Note 17. Income Taxes

On January 4, 2016, ARRIS Group completed the Combination transaction with Pace, a company incorporated in England and Wales. In connection with the Combination, (i) ARRIS International plc (“ARRIS”), a company incorporated in England and Wales, acquired all of the outstanding ordinary shares of Pace (the “Pace Acquisition”) and (ii) a wholly-owned subsidiary of ARRIS was merged with and into ARRIS Group (the “Merger”), with ARRIS Group surviving the Merger as an indirect wholly-owned subsidiary of ARRIS. As a result of the Merger, ARRIS incurred withholding taxes of $55 million. Subsequent to the Merger, ARRIS is subject to the U.K. statutory tax rate and a territorial corporate tax system. The U.K. statutory rate for 2017 is 19.25% as compared to 20% in 2016. The statutory rate in the U.K. decreased from 20% to 19% effective April 1, 2017. The Company’s statutory rate for 2017 represents the blended rate that will be in effect for the year ended December 31, 2017 based on the 20% statutory rate that was effective for the first quarter of 2017 and the 19% rate effective for the remainder of 2017. Prior to the Merger, ARRIS was subject to the U.S. statutory tax rate of 35% and a worldwide corporate tax system.

The Company reported the following operating results for the periods presented (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Income (loss) before income taxes	$	20,172		$	13,664		$	(10,858	)	$	(105,519	)
Income tax (benefit) expense		(8,302	)		(68,795	)		1,699			17,218
Effective income tax rate		(44.8	)%		(503.5	)%		(15.6	)%		(16.3	)%

The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of income. The difference between the U.K. federal statutory income tax rate of 19.25% and the effective income tax rate for the 2017 and 2016 periods is primarily due to the benefits of other foreign income tax regimes and the U.S. federal research and development credits. The change in income tax benefit for the three months ended June 30, 2017 was primarily due to a change in the application of the estimated annual effective tax rate resulting from an increase in annual earnings expectations in 2017 compared to the expected annual loss in 2016 which required the Company to apply the guidance on income taxes related to loss limitation provisions. The change in income tax expense for the six months ended June 30, 2017 was due to a decrease in the amount of book loss incurred in 2017 when compared to 2016.

The Company’s effective income tax rate for the six months ended June 30, 2017 was impacted by $8.0 million of expense related to the intra-entity sale of an asset, $4.8 million of benefit related to the reversal of interest related to uncertain tax positions and $4.0 million of benefit related to statute closures for uncertain tax positions.

The Company’s effective income tax rate for the six months ended June 30, 2016 was impacted by recording $55 million of withholding tax expense in connection with the Combination, as well as $2.1 million of expense on expiring net operating losses, $2.7 million of expense for discrete uncertain tax positions and $2.1 million of benefit from a release of valuation allowances.