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Income Taxes
 12 Months Ended
Dec. 31, 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 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.
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.
On May 19, 2019, Swiss voters approved the Federal Act on Tax Reform and AHV Financing (“TRAF”), which provides for broad changes to federal and cantonal taxation in Switzerland effective January 1, 2020. The TRAF requires the abolishment of certain favorable tax regimes, provides for certain transitional relief, and directs the cantons to implement certain mandatory measures while other provisions are at the discretion of the canton. During the period ended December 31, 2019, the cantonal authority provided its guidance for the cantonal tax implications of the TRAF. As a result of the TRAF and
the accompanying guidance from the Swiss taxing authorities, the Company recorded a deferred tax asset and related tax benefits of $145.6 million and $99.9 million attributable to the cantonal and federal impact of the TRAF, respectively. The Company also recorded a valuation allowance of $33.5 million to reduce the cantonal deferred tax asset as it was not more likely than not the cantonal deferred tax asset will be fully realized.
During the period ended December 31, 2021, the Swiss taxing authorities, including the canton, issued final rulings that contained revised guidance addressing certain implications of the TRAF. As a result, the Company recorded a benefit of $83.5 million attributable to the federal and cantonal impact of the updated rulings as well as a benefit of $36.9 million related to the release of the valuation allowance on the cantonal deferred tax asset as it is now more likely than not the cantonal deferred tax asset will be fully realized due to the revised cantonal ruling. The Company will continue to review and evaluate any future guidance, developments, or legislation issued by the Swiss taxing authorities.
The United States and foreign components of income before income taxes are as follows:
Year Ended December 31,
202120202019
 (In thousands)
United States$(252,459)$43,003 $31,932 
Foreign419,606 511,877 477,568 
Total$167,147 $554,880 $509,500 
The components of the provision for income taxes are as follows:
Year Ended December 31,
202120202019
 (In thousands)
Current:
Federal$(12,852)$5,513 $7,718 
Foreign31,532 49,862 63,205 
State1,817 (967)1,697 
Total current20,497 54,408 72,620 
Deferred:
Federal(25,637)(10,940)(35,932)
Foreign(127,536)4,160 (209,010)
State(7,676)2,806 9 
Total deferred(160,849)(3,974)(244,933)
Total provision$(140,352)$50,434 $(172,313)
The following table presents the breakdown of net deferred tax assets:
 December 31,
 20212020
 (In thousands)
Deferred tax assets$417,016 $386,504 
Deferred tax liabilities (6,778)(3,185)
Total net deferred tax assets$410,238 $383,319 
The significant components of the Company’s deferred tax assets and liabilities consisted of the following:
 December 31,
 20212020
 (In thousands)
Deferred tax assets:
Accruals and reserves$56,186 $59,515 
Deferred revenue24,280 34,596 
Tax credits155,861 146,470 
Net operating losses107,807 54,882 
Stock based compensation58,561 45,346 
Swiss tax reform
331,082 261,090 
Acquired technology
— 2,346 
Interest expense limitation - 163(j)
39,752 — 
Valuation allowance(122,491)(151,791)
Total deferred tax assets651,038 452,454 
Deferred tax liabilities:
Acquired technology(161,170)— 
Depreciation and amortization(24,595)(23,445)
Prepaid expenses(53,886)(42,717)
Other(1,149)(2,973)
Total deferred tax liabilities(240,800)(69,135)
Total net deferred tax assets$410,238 $383,319 
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. At December 31, 2021, the Company determined a $122.5 million valuation allowance was necessary, which relates to deferred tax assets for net operating losses and tax credits.
At December 31, 2021, the Company retained $370.4 million of remaining net operating loss carry forwards in the United States from acquisitions. The utilization of these net operating loss carry forwards are limited in any one year pursuant to Internal Revenue Code Section 382 and may begin to expire in 2022. At December 31, 2021, the Company held $116.7 million of remaining net operating loss carry forwards in foreign jurisdictions that begin to expire in 2023. At December 31, 2021, the Company held $228.6 million of federal and state research and development tax credit carry forwards in the United States, a portion of which may begin to expire in 2022.
A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
 Year Ended December 31,
 202120202019
Federal statutory taxes21.0 %21.0 %21.0 %
State income taxes, net of federal tax benefit(5.5)0.3 0.3 
Foreign operations1.9 (5.1)(5.8)
Permanent differences6.2 2.2 3.0 
Tax reform - Switzerland(49.9)— (48.2)
Favorable impact from tax ruling
(11.6)— — 
Change in valuation allowance reserve(21.0)3.4 7.4 
Tax credits(29.3)(8.1)(8.4)
Stock-based compensation(5.1)(3.0)(1.9)
Change in accruals for uncertain tax positions11.1 (2.5)(1.1)
Other(1.8)0.9 (0.1)
(84.0)%9.1 %(33.8)%
The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to 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 approximately (84.0)% and 9.1% for the years ended December 31, 2021 and 2020, respectively. The decrease in the effective tax rate when comparing the year ended December 31, 2021 to the year ended December 31, 2020, was primarily due to an income tax benefit of $120.4 million due to final rulings issued by the Swiss taxing authorities that provided revised guidance related to certain provisions of the TRAF.
The Company's effective tax rate was approximately 9.1% and (33.8)% for the years ended December 31, 2020 and 2019, respectively. The increase in the effective tax rate when comparing the year ended December 31, 2020 to the year ended December 31, 2019, was primarily due to tax items unique to the period ended December 31, 2019. These amounts include an estimated income tax benefit of $112.1 million and $99.9 million attributable to the cantonal and federal impact of the TRAF, respectively, during the year ended December 31, 2019.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019 is as follows (in thousands):
Balance at December 31, 2018
$89,906 
Additions based on tax positions related to the current year11,244 
Additions for tax positions of prior years3,414 
Reductions related to the expiration of statutes of limitations(20,098)
Balance at December 31, 201984,466 
Additions based on tax positions related to the current year15,182 
Additions for tax positions of prior years13,765 
Reductions related to the expiration of statutes of limitations(15,553)
Reductions related to audit settlements(19,975)
Reductions for tax positions of prior years(3,203)
Balance at December 31, 202074,682 
Additions based on tax positions related to the current year16,949 
Additions for tax positions of prior years11,913 
Reductions related to the expiration of statutes of limitations(2)
Balance at December 31, 2021$103,542 
As of December 31, 2021, the Company's unrecognized tax benefits totaled approximately $103.5 million compared to $74.7 million as of December 31, 2020. At December 31, 2021, $89.5 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 December 31, 2021, the Company has accrued $1.6 million for the payment of interest.
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.