TAXES

The components of deferred tax assets and liabilities are as follows (in thousands):



	March 31,
	2019			2018
Deferred tax assets:
Foreign tax credits	$	39,554		$	9,140
State net operating losses	12,448			12,337
Net operating losses	102,074			98,911
Accrued pension liability	4,254			6,289
Accrued equity compensation	9,115			10,172
Interest expense limitation	17,852			—
Deferred revenue	511			688
Employee award programs	387			1,603
Employee payroll accruals	3,476			4,426
Inventories	1,263			1,666
Investment in unconsolidated affiliates	30,783			28,778
Convertible note	2,013			—
Capital loss carryover	4,200			—
Accrued expenses not currently deductible	6,339			3,240
Other	7,005			2,303
Valuation allowance - foreign tax credits	(39,554		)	(9,140		)
Valuation allowance - state	(12,448		)	(12,337		)
Valuation allowance	(76,212		)	(50,510		)
Total deferred tax assets	$	113,060		$	107,566
Deferred tax liabilities:
Property and equipment	$	(136,175	)	$	(150,224	)
Inventories	(1,754		)	(2,070		)
Investment in unconsolidated affiliates	(27,595		)	(21,470		)
Employee programs	—			(1,224		)
Deferred gain	(1,872		)	(2,691		)
Other	(4,872		)	(4,155		)
Total deferred tax liabilities	$	(172,268	)	$	(181,834	)
Net deferred tax liabilities	$	(59,208	)	$	(74,268	)

Companies may use foreign tax credits to offset the U.S. income taxes due on income earned from foreign sources. However, the credit that may be claimed for a particular taxable year is limited by the total income tax on the U.S. income tax return as well as by the ratio of foreign source net income in each statutory category to total net income. The amount of creditable foreign taxes available for the taxable year that exceeds the limitation (i.e., “excess foreign tax credits”) may be carried back one year and forward ten years. We have $39.6 million of excess foreign tax credits as of March 31, 2019, of which $6.6 million will expire in fiscal year 2021, $4.0 million will expire in fiscal year 2022, $0.2 million will expire in fiscal year 2023, $15.6 million will expire in fiscal year 2024 and $13.2 million will expire in fiscal year 2025. As of March 31, 2019, we have $145.0 million of net operating losses in the U.S., of which $0.8 million will expire in fiscal year 2037 and $6.5 million will expire in fiscal year 2038. The remaining $137.8 million of net operating losses can be carried forward indefinitely. In addition, we have net operating losses in certain states totaling $200.1 million which will begin to expire in fiscal year 2022.

Certain limitations on the deductibility of interest expense pursuant to the Act became effective for Bristow on April 1, 2018. As of March 31, 2019, we recorded a deferred income tax benefit related to our current year disallowance of $85 million of interest expense which can be carried forward indefinitely.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes to offset future taxable income and reduce federal income tax liability is subject to certain requirements and restrictions. In particular, if we experience an “ownership change” as defined in section 382 of the U.S. Internal Revenue Code, then our ability to use these tax attributes may be substantially limited, which could have a negative impact on our financial position and results of operations.

We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. As of March 31, 2019, valuation allowances were $76.2 million for foreign operating loss carryforwards, $12.4 million for state operating loss carryforwards, $4.2 million for capital loss carryforwards and $39.6 million for foreign tax credits.

The following table is a rollforward of the deferred tax valuation allowance (in thousands):



	Fiscal Year Ended March 31,
	2018			2017			2016
Balance – beginning of fiscal year	$	(71,987	)	$	(74,727	)	$	(29,373	)
Additional allowances	(59,493		)	(20,259		)	(45,354		)
Reversals and other changes	3,266			22,999			—
Balance – end of fiscal year	$	(128,214	)	$	(71,987	)	$	(74,727	)

The components of loss before benefit (provision) for income taxes for fiscal years 2019, 2018 and 2017 are as follows (in thousands):



	Fiscal Year Ended March 31,
	2019			2018			2017
Domestic	$	(263,377	)	$	(91,002	)	$	(147,988	)
Foreign	(72,922		)	(136,998		)	4,660
Total	$	(336,299	)	$	(228,000	)	$	(143,328	)

The provision (benefit) for income taxes for fiscal years 2019, 2018 and 2017 consisted of the following (in thousands):



