INCOME TAXES

In December 2017, the United States enacted the Tax Act, which includes a number of changes to existing U.S. tax laws that have an impact on our income tax provision, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017, and the creation of a territorial tax system with a one‑time mandatory tax on applicable previously deferred earnings of foreign subsidiaries. The Tax Act also makes prospective changes beginning in 2018, including a base erosion and anti‑abuse tax ("BEAT"), a global intangible low‑taxed income ("GILTI") tax, additional limitations on the deductibility of executive compensation, limitations on the deductibility of interest expense and repeal of the domestic manufacturing deduction.

We recognized the income tax effects of the Tax Act in our financial statements for the year ended December 31, 2017 in accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), which provides SEC staff guidance for the application of accounting standards for income taxes in the reporting period in which the Tax Act was enacted. As such, our financial results reflect provisional amounts for those specific income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate could be determined. The 2017 Tax Act's U.S. tax law changes that we believe will have a material impact on our federal income taxes are as follows:

Reduction of the U.S. corporate income tax rate. At December 31, 2017, we remeasured our deferred tax assets and liabilities to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a $23.1 million decrease in income tax expense for the year ended December 31, 2017 and a corresponding $23.1 million decrease in net deferred tax liabilities as of December 31, 2017. However, our accounting for U.S. deferred taxes is based on estimates, which could change and potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts; and

Transition tax on foreign earnings. The Tax Act imposes a one‑time transition tax on applicable unremitted earnings and profits of the foreign subsidiaries of our U.S. subsidiaries. Prior to enactment of the Tax Act, we recognized a deferred tax liability for certain foreign earnings that were considered to be repatriated and did not recognize a deferred tax liability related to the unremitted earnings of certain of our foreign subsidiaries that we considered to be indefinitely reinvested. The final determination of the transition tax requires further analysis regarding the amount and composition of our historical foreign earnings and tax pools due to estimates related to certain yet-to-be filed current foreign tax returns, foreign statutory financial reports and foreign tax audits. The final determination is expected to be completed and reflected in our financial statements issued for subsequent reporting periods that fall within the measurement period provided by SAB 118. We have provided a provisional mandatory repatriation tax of approximately $9.0 million fully offset by available foreign tax credits. Additionally, upon enactment, we believe that certain of our foreign earnings, where we recognized a deferred tax liability upon future repatriation, will now be subject to tax-free repatriation. As a result, we have recognized a provisional $222 million decrease in income tax expense for the year ended December 31, 2017 and a corresponding decrease in net deferred tax liabilities as of December 31, 2017. The transition tax will also impact the utilization of our remaining foreign tax credits, which will impact our valuation allowance analysis related to those deferred tax assets. We have provided a provisional valuation allowance of $56.0 million against such deferred tax assets.

Our provisions (benefit) for income taxes and our cash taxes paid are as follows:



	Year Ended December 31,
(in thousands)	2017			2016			2015
Current:
Domestic	$	13,390		$	(6,899	)	$	11,028
Foreign	37,381			25,561			65,132
Total current	50,771			18,662			76,160
Deferred:
Domestic	(213,200		)	(8,617		)	40,284
Foreign	(21,813		)	8,715			(11,194		)
Total deferred	(235,013		)	98			29,090
Total provision (benefit) for income taxes	$	(184,242	)	$	18,760		$	105,250
Cash taxes paid	$	43,347		$	75,819		$	119,591

The components of income (loss) before income taxes are as follows:



	Year Ended December 31,
(in thousands)	2017			2016			2015
Domestic	$	(93,053	)	$	(180,132	)	$	51,018
Foreign	75,209			223,478			285,243
Income (loss) before income taxes	$	(17,844	)	$	43,346		$	336,261

As of December 31, 2017 and 2016, our worldwide deferred tax assets, liabilities and net deferred tax liabilities were as follows:



	December 31,
(in thousands)	2017			2016
Deferred tax assets:
Deferred compensation	$	22,325		$	38,602
Deferred income	2,015			9,830
Accrued expenses	11,652			24,663
Net operating loss and other carryforwards	222,065			14,140
Other	2,203			46,745
Gross deferred tax assets	260,260			133,980
Valuation allowances	(206,586		)	(4,200		)
Total deferred tax assets	$	53,674		$	129,780
Deferred tax liabilities:
Property and equipment	$	65,366		$	86,237
Unremitted foreign earnings not considered indefinitely reinvested	—			257,414
Basis difference in equity investments	5,715			10,055
Total deferred tax liabilities	$	71,081		$	353,706
Net deferred income tax liability	$	17,407		$	223,926

