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INCOME TAX | 7 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
INCOME TAX | INCOME TAX The provision for income taxes for the 2016 fiscal transition period and the fiscal years ended May 31, 2016, 2015, and 2014 consisted of the following:
| Seven Months Ended December 31, |  | Year Ended May 31,
| 2016 |  | 2016 |  | 2015 |  | 2014
| (in thousands)
Current income tax expense (benefit): |  |  |  |  |  |  |
Federal | $ | 22,859 |  |  | $ | 26,493 |  |  | $ | 25,022 |  |  | $ | 49,178 |
State | 3,443 |  |  | 5,454 |  |  | 3,905 |  |  | 3,856 |
Foreign | 42,681 |  |  | 56,689 |  |  | (10,346 | ) |  | 48,075 |
| 68,983 |  |  | 88,636 |  |  | 18,581 |  |  | 101,109 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |
Federal | (36,447 | ) |  | (18,205 | ) |  | 14,822 |  |  | 1,568 |
State | (1,842 | ) |  | (3,620 | ) |  | 3,606 |  |  | 1,206 |
Foreign | 4,967 |  |  | 3,884 |  |  | 70,986 |  |  | 3,515 |
| (33,322 | ) |  | (17,941 | ) |  | 89,414 |  |  | 6,289 |
| $ | 35,661 |  |  | $ | 70,695 |  |  | $ | 107,995 |  |  | $ | 107,398 |
The income tax expense allocated to noncontrolling interests was $4.4 million for the 2016 fiscal transition period and $7.3 million, $8.6 million and $5.2 million for the fiscal years ended May 31, 2016, 2015 and 2014, respectively. The following presents income (loss) before income taxes for the 2016 fiscal transition period and the fiscal years ended May 31, 2016, 2015, and 2014:
| Seven Months Ended December 31, |  | Year Ended May 31,
| 2016 |  | 2016 |  | 2015 |  | 2014
| (in thousands)
United States | $ | (55,279 | ) |  | $ | 59,876 |  |  | $ | 135,901 |  |  | $ | 153,453 |
Foreign | 228,623 |  |  | 301,036 |  |  | 281,209 |  |  | 223,897 |
| $ | 173,344 |  |  | $ | 360,912 |  |  | $ | 417,110 |  |  | $ | 377,350 |
Our effective tax rates for periods presented differ from the federal statutory rate for the 2016 fiscal transition period and the fiscal years ended May 31, 2016, 2015, and 2014 as follows:
| Seven Months Ended December 31, |  | Year Ended May 31,
| 2016 |  | 2016 |  | 2015 |  | 2014
Federal U.S. statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal income tax benefit | 0.6 |  |  | 0.4 |  |  | 1.1 |  |  | 0.9 |
Foreign income taxes (primarily U.K.) | (12.6 | ) |  | (10.1 | ) |  | (8.5 | ) |  | (7.2 | )
Foreign interest income not subject to tax | (2.3 | ) |  | (2.6 | ) |  | (1.8 | ) |  | (2.1 | )
Taxes on unremitted earnings | — |  |  | (3.5 | ) |  | — |  |  | — |
Tax credits and other | (0.1 | ) |  | 0.4 |  |  | 1.0 |  |  | 3.1 |
Effective tax rate attributable to Global Payments | 20.6 |  |  | 19.6 |  |  | 26.8 |  |  | 29.7 |
Effective tax rate allocated to noncontrolling interests | — |  |  | — |  |  | (0.9 | ) |  | (1.2 | )
Effective tax rate | 20.6 | % |  | 19.6 | % |  | 25.9 | % |  | 28.5 | %
Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates. Deferred income taxes as of December 31, 2016, May 31, 2016 and 2015 reflect the effect of temporary differences between the amounts of assets and liabilities for financial accounting and income tax purposes. As of December 31, 2016, May 31, 2016 and 2015, principal components of deferred tax items were as follows:
| December 31, |  | May 31,
| 2016 |  | 2016 |  | 2015
| (in thousands)
Deferred income tax assets: |  |  |  |  |
Basis difference - U.K. business | $ | 11,145 |  |  | $ | 17,831 |  |  | $ | 24,520 |
Domestic net operating loss carryforwards | 12,723 |  |  | 14,304 |  |  | 6,927 |
Foreign income tax credit carryforwards | 7,140 |  |  | 7,140 |  |  | 14,172 |
Foreign net operating loss carryforwards | 2,559 |  |  | 3,721 |  |  | 2,330 |
Share-based compensation expense | 11,656 |  |  | 11,677 |  |  | 7,727 |
