

	2019			2018			2017
Current tax expense:
U.S. federal	$	30,208		$	2,817		$	48,339
State and local	11,630			6,969			434
Foreign	53,105			45,042			38,602
Total current	94,943			54,828			87,375
Deferred tax (benefit) expense:
U.S. federal	(16,389		)	12,462			(176,046		)
State and local	(6,897		)	1,258			(14,363		)
Foreign	(48,186		)	(13,795		)	(25,898		)
Total deferred	(71,472		)	(75		)	(216,307		)
Total current and deferred	23,471			54,753			(128,932		)
Benefit (expense) relating to interest rate swaps used to increase (decrease) equity	17,666			3,840			(2,477		)
Benefit from stock transactions with employees used to increase equity	54			58			46
Benefit relating to defined-benefit pension adjustments used to increase equity	1,258			14			267
Total tax expense (benefit)	$	42,449		$	58,665		$	(131,096	)



	December 31,
	2019			2018
Accrued liabilities	$	67,577		$	96,292
Operating leases	54,860			—
Loss and credit carryforwards	14,372			14,830
Assets relating to equity compensation	16,842			19,653
Other assets	20,364			14,092
Gross deferred tax assets	174,015			144,867
Property, equipment and leasehold improvements	(15,137		)	(3,421		)
Intangible assets	(212,498		)	(263,548		)
Prepaid expenses	(49,221		)	(41,926		)
Other liabilities	(5,799		)	(12,100		)
Gross deferred tax liabilities	(282,655		)	(320,995		)
Valuation allowance	(1,556		)	(4,066		)
Net deferred tax liabilities	$	(110,196	)	$	(180,194	)

Net deferred tax assets and net deferred tax liabilities were $79.6 million and $189.8 million as of December 31, 2019, respectively, and $34.5 million and $214.7 million as of December 31, 2018, respectively. These amounts are reported in Other assets and Other liabilities in the Consolidated Balance Sheets. Management has concluded it is more likely than not that the reversal of deferred tax liabilities and results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance at December 31, 2019.

The valuation allowances of $1.6 million and $4.1 million as of December 31, 2019 and 2018, respectively, primarily related to state credit carryovers and net operating losses that are not likely to be realized.

As of December 31, 2019, the Company had state and local tax net operating loss carryforwards of $26.3 million, of which $0.1 million expires within one to five years, $0.3 million expires within six to fifteen years and $25.9 million expires within sixteen to twenty years. The Company also had state tax credits of $5.3 million, a majority of which will expire in five to six years. As of December 31, 2019, the Company had non-U.S. net operating loss carryforwards of $27.6 million, of which $0.4 million expires over the next 20 years and $27.2 million can be carried forward indefinitely. These amounts have been reduced for associated unrecognized tax benefits, consistent with ASU No. 2013-11, "Income Taxes—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists."

The items comprising the differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate on income before income taxes for the years ended December 31 are summarized in the table below.



	2019		2018		2017
Statutory tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal benefit	1.5		—		3.6
Effect of non-U.S. operations	2.7		(10.7	)	5.9
Intercompany sale of intellectual property	(13.8	)	—		—
Change in the reserve for tax contingencies	4.7		15.7		(2.8	)
Law changes	—		(1.3	)	41.8
Stock-based compensation expense	(3.9	)	(5.3	)	11.0
Nondeductible acquisition costs	—		0.9		(7.9	)
Nondeductible meals and entertainment costs	1.7		2.7		(3.5	)
Gains/Losses on divested operations and held-for-sale assets	—		12.2		13.1
Limitation on executive compensation	2.4		2.7		(0.1	)
Global intangible low-taxed income, net of foreign tax credits	1.9		0.1		—
Foreign-derived intangible income	(1.0	)	(2.0	)	—
Change in the valuation allowance	(0.9	)	0.5		3.0
Goodwill	—		(3.8	)	—
Other items, net	(0.9	)	(0.3	)	3.5
Effective tax rate	15.4	%	32.4	%	102.6	%

In April 2019, we completed an intercompany sale of certain intellectual property. As a result, the Company recorded a net tax benefit of approximately $38.1 million in 2019, which represents the benefits of future tax deductions for amortization of the assets in the acquiring jurisdiction. Our tax planning related to our intellectual property is ongoing and may result in tax rate volatility in the future.