Our net deferred tax liability is reflected within our balance sheet as follows:



	December 31,
(in thousands)	2017			2016
Deferred tax liabilities	$	42,040		$	236,113
Long-term deferred tax assets	(24,633		)	(12,187		)
Net deferred income tax liability	$	17,407		$	223,926

At December 31, 2017, we had approximately $56 million of foreign tax credits and no U.S. net operating losses available to reduce future payments of U.S. federal income taxes. The tax credits expire commencing in 2024. As a result of the Tax Act, we have established a deferred tax asset valuation allowance against the entire carryforward.

At December 31, 2017, we had approximately $740 million of net operating and other loss carryforwards that were generated in various worldwide jurisdictions. The carryforwards include $692 million that do not expire and $48 million that will expire from 2018 through 2025. We have recorded a valuation allowance of $33 million on losses and other deferred tax assets as our management believes at this time that it is more likely than not that the deferred tax asset will not be realized. At December 31, 2017, we have a foreign deferred tax asset of approximately $113 million relating to a net operating loss included on tax returns filed in 2017. Although this net operating loss carryforward has an indefinite life, a corresponding valuation allowance for the same amount was recognized because our management believes it will never be realized based on the nature of the loss and our current organizational structure.

Reconciliations between the actual provision for income taxes (benefit) on continuing operations and that computed by applying the U.S. statutory rate of 35% to income before income taxes were as follows:



	Year Ended December 31,
	2017			2016			2015
Income tax provision (benefit) at the U.S. statutory rate	$	(6,245	)	$	15,171		$	117,691
Tax Act - earnings subject to tax-free repatriation	(222,019		)	—			—
Tax Act - remeasure of net U.S. deferred tax liabilities	(23,124		)	—			—
Valuation allowances	89,217			4,200			—
Foreign tax rate differential	(21,163		)	(1,766		)	(8,505		)
Stock compensation	3,112			—			—
Other items, net	(4,020		)	1,155			(3,936		)
Total provision (benefit) for income taxes	$	(184,242	)	$	18,760		$	105,250

We recognize the benefit for a tax position if the benefit is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that we believe is greater than 50% likely of being realized upon ultimate settlement.

We account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements. We increased/(decreased) income tax expense by $0.6 million, $1.2 million and $(0.9) million in 2017, 2016 and 2015, respectively, for penalties and interest on uncertain tax positions, which brought our total liabilities for penalties and interest on uncertain tax positions to $2.6 million and $3.2 million on our balance sheets at December 31, 2017 and 2016, respectively. All additions or reductions to those liabilities would affect our effective income tax rate in the periods of change.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, not including associated foreign tax credits and penalties and interest, is as follows:



	Year Ended December 31,
(in thousands)	2017			2016			2015
Beginning of year	$	6,330		$	5,245		$	5,575
Additions based on tax positions related to the current year	1,213			1,999			260
Reductions for expiration of statutes of limitations	(650		)	(1,028		)	(1,649		)
Additions (reductions) based on tax positions related to prior years	314			114			1,059
Reductions based on tax positions related to prior years	(962		)	—			—
Settlements	(906		)	—			—
Balance at end of year	$	5,339		$	6,330		$	5,245

Including associated foreign tax credits and penalties and interest, we have accrued a net total of $5.6 million in the caption "other long-term liabilities" on our balance sheet at December 31, 2017 for unrecognized tax benefits. We do not believe that the total of unrecognized tax benefits will significantly increase or decrease in the next 12 months.

We file a consolidated U.S. federal income tax return for Oceaneering International, Inc. and our domestic subsidiaries. We conduct our international operations in a number of locations that have varying laws and regulations with regard to income and other taxes, some of which are subject to interpretation. Our management believes that adequate provisions have been made for all taxes that will ultimately be payable, although final determination of tax liabilities may differ from our estimates.

Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to complete and settle. The following lists the earliest tax years open to examination by tax authorities where we have significant operations:



Jurisdiction		Periods
United States		2014
United Kingdom		2015
Norway		2007
Angola		2013
Brazil		2012
Australia		2013