Accrued expenses | 54,030 |  |  | 42,687 |  |  | — |
Other | 9,101 |  |  | 6,483 |  |  | 8,636 |
| 108,354 |  |  | 103,843 |  |  | 64,312 |
Less valuation allowance | (16,611 | ) |  | (15,119 | ) |  | (3,823 | )
| 91,743 |  |  | 88,724 |  |  | 60,489 |
Deferred tax liabilities: |  |  |  |  |
Acquired intangibles | 663,922 |  |  | 721,928 |  |  | 147,239 |
Property and equipment | 86,548 |  |  | 86,969 |  |  | 63,957 |
Taxes on unremitted earnings | — |  |  | — |  |  | 4,992 |
Foreign currency translation | — |  |  | — |  |  | 14,659 |
Other | 1,956 |  |  | 1,970 |  |  | 2,069 |
| 752,426 |  |  | 810,867 |  |  | 232,916 |
Net deferred income tax liability | $ | (660,683 | ) |  | $ | (722,143 | ) |  | $ | (172,427 | )
The net deferred income taxes reflected on our consolidated balance sheets as of December 31, 2016, May 31, 2016 and 2015 are as follows:
| December 31, |  | May 31,
| 2016 |  | 2016 |  | 2015
| (in thousands)
Noncurrent deferred income tax asset | $ | 15,789 |  |  | $ | 22,719 |  |  | $ | 30,428 |
Noncurrent deferred income tax liability | (676,472 | ) |  | (744,862 | ) |  | (202,855 | )
| $ | (660,683 | ) |  | $ | (722,143 | ) |  | $ | (172,427 | )
Undistributed earnings of approximately $1.4 billion from certain foreign subsidiaries are considered to be indefinitely reinvested abroad and are not expected to be repatriated to the United States in the foreseeable future. Because those earnings are considered to be indefinitely reinvested, no domestic federal or state deferred income taxes have been provided thereon. If we were to make a distribution of any portion of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign jurisdictions. Because our availability to utilize foreign tax credits is uncertain, it is not practicable to determine the domestic federal income tax liability that would be payable if such earnings were no longer considered to be reinvested indefinitely. Prior to the fourth quarter of the fiscal year ended May 31, 2016, the undistributed earnings of all foreign subsidiaries, except for certain Canadian subsidiaries, were considered to be indefinitely reinvested outside the United States. During the fourth quarter of the fiscal year ended May 31, 2016, as a result of the merger with Heartland, we changed our assertion with respect to our Canadian subsidiaries and all undistributed earnings in Canada are now considered to be indefinitely reinvested, resulting in the reversal, through income tax expense, of net deferred tax liabilities of $12.7 million that were previously recorded on the balance sheet. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes to our valuation allowance during the 2016 fiscal transition period and the fiscal years ended May 31, 2016 and 2015 are summarized below (in thousands):
Balance at May 31, 2014 | $ | (7,199 | )
Utilization of foreign net operating loss carryforwards | 3,387 |
Other | (11 | )
Balance at May 31, 2015 | (3,823 | )
Allowance for foreign income tax credit carryforward | (7,140 | )
Allowance for domestic net operating loss carryforwards | (4,474 | )
Allowance for domestic net unrealized capital loss | (1,526 | )
Release of allowance of domestic capital loss carryforward | 1,746 |
Other | 98 |
Balance at May 31, 2016 | (15,119 | )
Allowance for domestic net operating loss carryforwards | (1,504 | )
Release of allowance of domestic net unrealized capital loss | 12 |
Balance at December 31, 2016 | $ | (16,611 | )
