Income Taxes

We recognized a tax provision of $4.5 and $2.4 million on pretax income of $8.3 and $2.6 million during the three and six months ended June 30, 2018, respectively; and a tax provision of $1.0 million and $4 thousand on pretax net income of $3.8 million and $7.6 million during the three and six months ended June 30, 2017, respectively. The provision for income taxes before discrete items reflected in the table below was $4.5 and $1.0 million during the three and six months ended June 30, 2018, respectively, and $1.6 and $2.7 million during the three and six months ended June 30, 2017, respectively. The increase in the provision for income taxes before discrete items for the three months ended June 30, 2018, compared with the same period in the prior year, was primarily due to the impact of increased non-deductible stock-based compensation. The decrease in the provision for income taxes before discrete items for the six months ended June 30, 2018, compared with the same period in the prior year, was primarily due to decreased profitability before income taxes.

Primary differences between our provision for income taxes before discrete items and the income tax provision at the U.S. statutory rate include taxes on permanently reinvested foreign earnings, the tax effects of stock-based compensation expense which are non-deductible for tax purposes, and the U.S. Research and Development Credit.

Our tax provision for income taxes before discrete items is reconciled to our recorded provision for income taxes, as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Provision for income taxes before discrete items	$	4,457		$	1,571		$	1,037		$	2,653
Interest related to unrecognized tax benefits	113			64			225			99
Provision for (benefit from) stock based compensation, including ESPP dispositions	49			(771		)	26			(2,339		)
Benefit from reversals of uncertain tax positions	(46		)	—			(233		)	—
Provision for (benefit from) reassessment of taxes upon filing tax returns	(41		)	157			(41		)	72
Provision for (benefit from) reassessment of taxes upon tax law change	—			—			161			(481		)
Provision for deemed repatriation transition tax	—			—			1,222			—
Provision for income taxes	$	4,532		$	1,021		$	2,397		$	4

On December 22, 2017, the 2017 Tax Act was enacted by the U.S. government. The 2017 Tax Act made broad and complex changes to the U.S. tax code that impact the six months ended June 30, 2018 and year ended December 31, 2017, including, but not limited to, lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, imposing a one-time deemed repatriation transition tax, and the remeasurement of U.S. deferred tax assets and liabilities.

The SEC issued SAB 118, which allows us to record a provisional estimate of the income tax effects of the 2017 Tax Act in the period in which we can make a reasonable estimate of its effects. We recorded a $27.5 million tax charge in the year ended December 31, 2017 as a provisional estimate. This provisional estimate included an estimated charge of $17.0 million related to the deemed repatriation transition tax, which is comprised of a gross transition tax of $27.0 million offset by foreign tax credits of $10.0 million. In addition, we recorded a $10.5 million charge related to the remeasurement of U.S. deferred tax assets and liabilities in the year ended December 31, 2017. While we have calculated a reasonable estimate of the impact of the U.S. tax rate reduction and the amount of the deemed repatriation transition tax, we are gathering additional information to refine and finalize our calculation of the impacts of the 2017 Tax Act on our U.S. deferred tax assets and liabilities, the deemed repatriation transition tax, and other provisions associated with the 2017 Tax Act. We accrued an additional $1.2 million for state taxes related to the deemed repatriation transition tax in the six months ended June 30, 2018. As we obtain additional information, we will record adjustments in subsequent periods and will finalize the calculation of the income tax effects of the 2017 Tax Act in the fourth quarter of 2018, or in an earlier quarter if our analysis is complete.

The 2017 Tax Act also created a global intangible low-tax income (“GILTI”) provision, which is a minimum tax on certain foreign earnings, commencing in the year ending December 31, 2018. The amount of future U.S. inclusions in taxable income related to GILTI depends on our current structure, estimated future results of global operations, and our intent and ability to modify our structure and/or our business. We are not yet able to provide a reasonable estimate of the effect of this provision of the 2017 Tax Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI. Any subsequent adjustment to the deferred tax amounts related to GILTI (or other computations) will be recorded as a tax expense in the quarter of 2018 when the analysis is complete.

As of June 30, 2018, and December 31, 2017, gross unrecognized benefits that would impact the effective tax rate if recognized were $34.6 and $33.9 million, respectively. Over the next twelve months, our existing tax positions will continue to generate increased liabilities for unrecognized tax benefits. It is reasonably possible that our gross unrecognized tax benefits will decrease up to $4.3 million in the next twelve months. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits in our Condensed Consolidated Statements of Operations. $17.1 million of gross unrecognized tax benefits were offset against deferred tax assets as of June 30, 2018, and the remaining $17.5 million has been recorded as noncurrent income taxes payable.

We are open to assessment by the Internal Revenue Service (“IRS”) for the 2014-2016 tax years, state tax jurisdictions for the 2013-2016 tax years, the Netherlands tax authority for the 2014-2016 tax years, the Spanish tax authority for the 2013-2016 tax years, the Israel tax authority for the 2014-2016 tax years, and the Italian tax authority for the 2013-2016 tax years.