	Fiscal Year Ended March 31,
	2019			2018			2017
Current:
Domestic	$	1,337		$	1,247		$	2,797
Foreign	15,313			13,607			17,153
	$	16,650		$	14,854		$	19,950
Deferred:
Domestic	$	(16,523	)	$	(39,079	)	$	24,651
Foreign	(288		)	(6,666		)	(12,013		)
	$	(16,811	)	$	(45,745	)	$	12,638
Total	$	(161	)	$	(30,891	)	$	32,588

The reconciliation of the U.S. Federal statutory tax rate to the effective income tax rate for the (provision) benefit for income taxes is shown below:



	Fiscal Year Ended March 31,
	2019		2018		2017
Statutory rate	21.0	%	31.6	%	35.0	%
Effect of U.S. tax reform	(3.5	)%	9.9	%	—	%
Net foreign tax on non-U.S. earnings	(0.3	)%	0.8	%	(0.5	)%
Benefit of foreign tax deduction in the U.S.	—	%	—	%	2.5	%
Foreign earnings indefinitely reinvested abroad	(4.4	)%	(8.1	)%	(0.8	)%
Change in valuation allowance	(15.2	)%	1.1	%	(25.8	)%
Foreign earnings that are currently taxed in the U.S.	(0.7	)%	(33.0	)%	(28.5	)%
Effect of change in foreign statutory corporate income tax rates	0.4	%	—	%	(0.2	)%
Impairment of foreign investments	—	%	11.9	%	—	%
Goodwill impairment	—	%	—	%	(1.0	)%
Changes in tax reserves	0.7	%	(2.3	)%	0.6	%
Other, net	2.0	%	1.6	%	(4.0	)%
Effective tax rate	—	%	13.5	%	(22.7	)%

In fiscal year 2019, our effective tax rate is 0.0% and includes (a) $51.0 million of tax expense for an increase in valuation allowances and (b) a reduction to our previously-recorded U.S. statutory tax rate reduction adjustment of $19.0 million offset by a one-time non-cash transition tax expense of $30.6 million.

On December 22, 2017, the president of the United States signed into law the Act. The Act includes numerous changes in existing U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018. Further, the Act provided for a one-time “deemed repatriation” of accumulated foreign earnings of certain foreign corporations. Under U.S. generally accepted accounting principles, our net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. We completed our analysis of the income tax implications of the Act during the third quarter of fiscal year 2019. Pursuant to the issuance of additional guidance by the U.S. Internal Revenue Service related to the calculation of the one-time deemed repatriation tax, we adjusted our previously reported provisional amounts by recording an additional tax expense of $11.6 million related to remeasurement of deferred taxes offset by one-time mandatory deemed repatriation.

Certain provisions under the Act became applicable to Bristow on April 1, 2018 and our tax provision for fiscal year 2019 includes the tax implications of these provisions. These provisions include Global Intangible Low-Taxed Income (“GILTI”), Base Erosions and Anti-Avoidance Tax (“BEAT”), Foreign Derived Intangible Income (“FDII”) and certain limitations on the deduction of interest expense and utilization of net operating losses.

In fiscal year 2018, our effective tax rate was 13.5% and includes: (i) tax benefit of $27.0 million related to the impairment of our equity investment in Líder; (ii) tax impact of one-time transition tax on unrepatriated earnings of foreign subsidiaries under the Act of $52.9 million, which is partially offset by the utilization of foreign tax credits of $22.6 million; (iii) tax benefit of $53.0 million as a result of the revaluation of our net deferred tax liabilities; and (iv) tax benefit due to release of $22.8 million of foreign tax credit valuation allowances.

Our effective income tax rate for fiscal year 2017 was (22.7)% representing the income tax expense rate on a pre-tax net loss for the fiscal year, which was reduced by $37.0 million of tax expense for an increase in valuation allowance.

A portion of our aircraft fleet is owned directly or indirectly by our wholly owned Cayman Island subsidiaries. Our foreign operations combined with our leasing structure provided a material benefit to the effective tax rates for fiscal years 2019, 2018 and 2017. In fiscal year 2017, our unfavorable permanent differences, such as valuation allowances and non-tax deductible goodwill write-off had the effect of increasing our income tax expense and reducing our effective tax rate applied to pre-tax losses. Also, our effective tax rates for fiscal years 2019, 2018 and 2017 benefited from the permanent investment outside the U.S. of foreign earnings, upon which no U.S. tax had been provided until the one-time transition tax on unrepatriated earnings of foreign subsidiaries under the Act.

