In April 2021, we reorganized under Chapter 11 of the U.S. Bankruptcy Code in a transaction treated as a tax free reorganization under section 368(a)(1)(G) of the Internal Revenue Code of 1986, as amended (or the IRC). We realized approximately $1.3 billion of cancellation of indebtedness (or COD) income for U.S. tax purposes in 2021. Under exceptions applying to COD income resulting from a bankruptcy reorganization, we were not required to recognize

this COD income currently as taxable income. Instead, our tax attribute carryforwards, including net operating losses, other noncurrent assets and the stock of our foreign corporate subsidiaries, were reduced under the operative tax statute and applicable regulations, affecting the balance of deferred taxes where appropriate. The total reduction of tax attributes under these rules amounted to approximately $1.3 billion, which impacted net operating losses and, without giving rise to deferred tax consequences, reduced the tax basis of foreign subsidiaries’ stock. The tax attribute reduction occurs on the first day of a company's tax year following the tax year in which COD income was realized, or, in our case, January 1, 2022.

In the event of a change in ownership, IRC sections 382 and 383 provide an annual limitation with respect to a corporation’s ability to utilize its tax attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership. Our emergence from the Chapter 11 Cases resulted in a change in ownership for purposes of IRC section 382. The limitation under the IRC is based on the value of the company as of the emergence date.

To achieve business and administrative efficiencies, we undertook an internal restructuring in conjunction with emergence from bankruptcy, resulting in realignment of substantially all our assets and operations under a wholly owned foreign subsidiary, DFAC. Consequently, our management has determined that we will permanently reinvest foreign earnings of foreign subsidiaries.

Several of our rigs are owned by Swiss branches of entities incorporated in the United Kingdom, or U.K., that have historically been taxed under a special tax regime pursuant to Swiss corporate income tax rules. On September 3, 2019, the Swiss federal government, along with the Canton of Zug, enacted tax legislation, which we refer to as Swiss Tax Reform, effective as of January 1, 2020. Swiss Tax Reform significantly changed Swiss corporate income tax rules by, among other things, abolishing special tax regimes. At the time Swiss Tax Reform was enacted, uncertainty regarding the tax basis of depreciable property under the normal Swiss tax regime led us to record a $187.0 million reserve for uncertain tax positions. The Swiss tax authorities subsequently provided further clarification, and we reversed such reserve for uncertain tax positions during April 2021. In 2021, deferred tax assets and liabilities were established based on the application of the clarifying guidance and offset by an associated increase in valuation allowance.

Our income tax expense is a function of the mix between our domestic and international pre-tax earnings or losses, the mix of international tax jurisdictions in which we operate and recognition of valuation allowances for deferred tax assets for which the tax benefits are not likely to be realized. As of December 31, 2022, all of our rigs are owned and operated, directly or indirectly, by DFAC. Our management has determined that we will permanently reinvest foreign earnings. The potential unrecognized deferred tax liability related to these undistributed earnings was not practicable to estimate at December 31, 2022.

The components of income tax (benefit) expense are as follows (in thousands):


	Successor						Predecessor
				Period from			Period from
	Year Ended December 31,			April 24, 2021 through			January 1, 2021 through			Year Ended December 31,
	2022			December 31, 2021			April 23, 2021			2020
Federal – current	$	1,267		$	3,645		$	171		$	(11,844	)
State – current		10			—			—			(12	)
Foreign – current		(4,151	)		1,491			(3,681	)		9,898
Total current		(2,874	)		5,136			(3,510	)		(1,958	)
Federal – deferred		4,538			(6,742	)		(30,955	)		(7,431	)
Foreign – deferred		(4,059	)		3,260			(4,939	)		(11,797	)
Total deferred		479			(3,482	)		(35,894	)		(19,228	)
Total	$	(2,395	)	$	1,654		$	(39,404	)	$	(21,186	)

The difference between actual income tax expense and the tax provision computed by applying the statutory federal income tax rate to income before taxes is attributable to the following (in thousands):