The increase in the valuation allowance related to domestic net operating loss carryforwards of $1.5 million and $4.5 million for the 2016 fiscal transition period and the year ended May 31, 2016, respectively, relates to acquired carryforwards from the merger with Heartland. Foreign net operating loss carryforwards totaling $15.0 million and domestic net operating loss carryforwards related to the merger with Heartland totaling $24.3 million at December 31, 2016 will expire between December 31, 2026 and December 31, 2031 if not utilized. Tax credit carryforwards totaling $1.4 million at December 31, 2016 will expire between December 31, 2017 and December 31, 2026 if not utilized. We conduct business globally and file income tax returns in the domestic federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities around the world. We are no longer subjected to state income tax examinations for years ended on or before May 31, 2008, U.S. federal income tax examinations for fiscal years prior to 2013 and U.K. federal income tax examinations for years ended on or before May 31, 2013. A reconciliation of the beginning and ending amounts of unrecognized income tax benefits, excluding penalties and interest, for the 2016 fiscal transition period and the fiscal years ended May 31, 2016, 2015, and 2014 is as follows:
| Seven Months Ended December 31, |  | Year Ended May 31,
| 2016 |  | 2016 |  | 2015 |  | 2014
| (in thousands)
Balance at the beginning of the year | $ | 7,803 |  |  | $ | 2,559 |  |  | $ | 67,576 |  |  | $ | 53,763 |
Additions based on income tax positions related to the current year | 4,626 |  |  | 287 |  |  | 6,311 |  |  | 8,551 |
Additions related to acquisition | 6,149 |  |  | 6,151 |  |  | — |  |  | — |
Additions for income tax positions of prior years | 247 |  |  | 753 |  |  | 512 |  |  | 296 |
Effect of foreign currency fluctuations on income tax positions | (3 | ) |  | 2 |  |  | (5,713 | ) |  | 5,303 |
Reductions for income tax positions of prior years | (906 | ) |  | (123 | ) |  | (32 | ) |  | (60 | )
Settlements with income tax authorities | — |  |  | (1,826 | ) |  | (504 | ) |  | (277 | )
Changes in judgment regarding tax position | — |  |  | — |  |  | (65,591 | ) |  | — |
Balance at the end of the year | $ | 17,916 |  |  | $ | 7,803 |  |  | $ | 2,559 |  |  | $ | 67,576 |
As a result of events that occurred in the fourth quarter of the year ended May 31, 2015, management concluded that it was more likely than not that the tax positions in a foreign jurisdiction, for which we had recorded estimated liabilities of $65.6 million in other noncurrent liabilities on our consolidated balance sheet, would be sustained on their technical merits based on information available as of May 31, 2015. Therefore, the liability and corresponding deferred tax assets were eliminated as of May 31, 2015. The uncertain tax positions had been subject to an ongoing examination in that foreign jurisdiction by the tax authority. Discussions and correspondence between the tax authority and us during the fourth quarter of fiscal 2015 indicated that the likelihood of the positions being sustained had increased. Subsequent to May 31, 2015, we received a final closure notice regarding the examination resulting in no adjustments to taxable income related to this matter for the tax returns filed for the periods ended May 31, 2010 through May 31, 2013. The unrecognized income tax benefits were effectively settled in the year ended May 31, 2016 with this final closure notice. As of December 31, 2016, the total amount of gross unrecognized income tax benefits that, if recognized, would affect the provision for income taxes is $13.3 million. We recognize interest and penalties related to unrecognized income tax benefits in interest expense and selling, general and administrative expenses, respectively, in our consolidated statements of income.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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