Income Taxes

3 Months Ended

Mar. 31, 2020

The Company’s effective tax rate for the three months ended March 31, 2020 and 2019 was 27.8% and 36.8%, respectively. The Company's effective tax rate for the three months ended March 31, 2020 and 2019 differed from the U.S. federal statutory rate of 21.0% principally due to subpart F income (i.e., GILTI earned by the Company’s foreign subsidiaries), certain foreign income tax rate differentials, state and local taxes, changes in the Company’s uncertain tax positions, the excess tax deficiency (or benefit) related to stock-based compensation and certain other permanent items.

On March 27, 2020, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes modifications to the limitation on business interest expense and net operating loss provisions. The CARES Act is not expected to have a material impact on the Company’s consolidated financial statements.

The Company has been involved in a dispute with the Danish Tax Authority ("SKAT") regarding the royalty paid by a U.S. subsidiary of Tempur Sealy International to a Danish subsidiary (the "Danish Tax Matter") for tax years 2001 through current. The royalty is paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process.

At March 31, 2020 and December 31, 2019, the Danish income tax liability recorded in the Company’s balance sheet for the periods 2001 through March 31, 2020 and December 31, 2019, respectively, is DKK 1,115.8 million (approximately $164.8 million using the exchange rate at March 31, 2020) and DKK 1,110.0 million (approximately $166.7 million using the exchange rate at December 31, 2019). The liability at March 31, 2020 is included within the Company’s Condensed Consolidated Balance Sheet (translated at the exchange rate on March 31, 2020) as per below:


	DKK		USD
Accrued expenses and other current liabilities	$	847.3	$	125.1
Other non-current liabilities	268.5		39.7
Total	$	1,115.8	$	164.8

During the three months ended March 31, 2020 the Company made a tax deposit with SKAT of DKK 134.0 million applicable to a finalized tax assessment by SKAT for the years 2012 and 2013. The Company is contesting such assessment. At March 31, 2020 and December 31, 2019, respectively the Company held on deposit with SKAT DKK 1,104.1 million (approximately $163.0 million using the applicable exchange rate at March 31, 2020) and DKK 970.1 million (approximately $145.6 million using the applicable exchange rate at December 31, 2019). The deposit is for the satisfaction of the anticipated liability for both tax and interest once these matters are concluded.

The deposit at March 31, 2020 is included within the Company’s Condensed Consolidated Balance Sheet (translated at the exchange rate on March 31, 2020) as per below:


	DKK		USD
Accrued expenses and other current liabilities	$	847.3	$	125.1
Other non-current liabilities	256.8		37.9
Total	$	1,104.1	$	163.0

There were no other significant changes in the Danish Tax Matter or other uncertain tax positions during the three months ended March 31, 2020.