	Successor						Predecessor
				Period from			Period from
	Year Ended December 31,			April 24, 2021 through			January 1, 2021 through			Year Ended December 31,
	2022			December 31, 2021			April 23, 2021			2020
(Loss) income before income tax expense:
U.S.	$	(7,054	)	$	(1,048	)	$	686,202		$	(336,880	)
Foreign		(98,552	)		(174,642	)		(2,687,595	)		(939,210	)
	$	(105,606	)	$	(175,690	)	$	(2,001,393	)	$	(1,276,090	)
Expected income tax benefit at federal statutory rate	$	(22,177	)	$	(36,895	)	$	(420,292	)	$	(267,979	)
Effect of tax rate changes		—			9,871			—			(7,003	)
Reorganization items		—			266			(225,563	)		7,871
Post-petition interest expense		—			—			(6,771	)		(16,778	)
Disallowed officers' compensation and restricted stock unit awards		2,205			—			—			—
Interest and penalties reported as income tax expense		3,318			—			—			—
Effect of foreign operations		12,639			79,600			163,236			136,262
Valuation allowance		(23,135	)		(45,919	)		515,421			17,331
Uncertain tax positions, settlements and adjustments relating to prior years		25,692			(7,220	)		(67,626	)		107,148
Other		(937	)		1,951			2,191			1,962
Income tax (benefit) expense	$	(2,395	)	$	1,654		$	(39,404	)	$	(21,186	)

The reorganization items listed above in the reconciliation to the statutory income tax rate are inclusive of the impact of fresh start accounting, bankruptcy-related costs, internal restructuring and the impact of attribute reduction. The impact of most reorganization items is offset by valuation allowance.

Deferred Income Taxes. Significant components of our deferred income tax assets and liabilities are as follows (in thousands):


	December 31,
	2022			2021
Deferred tax assets:
Net operating loss carryforwards, or NOLs	$	412,152		$	226,022
Foreign tax credits		27,223			29,243
Disallowed interest deduction		69,604			70,492
Worker’s compensation and other current accruals		6,273			5,150
Deferred deductions		7,661			6,869
Deferred revenue		33			6,282
Operating lease liability		22,011			33,815
Property, plant and equipment		129,938			334,757
Other		7,234			4,971
Total deferred tax assets		682,129			717,601
Valuation allowance		(650,193	)		(673,452	)
Net deferred tax assets		31,936			44,149
Deferred tax liabilities:
Right-of-use assets		(21,374	)		(33,117	)
Other		(652	)		(871	)
Total deferred tax liabilities		(22,026	)		(33,988	)
Net deferred tax asset	$	9,910		$	10,161

Net Operating Loss Carryforwards. As of December 31, 2022, we recorded a deferred tax asset of 412.2 million for the benefit of NOL carryforwards, comprised of $59.8 million related to our U.S. losses and $352.4 million related to our international operations. Approximately $139.1 million of this deferred tax asset relates to NOL carryforwards that have an indefinite life. The remaining $273.0 million relates to NOL carryforwards in several of our foreign subsidiaries, as well as in the U.S. Unless utilized, these NOL carryforwards will expire between 2024 and 2037. As a result of our emergence from bankruptcy, we have significant limitations on our ability to utilize certain U.S. deferred tax assets.

Foreign Tax Credits. As of December 31, 2022, we recorded a deferred tax asset of $27.2 million for the benefit of foreign tax credits in the U.S. Of this balance, $2.6 million relates to a foreign tax credit carryback, which is expected to generate a cash tax benefit. The remaining credits will expire, unless utilized, between 2023 and 2028.

Valuation Allowances. We record a valuation allowance on a portion of our deferred tax assets not expected to be ultimately realized. In determining the need for a valuation allowance, we consider current and historical financial results, expectations for future taxable income and the availability of tax planning strategies that can be implemented, if necessary, to realize deferred tax assets.

As of December 31, 2022, valuation allowances aggregating $650.2 million have been recorded for our net operating losses, foreign tax credits and other deferred tax assets for which the tax benefits are not likely to be realized. We intend to maintain a valuation allowance on our net federal and foreign deferred tax assets until there is sufficient evidence to support the reversal of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the level of profitability achieved. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future U.S. taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as the Company's projections for growth and/or tax planning strategies.

