For the three months ended September 30, 2020, the Company recorded income tax expense of $19.3 million (2019 — tax expense of $3.0 million), which includes a $23.7 million valuation allowance to reduce the value of deferred tax assets in certain jurisdictions where the Company incurs corporate leadership and administrative costs and where management could not reliably estimate future taxable income in those jurisdictions due to uncertainties associated with the COVID-19 global pandemic. The Company’s effective tax rate for the three months ended September 30, 2020 of (69.6)% differs from the Canadian statutory tax rate of 26.2%, primarily due to the recording of this valuation allowance, permanent book to tax differences, jurisdictional tax rate differences, and management’s estimates of contingent liabilities related to the resolution of various tax examinations.

For the nine months ended September 30, 2020, the Company recorded income tax expense of $24.6 million (2019 — tax expense of $12.0 million), which includes the $23.7 million valuation allowance recorded in the third quarter of 2020, as discussed above. The Company’s effective tax rate for the nine months ended September 30, 2020 of (22.1)% differs from the Canadian statutory tax rate of 26.2%, primarily due to the recording of this valuation allowance, withholding taxes associated with the reversal of the indefinite reinvestment assertion for certain subsidiaries as discussed below, permanent book to tax differences, jurisdictional tax rate differences, and management’s estimates of contingent liabilities related to the resolution of various tax examinations.

At the point in time when the uncertainties of COVID-19 resolve and the Company is able to reliably forecast sufficient future taxable income in the impacted jurisdictions, the $23.7 million valuation allowance recorded in the third quarter of 2020 may be reversed. Despite this valuation allowance, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied.

As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $17.7 million, net of a valuation allowance of $23.9 million (December 31, 2019 — $23.9 million, net of a valuation allowance of $0.2 million). The utilization of the Company’s deferred tax assets is dependent on having a sufficient level of future tax benefits, such as taxable income in each of the jurisdictions to which the deferred tax assets relate. Accordingly, the net amount recorded on the Condensed Consolidated Balance Sheets relies on management’s estimates of future taxable income and is therefore subject to the uncertainties associated with accounting estimates, as discussed in Note 1. Should actual results differ from management’s estimates of future taxable income, an increased valuation allowance may be required. As at September 30, 2020, the Company’s Condensed Consolidated Balance Sheets include a deferred income tax liability of $18.7 million (December 31, 2019 — $nil).

In the first quarter of 2020, management completed a reassessment of its strategy with respect to the most efficient means of deploying the Company’s capital resources globally. Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested. As a result, the Company recognized a deferred tax liability of $19.7 million in the first quarter of 2020 for the estimated applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings The estimate of the applicable foreign withholding taxes was subsequently reduced by $1.0 million, principally in the second quarter of 2020, to $18.7 million due to a reduction in the amount of distributable historical earnings. Cash held outside of Canada as at September 30, 2020 was $76.4 million (December 31, 2019 — $90.1 million), of which $62.6 million was held in the People’s Republic of China (“PRC”) (December 31, 2019 — $67.6 million).

The income tax (expense) benefit included in the Company’s other comprehensive (loss) income are related to the following items:

	Three Months Ended							Nine Months Ended
		September 30,						September 30,
		2020			2019			2020			2019
Unrealized change in cash flow hedging instruments		$	(160	)	$	(84	)	$	235			$	(266	)
Realized change in cash flow hedging instruments upon settlement			(29	)		138			(211	)			42
Unrecognized actuarial gain on defined benefit plan			—			—			40				—
		$	(189	)	$	54		$	64			$	(224	)