Income Taxes

3 Months Ended

Mar. 31, 2020

Breakdown of Income Taxes

The tax provision for interim periods is determined using an estimate of our annual effective tax rate (“AETR”), adjusted for discrete items arising in the period. To calculate our estimated AETR, we estimate our income before taxes and the related tax expense or benefit for the full fiscal year (total of expected current and deferred tax provisions), excluding the effect of significant unusual or infrequently occurring items or comprehensive income items not recognized in the statement of income. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated annual tax rate does change, we make a cumulative adjustment in that quarter. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, are subject to significant volatility due to several factors including our ability to accurately predict our income (loss) before provision for income taxes in multiple jurisdictions and the changes in foreign exchange rates. Our effective tax rate in the future will depend on the portion of our profits earned within and outside of France.

The condensed consolidated statements of income line item “Provision for income taxes” can be broken down as follows:


	Three Months Ended
	March 31, 2019		March 31, 2020
	(in thousands)
Current income tax	$	(15,934)	$	(9,718)
Net change in deferred taxes	5,916		2,678
Provision for income taxes	$	(10,018)	$	(7,040)

For the three months ended March 31, 2019 and 2020, we used an annual estimated tax rate of 30% to calculate the provision for income taxes. The effective tax rate was 32% and 30% for the three months ended March 31, 2019 and 2020, respectively. The difference between the annual estimated tax rate and the effective tax rate is mainly due to the tax impact of discrete items such as share-based compensation in the United States. Discrete items were immaterial for the three months ended March 31, 2020 resulting in no material difference between the annual estimated tax rate and the effective tax rate.

Current tax assets and liabilities

The total amount of current tax assets consists mainly of prepayments of income taxes and credits of Criteo SA, Criteo Corp. and Criteo Gmbh. The current tax liabilities refers mainly to the corporate tax payables of Criteo K.K.

Ongoing tax inspection in the United States

On September 27, 2017, we received a draft notice of proposed adjustment (NOPA) from the Internal Revenue Service ("IRS") audit of Criteo Corp. for the year ended December 31, 2014, confirmed by the definitive notice dated February 8, 2018. Although we disagree with the IRS's position and are currently contesting this issue, the ultimate resolution of this litigation is uncertain and, if resolved in a manner unfavorable to us, could result in an additional federal tax liability of an estimated maximum aggregate amount of approximately $15.0 million, excluding related fees, interest and penalties.