INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2018

The Company’s income tax provision is as follows:

	Year ended December 31,
	2018			2017			2016
Current tax expense:
Local	$	2,164		$	3,622		$	--
Foreign (*)		9,273			6,070			5,948
Deferred tax expense (benefit):
Local (see F below)		9,316			(82,370	)		--
Foreign(*) (see E below)		(14,815	)		(27,210	)		(4,516	)
Income tax expense (benefit)	$	5,938		$	(99,888	)	$	1,432

Schedule of Profit (Loss) Before Taxes

	Year ended December 31,
	2018			2017		2016
Profit before taxes:
Domestic	$	142,831		$	198,008	$	168,668
Foreign (*)		(3,514	)		3,760		41,930
Total profit before taxes	$	139,317		$	201,768	$	210,598

(*) Foreign are amounts related to Tower’s Japanese and US subsidiaries.

Schedule of Deferred Tax Asset/Liability

The following is a summary of the components of the deferred tax assets and liabilities reflected in the balance sheets as of the respective dates (*)

	As of December 31,
	2018			2017
Deferred tax asset and liability - long-term: (**)
Deferred tax assets:
Net operating loss carryforward	$	87,325		$	96,443
Employees benefits and compensation		4,914			4,891
Accruals and reserves		4,738			3,546
Research and development		12,292			10,528
Others		3,615			2,935
		112,884			118,343
Valuation allowance, see F below		(5,834	)		(5,807	)
Deferred tax assets	$	107,050		$	112,536
Deferred tax liabilities:
Depreciation and amortization		(82,001	)		(77,092	)
Gain on TPSCo acquisition		(1,240	)		(15,957	)
Others		(750	)		(559	)
Deferred tax liabilities	$	(83,991	)	$	(93,608	)

Presented in long term deferred tax assets	$	73,460		$	82,852
Presented in long term deferred tax liabilities	$	(50,401	)	$	(63,924	)

(*) Deferred tax assets and liabilities relating to Tower for the years 2018 and 2017 are computed based on the Israeli preferred enterprise tax rate of 7.5%.

(**) In 2017, the Company adopted ASU 2015-17 regarding classification of deferred taxes, prospectively, following which, effective 2017, deferred taxes are not presented as current assets.

(***) 2017 amounts are presented to conform to 2018 presentations.

Schedule of Reconciliation of Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Unrecognized tax benefits
Balance at January 1, 2018	$	15,286
Additions for tax positions of current year		716
Reduction due to statute of limitation of prior years		(1,219	)
Balance at December 31, 2018	$	14,783

	Unrecognized tax benefits
Balance at January 1, 2017	$	8,969
Additions for tax positions		8,753
Reduction of prior years’ provision		(2,436	)
Balance at December 31, 2017	$	15,286

	Unrecognized tax benefits
Balance at January 1, 2016	$	13,538
Additions for tax positions of current year		157
Expiration of prior years’ provision due to TJP closure		(6,472	)
Additions for tax positions of prior years		779
Translation differences		967
Balance at December 31, 2016	$	8,969

Schedule of Effective Income Tax Rate Reconciliation

The reconciliation of the statutory tax rate to the effective tax rate is as follows:

	Year ended December 31,
	2018			2017			2016
Tax expense computed at statutory rates, see (*) below	$	32,044		$	48,433		$	52,650
Effect of tax rate change on deferred tax liabilities, net(**)		(478	)		(16,078	)		--
Effect of different tax rates in different jurisdictions and Preferred Enterprise Benefit		(23,150	)		(33,298	)		(4,772	)
Gain on acquisition		--			--			(10,450	)
Tax benefits for which deferred taxes were not recorded, see F below		--			(15,103	)		(23,489	)
Change in Valuation allowance, see F below		(962	)		(82,772	)		(6,212	)
Permanent differences and other, net		(1,516	)		(1,070	)		(6,295	)
Income tax expense (benefit)	$	5,938		$	(99,888	)	$	1,432

(*) The tax expense (benefit) was computed based on Tower’s regular corporate tax rate of 23% for 2018, 24% for 2017 and 25% for 2016.

(**) Reduction in tax rates due to the U.S. Tax Reform and reduction in income tax rates in Japan.