Unrecognized Tax Benefits. Our income tax returns are subject to review and examination in the various jurisdictions in which we operate, and we are currently contesting various tax assessments. We accrue for income tax contingencies, or uncertain tax positions, that we believe are not likely to be realized. A rollforward of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):


	Successor						Predecessor
				For the Period			For the Period
	Year Ended			April 24, 2021			January 31, 2021			Year Ended
	December 31,			through			through			December 31,
	2022			December 31, 2021			April 23, 2021			2020
Balance, beginning of period	$	(21,148	)	$	(26,678	)	$	(214,626	)	$	(118,884	)
Additions for current year tax positions		(5,993	)		(3,553	)		—			(100,780	)
Additions for prior year tax positions		(504	)		(1,424	)		(1,282	)		(1,559	)
Reductions for prior year tax positions		4,345			1,730			187,389			2,944
Reductions related to statute of limitation expirations		1,760			8,777			1,841			3,653
Balance, end of period	$	(21,540	)	$	(21,148	)	$	(26,678	)	$	(214,626	)

The $6.0 million addition for current year uncertain tax positions recorded in the Successor year ended December 31, 2022 was attributable principally to transfer pricing for certain related party transactions. The $4.3 million reduction of uncertain tax positions recorded in the Successor year ended December 31, 2022 principally reflected the strengthening of the U.S. dollar relative to foreign currencies. The $8.8 million reduction of uncertain tax positions recorded in the Successor period from April 24, 2021 through December 31, 2021 was due to expiry of applicable statutes of limitation for tax returns filed between 2014 and 2018 in several jurisdictions. Due to Swiss Tax Reform and the resulting uncertainties regarding treatment of depreciable property, uncertain tax positions were recorded for

$86.2 million in 2019 and $100.8 million in 2020. During the Predecessor period from January 1, 2021 through April 23, 2021, further clarification on the treatment of depreciable property resulted in the reversal of the previously recorded amount of $187.0 million.

At December 31, 2022, $0.2 million, $1.5 million and $34.7 million of the net liability for uncertain tax positions were reflected in “Other assets,” “Deferred tax liability” and “Other liabilities,” respectively, in our Consolidated Balance Sheet. At December 31, 2021, $0.3 million, $1.7 million and $47.6 million of the net liability for uncertain tax positions were reflected in “Other assets,” “Deferred tax liability” and “Other liabilities,” respectively, in our Consolidated Balance Sheet. Of the net unrecognized tax benefits at December 31, 2022, 2021 and 2020, $36.0 million, $48.9 million and $249.0 million, respectively, would affect the effective tax rates if recognized.

At December 31, 2022, the amount of accrued interest and penalties related to uncertain tax positions was $3.1 million and $12.6 million, respectively. At December 31, 2021, the amount of accrued interest and penalties related to uncertain tax positions was $3.9 million and $19.7 million, respectively.

Interest expense (benefit) recognized during the Successor periods for the year ended December 31, 2022 and from April 24, 2021 through December 31, 2021 and the Predecessor periods from January 1, 2021 through April 23, 2021 and the year ended December 31, 2020 related to uncertain tax positions was $0.9 million, $1.8 million, $0.1 million and $1.9 million, respectively. Penalties recognized during the Successor periods for the year ended December 31, 2022 and from April 24, 2021 through December 31, 2021 and the Predecessor periods from January 1, 2021 through April 23, 2021 and the year ended December 31, 2020 related to uncertain tax positions were $1.0 million, $0.04 million, $(0.4) million and $1.1 million, respectively.

We expect the statutes of limitation for the 2014 through 2020 tax years to expire in 2023 for various of our subsidiaries operating in Australia, Malaysia, Romania, Trinidad and Tobago and the U.K. We anticipate that the related unrecognized tax benefit will decrease by $5.0 million at that time.

Tax Returns and Examinations. We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various foreign jurisdictions. We remain subject to examination by these jurisdictions or are contesting assessments raised upon examinations in respect to the year 2000 and the years 2006 to 2022. We are currently under examination or contesting assessments in Australia, Brazil, Egypt, Equatorial Guinea, Malaysia, Romania and Trinidad and Tobago. We do not anticipate that any adjustments resulting from the tax audit of any of these years will have a material impact on our consolidated results of operations, financial condition or cash flows.