Income Taxes

3 Months Ended

Mar. 31, 2021

Income Taxes

The provision for income taxes was as follows (in thousands, except percentages):


	Three Months Ended
	March 31,
	2021			2020
Income tax provision	$	11,203		$	7,774
Effective tax rate	22.4		%	33.5		%

The effective tax rate for the three months ended March 31, 2021 is higher than the United States Federal tax rate of 21.0 percent mainly due to an increase in unrecognized tax benefits related to positions taken on prior year tax returns, higher tax rates applied to income earned in certain foreign jurisdictions, United States tax applied to global intangible income, and state taxes. These amounts were offset partially by benefits related to United States export sales, excess tax benefits from stock compensation, and research credits. As of March 31, 2021 and December 31, 2020, respectively, the Company has accrued income tax liabilities of $37.1 million related to the transition tax enacted on December 22, 2017 as part of the Tax Cuts and Jobs Act.

Note 16. Income Taxes - (Continued)

Of the amounts accrued, $2.7 million is expected to be due within one year. The remaining transition tax will not accrue interest and will be paid in annual installments beginning in 2021 through 2024. The Company has not provided United States, state or foreign income taxes for earnings generated after January 1, 2018 by certain subsidiaries outside the United States as management currently intends to reinvest the earnings in operations and other activities outside of the United States indefinitely. Should the Company subsequently elect to repatriate such foreign earnings, the Company would need to accrue and pay state and foreign income taxes, thereby reducing the amount of our cash. United States taxes would generally not be payable due to changes made by the Tax Cuts and Jobs Act.

As of March 31, 2021, the Company had approximately $26.2 million of unrecognized tax benefits, of which $24.9 million would affect the Company’s effective tax rate if recognized. The Company anticipates approximately $3.1 million of the net unrecognized tax benefits will be recognized within 12 months as a result of settlements or effective settlements with various tax authorities, the closure of certain audits and the lapse of the applicable statute of limitations. The Company classifies interest and penalties related to unrecognized tax benefits in the income tax provision. As of March 31, 2021, the Company had $2.8 million of accrued interest and penalties related to unrecognized tax benefits that are recorded as current and non-current accrued income taxes on the Consolidated Balance Sheets.

During the fourth quarter of 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of the Company's non-operating subsidiaries in Sweden. The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and assesses taxes and penalties totaling approximately $342.9 million (Swedish kronor 3.0 billion). On March 26, 2020, the Company received an adverse judgment from the First Instance Court of Sweden (the “Court”) regarding the STA's reassessment. The Company does not agree with the Court’s ruling, continues to believe the STA's arguments in the reassessment are not in accordance with Swedish tax regulations or the treaty for the avoidance of double taxation between Sweden and Belgium, and has appealed the decision to the Administrative Court of Appeal in Stockholm. Consequently, no adjustment to the Company's unrecognized tax benefits has been recorded in relation to this matter. The Company has received a respite from paying the reassessment until after a decision by the Administrative Court of Appeal by putting in place a bank guarantee to secure possible future payment of the tax and interest. There can be no assurance that the Company’s appeal will be successful.

During the third quarter of 2019, the European Commission announced the opening of a separate review to assess whether an excess profit tax ruling granted by Belgium to one of the Company's international subsidiaries is in breach of European Union state aid rules. The Company believes all taxes assessed by Belgium have been paid and has not adjusted unrecognized tax benefits in relation to this matter. Management believes that the Company's recorded tax liabilities are adequate in the aggregate for its income tax exposures.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the bipartisan $2.0 trillion economic relief package aimed at helping American workers and businesses impacted by the COVID-19 pandemic. Through March 31, 2021 the CARES Act has not materially affected our income tax provision or deferred tax assets or liabilities. We will continue to monitor the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.

The Company currently has the following tax years open to examination by major taxing jurisdictions:


	Tax Years:
United States Federal	2017	-	2019
State of California	2015	-	2019
State of Massachusetts	2016	-	2019
State of Oregon	2017	-	2019
Sweden	2012	-	2019
United Kingdom	2016	-	2019
Belgium	2012	-	2019

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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