the United Kingdom, Hungary, Switzerland, and India. The tax years subsequent to 2014 remain open to examination by the Internal Revenue Service and generally, the tax years subsequent to 2014 remain open to examination by various state and local taxing authorities and various foreign taxing authorities.