Income Taxes

6 Months Ended

Jun. 28, 2020

Income Taxes

R. INCOME TAXES

A reconciliation of the United States federal statutory corporate tax rate to Teradyne’s effective tax rate was as follows:

	For the Three Months Ended						For the Six Months Ended
	June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
US statutory federal tax rate		21.0	%		21.0	%		21.0	%		21.0	%
Discrete benefit related to release of reserves for uncertain tax positions		0.1			(0.3	)		0.1			(11.5	)
Foreign taxes		(4.6	)		(5.8	)		(5.1	)		(4.7	)
International provisions of the U.S. Tax Cuts and Jobs Act of 2017		(1.9	)		1.9			(1.1	)		0.8
Tax credits		(1.4	)		(2.1	)		(1.6	)		(2.5	)
Discrete benefit related to equity compensation		(0.1	)		(0.5	)		(2.0	)		(2.0	)
Discrete expense related to U.S. transition tax		—			11.2			—			6.5
Other, net		—			0.4			0.6			0.7
Effective tax rate		13.1	%		25.8	%		11.9	%		8.3	%

On a quarterly basis, Teradyne evaluates the realizability of the deferred tax assets by jurisdiction and assesses the need for a valuation allowance. As of June 28, 2020, Teradyne believes that it will ultimately realize the deferred tax assets recorded on the condensed consolidated balance sheet. However, should Teradyne believe that it is more-likely-than-not that the deferred tax assets would not be realized, the tax provision would increase in the period in which Teradyne determined that the realizability was not likely. Teradyne considers the probability of future taxable income and historical profitability, among other factors, in assessing the realizability of the deferred tax assets.

As of June 28, 2020 and December 31, 2019, Teradyne had $21.4 million and $21.2 million, respectively, of reserves for uncertain tax positions. The $0.2 million net increase in reserves for uncertain tax positions is associated with U.S. research and development tax credits generated in the current year.

As of June 28, 2020, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease by approximately $1.1 million in the next twelve months as a result of a lapse of statutes of limitation. The estimated decrease relates to transfer pricing.

Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of June 28, 2020 and December 31, 2019, $1.7 million and $1.4 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the six months ended June 28, 2020 and June 30, 2019, expense of $0.3 million and $0.1 million, respectively, was recorded for interest and penalties related to income tax items.

Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings due to the tax holiday for the six months ended June 28, 2020 was $13.6 million, or $0.08 per diluted share. The tax savings due to the tax holiday for the six months ended June 30, 2019 was $7.0 million, or $0.04 per diluted share. The tax holiday is scheduled to expire on December 31, 2020. Teradyne is currently in discussion with the Singapore Economic Development Board with respect to extension of the tax holiday for periods after December 31, 2020.