Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of the process of preparing its condensed consolidated financial statements. The Company maintains certain strategic management and operational activities in overseas subsidiaries and its foreign earnings are taxed at rates that are generally lower than in the United States.

The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to tax credits and lower tax rates on earnings generated by the Company’s foreign operations that are taxed primarily in Switzerland.

The Company’s effective tax rate was 13.6% and 15.3% for the three months ended September 30, 2021 and 2020, respectively. The decrease in the effective tax rate when comparing the three months ended September 30, 2021 to the three months ended September 30, 2020 was primarily due to tax benefits arising from combining the Wrike business with Citrix and the relative impact to the tax rate of tax benefits unique to the period ended September 30, 2021, such as stock based compensation deductions.

The Company’s effective tax rate was 2.5% and 10.0% for the nine months ended September 30, 2021 and 2020, respectively. The decrease in the effective tax rate when comparing the nine months ended September 30, 2021 to the nine months ended September 30, 2020, was primarily due to tax benefits arising from combining the Wrike business with Citrix and the relative impact to the tax rate of tax benefits unique to the period ended September 30, 2021, such as stock based compensation deductions.

The Company’s net unrecognized tax benefits totaled $97.0 million and $74.7 million as of September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, $83.4 million included in the balance for tax positions would affect the annual effective tax rate if recognized. The Company recognizes interest accrued related to uncertain tax positions and penalties in income tax expense. As of September 30, 2021, the Company has accrued $1.4 million for the payment of interest.

At September 30, 2021, the Company had $192.5 million in net deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company reviews deferred tax assets periodically for recoverability and makes estimates and judgments regarding the expected geographic sources of taxable income and gains from investments, as well as tax planning strategies in assessing the need for a valuation allowance. If the estimates and assumptions used in the Company's determination change in the future, the Company could be required to revise its estimates of the valuation allowances against its deferred tax assets and adjust its provisions for additional income taxes.

On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021 (“American Rescue Plan Act”). The American Rescue Plan Act includes a wide variety of tax and non-tax provisions aimed to provide relief to individuals and businesses adversely affected by the COVID-19 pandemic. The American Rescue Plan Act also expands the limitation on deductions publicly-held companies may take with respect to certain employee compensation effective for tax years beginning after December 31, 2026. Although the Company is evaluating the impact of global COVID-19-related proposed and enacted legislation, as of the end of the current period no material impact to the Company's financial results is expected. The Company will continue to review and evaluate any future guidance, developments, or legislation issued by applicable tax authorities.

The Company and one or more of its subsidiaries are subject to U.S. federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. The Company is currently under examination by the United States Internal Revenue Service for the 2017 and 2018 tax years. With few exceptions, the Company is generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions, by tax authorities for years prior to 2017.

The Company's U.S. liquidity needs are currently satisfied using cash flows generated from its U.S. operations, borrowings, or both. The Company also utilizes a variety of tax planning strategies in an effort to ensure that its worldwide cash is available in locations in which it is needed. The Company expects to repatriate a substantial portion of its foreign earnings over time, to the extent that the foreign earnings are not restricted by local laws or result in significant incremental costs associated with repatriating the foreign earnings.