Income Taxes

Breakdown of Income Taxes

The Consolidated Statements of Income line item “Provision for income taxes” can be broken down as follows:



	Year Ended December 31,
	2014			2015			2016
	(in thousands)
Current income tax	$	(22,893	)	$	(25,265	)	$	(43,153	)
France	(11,087		)	(15,458		)	(20,204		)
International	(11,806		)	(9,807		)	(22,949		)
Net change in deferred taxes	5,315			15,748			10,024
France	671			2,009			2,654
International	4,644			13,739			7,370
Provision for income tax	$	(17,578	)	$	(9,517	)	$	(33,129	)

As mentioned in Note 1 (Principles and Accounting Methods), the French Research Tax Credit is not included in the line item “Provision for income taxes” but is deducted from “Research and development expenses” (see Note 18 - Allocation of Personnel Expenses). French business tax, CVAE, is included in the current tax balance for an amount of $2.5 million, $3.0 million and $4.1 million, for the years ended December 31, 2014, 2015 and 2016 respectively.

Reconciliation between the Effective and Nominal Tax Expense

The following table shows the reconciliation between the effective and nominal tax expense at the nominal standard French rate of 34.43% (excluding additional contributions):



	Year Ended December 31,
	2014			2015			2016

	(in thousands)

Income before taxes	$	64,474		$	71,793		$	120,458
Theoretical group tax-rates	34.43		%	34.43		%	34.43		%
Nominal tax expense	(22,198		)	(24,718		)	(41,474		)

Increase / decrease in tax expense arising from:
Research tax credit	1,743			1,352			1,701
Net effect of shared based compensation ⁽¹⁾	3,419			2,048			(8,957		)
Other permanent differences	(2,245		)	(804		)	(3,518		)
Non recognition of deferred tax assets related to tax losses and temporary differences ⁽²⁾	(3,546		)	(7,662		)	(7,738		)
Utilization or recognition of previously unrecognized tax losses ⁽³⁾	276			12,264			13,366
French CVAE included in income taxes	(2,467		)	(3,052		)	(3,165		)
Special tax deductions ⁽⁴⁾	8,984			12,545			20,022
Effect of different tax rates	(1,019		)	(1,046		)	(1,108		)
Other differences	(525		)	(444		)	(2,258		)
Effective tax expense	$	(17,578	)	$	(9,517	)	$	(33,129	)

Effective tax rate	27.3		%	13.3		%	27.5		%

Increases and decreases in tax expense are presented applying the theoretical Group tax rate to the concerned tax bases. The impact resulting from the differences between local tax rates and the Group theoretical rate is shown in the “effect of different tax rates.”

⁽¹⁾

While in most countries share-based compensation does not give rise to any tax effect either when granted or when exercised, the United States and the United Kingdom generally permit tax deductions in respect of share-based compensation. The tax deduction generated in the United States and United Kingdom is in connection with the significant number of options exercised during the period was offset by the share-based compensation accounting expense exclusion.


⁽²⁾	Deferred tax assets on which a valuation allowance has been recognized mainly relate to Criteo Ltd, Criteo do Brasil, Criteo Singapore Pte. Ltd and Criteo Advertising (Beijing) Co. Ltd tax losses.


⁽³⁾	The 2014 balance relates exclusively to Criteo Pty. The 2015 and 2016 balances mainly relate to the recognition of Criteo Corp. tax losses considering the projected taxable income within the next 3 years and the Section IRC 382 annual limitation.


⁽⁴⁾	Special tax deductions refer to the application of a reduced income tax rate on the majority of the technology royalties income invoiced by the Parent to its subsidiaries.