In connection with the Company’s adoption of ASU No. 2016-02 on January 1, 2019, operating leases were recorded on the Consolidated Balance Sheet as of December 31, 2019, including the recognition of operating lease liabilities and corresponding right-of-use assets. The corresponding deferred tax assets and deferred tax liabilities were also recorded. The net deferred tax impact was zero. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases provide additional information regarding the Company's leases and the adoption of ASU No. 2016-02.

The U.S. Tax Cuts and Jobs Act of 2017 (the "Act”) was enacted on December 22, 2017. Among other things, the Act reduced the U.S. federal corporation tax rate from 35% to 21%, required companies to pay a one-time transition tax on accumulated deferred foreign income (“ADFI”) of foreign subsidiaries that were previously tax deferred and created a new tax on global intangible low-taxed income (“GILTI”) attributable to foreign subsidiaries.

We remeasured U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. We reduced our income tax expense by $13.8 million and $123.2 million in 2018 and 2017, respectively, for this item.

The tax on ADFI is based on our total post-1986 earnings and profits ("E&P") of our foreign subsidiaries that were previously deferred from U.S. income taxes. We increased income tax expense by $5.5 million, $8.4 million and $63.6 million in 2019, 2018 and 2017, respectively, for this one-time transition tax liability. The Company utilized significant foreign tax credits and net operating loss carryovers to reduce the transition tax liability and the remaining tax balance was paid in full during 2019.

The Act also created a new tax on GILTI attributable to foreign subsidiaries. Companies have the option to account for the GILTI tax as a period cost in the period incurred, or to recognize deferred taxes for temporary differences, including outside basis differences expected to reverse as a result of the GILTI provisions. The Company has elected to account for the GILTI tax as a period cost in the period incurred.

As of December 31, 2019 and 2018, the Company had gross unrecognized tax benefits of $102.8 million and $90.3 million, respectively. The increase is primarily due to positions taken with respect to intercompany transactions. The gross unrecognized tax benefits at December 31, 2019 related primarily to transfer pricing on intercompany transactions, calculations of taxable E&P and related foreign tax credits, the exclusion of stock-based compensation expense from the Company’s cost sharing agreement, and the ability to realize certain refund claims. It is reasonably possible that gross unrecognized tax benefits will decrease by approximately $9.7 million within the next twelve months due to the anticipated closure of audits and the expiration of certain statutes of limitation.

Included in the balance of gross unrecognized tax benefits at December 31, 2019 are potential benefits of $97.5 million that, if recognized, would reduce our effective tax rate on income from continuing operations. Also included in the balance of gross unrecognized tax benefits at December 31, 2019 are potential benefits of $5.3 million that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.

The table below is a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits, excluding interest and penalties, for the years ended December 31 (in thousands).



	2019			2018
Beginning balance	$	90,349		$	60,269
Additions based on tax positions related to the current year	32,072			27,371
Additions for tax positions of prior years	8,564			14,691
Reductions for tax positions of prior years	(16,942		)	(3,939		)
Reductions for expiration of statutes	(7,481		)	(6,293		)
Settlements	(3,867		)	(472		)
Change in foreign currency exchange rates	75			(1,278		)
Ending balance	$	102,770		$	90,349

The Company accrues interest and penalties related to gross unrecognized tax benefits in its income tax provision. As of December 31, 2019 and 2018, the Company had $8.3 million and $6.7 million, respectively, of accrued interest and penalties related to gross unrecognized tax benefits. These amounts are in addition to the gross unrecognized tax benefits disclosed above. The total amount of interest and penalties recognized in the income tax provision during 2019 and 2018 was $1.7 million and $0.7 million, respectively.

The number of years with open statutes of limitation varies depending on the tax jurisdiction. The Company’s statutes are open with respect to the U.S. federal jurisdiction for 2016 and forward, and India for 2003 and forward. For other major taxing jurisdictions, including U.S. states, the United Kingdom, Canada, Japan, France and Ireland, the Company's statutes vary and are open as far back as 2010.

Under U.S. GAAP, no provision for income taxes that may result from the remittance of earnings held overseas is required if the Company has the ability and intent to indefinitely reinvest such funds overseas. The Company continues to assert its intention to reinvest all accumulated undistributed foreign earnings in its non-U.S. operations, except in instances where the repatriation of those earnings would result in minimal additional tax. Consequently, the Company has not recognized income tax expense that would result from the remittance of those earnings. The accumulated undistributed earnings of non-U.S. subsidiaries were

approximately $142.0 million as of December 31, 2019. As a result of the Act, the income tax that would be payable if such earnings were not indefinitely invested is estimated to be minimal.