In fiscal year 2017, our effective tax rate was impacted by valuation allowances of $37.0 million and a change in the mix of geographic earnings in which we experienced U.S. losses offset by taxes in jurisdictions taxed on a deemed profit basis. The current effective tax rate was impacted by the tax effect of the $8.7 million goodwill impairment discussed in Note 1.

In August 2008, certain of our existing and newly created subsidiaries completed intercompany leasing transactions involving eleven aircraft. The tax benefit of this transaction is being recognized over the remaining useful life of the assets, which is approximately 13 years. During fiscal year 2017, this transaction resulted in a $2.4 million reduction in our consolidated provision for income taxes. This transaction resulted in no impact on our consolidated provision for income taxes during fiscal year 2018. In October 2016, the FASB issued accounting guidance related to current and deferred income taxes for intra-entity transfer of assets other than inventory (ASU 2016-16). We adopted this accounting guidance effective April 1, 2018 using the modified retrospective method, through a cumulative-effect adjustment directly to retained earnings. Upon adoption, we recognized the deferred tax impact directly through retained earnings and, therefore, we do not expect any future tax impact.

Our operations are subject to the jurisdiction of multiple tax authorities, which impose various types of taxes on us, including income, value added, sales and payroll taxes. Determination of taxes owed in any jurisdiction requires the interpretation of related tax laws, regulations, judicial decisions and administrative interpretations of the local tax authority. As a result, we are subject to tax assessments in such jurisdictions including the re-determination of taxable amounts by tax authorities that may not agree with our interpretations and positions taken. The following table summarizes the years open by jurisdiction as of March 31, 2019:



	Jurisdiction	Years Open
	U.S.	Fiscal year 2017 to present
	U.K.	Fiscal year 2017 to present
	Guyana	Fiscal year 2013 to present
	Nigeria	Fiscal year 2009 to present
	Trinidad	Fiscal year 2007 to present
	Australia	Fiscal year 2015 to present
	Norway	Fiscal year 2012 to present

The effects of a tax position are recognized in the period in which we determine that it is more-likely-than-not (defined as a more than 50% likelihood) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement.

We have analyzed filing positions in the federal, state and foreign jurisdictions where we are required to file income tax returns for all open tax years. We believe that the settlement of any tax contingencies would not have a significant impact on our consolidated financial position, results of operations or liquidity. In fiscal years 2019, 2018 and 2017, we had a net (benefit) provision of $(2.3) million, $5.4 million and $0.2 million, respectively, of reserves for tax contingencies primarily related to non-U.S. income tax on foreign leasing operations. Our policy is to accrue interest and penalties associated with uncertain tax positions in our provision for income taxes. In fiscal years 2019, 2018 and 2017, $0.0 million, $0.1 million and $0.2 million, respectively, in interest and penalties were accrued in connection with uncertain tax positions.

As of March 31, 2019 and 2018, we had $4.3 million and $6.7 million, respectively, of unrecognized tax benefits, all of which would have an impact on our effective tax rate, if recognized.

The activity associated with our unrecognized tax benefit during fiscal years 2019 and 2018 is as follows (in thousands):



	Fiscal Year Ended March 31,
	2019			2018
Unrecognized tax benefits – beginning of fiscal year	$	6,682		$	1,332
Increases for tax positions taken in prior years	100			7,784
Decreases for tax positions taken in prior years	(2,445		)	(2,434		)
Decrease related to statute of limitation expirations	—			—
Unrecognized tax benefits – end of fiscal year	$	4,337		$	6,682

As of March 31, 2019, we have aggregated approximately $442.0 million in unremitted foreign earnings reinvested abroad. Pursuant to the Act, these earnings were subject to the mandatory one-time transition tax and eligible to be repatriated to the U.S. without additional U.S. tax. Although these foreign earnings have been deemed to be repatriated from a U.S. federal income tax perspective, we have not yet completed our assessment of the U.S. tax reform on our plans to reinvest foreign earnings and as such have not changed our prior conclusion that the unremitted earnings are indefinitely reinvested. Accordingly, we have not provided deferred taxes on these unremitted earnings. If our expectations were to change, withholding and other applicable taxes incurred upon repatriation, if any, are not expected to have a significant impact on our results of operations.

We receive a tax benefit that is generated by certain employee stock benefit plan transactions. Under previous accounting guidance, in fiscal year 2017, this benefit was recorded directly to additional paid-in-capital on our consolidated balance sheets and did not reduce our effective income tax rate.

Income taxes paid during fiscal years 2019, 2018 and 2017 were $19.4 million, $26.7 million and $28.1 million, respectively.