Deferred Tax Assets and Liabilities

The following table shows the changes in the major sources of deferred tax assets and liabilities:



(in thousands)	Year ended December 31, 2014			Change recognized in profit or loss			Change recognized in OCI			Change in consolidation scope			Other		Currency translation adjustments			Year ended December 31, 2015

Deferred tax assets:
Net operating loss carryforwards	$	23,468		$	(385	)	$	—		$	5,889		$	—	$	(549	)	$	28,423
Personnel-related accruals	2,538			5,414			—			9			—		(659		)	7,302
Other accruals	2,285			1,353			—			—			—		(545		)	3,093
Projected benefit obligation	472			202			(44		)	—			—		(52		)	578
Other	1,458			4,372			—			1,091			—		(79		)	6,842
Deferred tax assets (gross)	30,221			10,956			(44		)	6,989			—		(1,884		)	46,238
Valuation allowance	(19,863		)	1,429			21			(7,177		)	—		1,610			(23,980		)
Deferred tax asset (net)	10,358			12,385			(23		)	(188		)	—		(274		)	22,258
Deferred tax liabilities:
Intangible assets	(2,861		)	5,445			—			(2,979		)	—		245			(150		)
Other	(4		)	(2,082		)	—			47			—		(12		)	(2,051		)
Deferred tax liabilities	(2,865		)	3,363			—			(2,932		)	—		233			(2,201		)
Net deferred income tax balance	$	7,493		$	15,748		$	(23	)	$	(3,120	)	$	—	$	(41	)	$	20,057



(in thousands)	Year ended December 31, 2015			Change recognized in profit or loss			Change recognized in OCI			Change in consolidation scope		Other			Currency translation adjustments			Year ended December 31, 2016

Deferred tax assets:
Net operating loss carryforwards	$	28,423		$	(1,048	)	$	—		$	—	$	—		$	(912	)	$	26,463
Personnel-related accruals	7,302			257						—		(30		)	241			7,770
Other accruals	3,093			975						—		30			276			4,374
Projected benefit obligation	578			213			466			—		—			(50		)	1,207
Other	6,842			7,331			—			—		(482		)	(265		)	13,426
Deferred tax assets (gross)	46,238			7,728			466			—		(482		)	(710		)	53,240
Valuation allowance	(23,980		)	3,630			(16		)	—		—			545			(19,821		)
Deferred tax asset (net)	22,258			11,358			450			—		(482		)	(165		)	33,419
Deferred tax liabilities:
Intangible assets	(150		)	(6		)	(477		)	—		(33		)	35			(631		)
Other	(2,051		)	(1,328		)	—			—		515			20			(2,844		)
Total deferred tax liabilities	(2,201		)	(1,334		)	(477		)	—		482			55			(3,475		)
Net deferred income tax balance	$	20,057		$	10,024		$	(27	)	$	—	$	—		$	(110	)	$	29,944

Amounts recognized in our Consolidated Financial Statements are calculated at the level of each subsidiary within our Consolidated Financial Statements. As at December 31, 2014, 2015 and 2016, the valuation allowance against net deferred income taxes amounted to $26.1 million, $24.0 million and $19.9 million, which related mainly to Criteo Corp. ($13.9 million, $12.4 million and $0.9 million, respectively), Criteo do Brasil ($2.6 million, $3.9 million and $3.6 million, respectively), Criteo Ltd ($7.7 million, $4.7 million and $4.7 million, respectively), Criteo China ($0.7 million, $1.4 million and $3.7 million, respectively) and Criteo France ($0.7 million, $0.6 million and $3.0 million, respectively).

The main changes that occurred in 2016 relate to the recognition of deferred tax assets for Criteo Corp. tax losses and temporary differences in connection with the 3-year tax plan ($8.5 million).

In accordance with ASC 740 - Income taxes, no uncertain tax positions were identified as of December 31, 2016.

The Company has various net operating loss carryforwards in the U.S. and China for $14.9 million and $3.6 million, respectively, which begin to expire in 2030 and 2019, respectively. The Company has net operating loss carryforwards in the United Kingdom of $4.8 million which have no expiration date.

Current tax assets

The total amount corresponds to prepayments of income taxes by Criteo do Brasil Ltda.