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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Net income before provision for (benefit from) income taxes and equity in losses of investee consists of the following (in thousands):
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
Domestic |  | $ | 378,478 |  |  | $ | 173,099 |  |  | $ | 184,956 |
Foreign |  | 633,945 |  |  | 205,850 |  |  | 377,695 |
Net income before provision for (benefit from) income taxes and equity in losses of investee |  | $ | 1,012,423 |  |  | $ | 378,949 |  |  | $ | 562,651 |
The provision for (benefit from) income taxes consists of the following (in thousands):
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
Federal |  |  |  |  |  |
Current |  | $ | 157,383 |  |  | $ | 55,291 |  |  | $ | 76,528 |
Deferred |  | (25,598) |  |  | (11,749) |  |  | 1,235 |
|  | 131,785 |  |  | 43,542 |  |  | 77,763 |
State |  |  |  |  |  |
Current |  | 28,365 |  |  | 8,862 |  |  | 9,169 |
Deferred |  | (5,860) |  |  | (2,121) |  |  | 209 |
|  | 22,505 |  |  | 6,741 |  |  | 9,378 |
Foreign |  |  |  |  |  |
Current |  | 42,681 |  |  | 29,399 |  |  | 28,364 |
Deferred |  | 43,432 |  |  | (1,476,621) |  |  | (3,158) |
|  | 86,113 |  |  | (1,447,222) |  |  | 25,206 |
Provision for (benefit from) income taxes |  | $ | 240,403 |  |  | $ | (1,396,939) |  |  | $ | 112,347 |
The differences between income taxes using the federal statutory income tax rate for 2021, 2020 and 2019 and our effective tax rates are as follows:
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
U.S. federal statutory income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of federal tax benefit |  | 2.2 |  |  | 1.8 |  |  | 1.7 |
U.S. tax on foreign earnings |  | 2.7 |  |  | — |  |  | 1.9 |
Impact of differences in foreign tax rates |  | (2.0) |  |  | 5.6 |  |  | (5.1) |
Stock-based compensation |  | (0.3) |  |  | 1.1 |  |  | (0.3) |
Impact of expiration of statute of limitations |  | (0.7) |  |  | (0.3) |  |  | — |
Impact of intra-entity intellectual property rights transfer |  | — |  |  | (395.6) |  |  | — |
Settlement on audits |  | — |  |  | (1.4) |  |  | — |
Impact of U.S. Tax Cuts and Jobs Act |  | — |  |  | (0.5) |  |  | — |
Change in valuation allowance |  | 1.1 |  |  | 0.1 |  |  | 0.1 |
Other items not individually material |  | (0.3) |  |  | (0.4) |  |  | 0.7 |
Effective tax rate |  | 23.7 | % |  | (368.6) | % |  | 20.0 | %
As of December 31, 2021, substantially all of the earnings previously determined to be not indefinitely reinvested have been repatriated. U.S. income taxes have already been provided on the $1,257.5 million undistributed earnings that is indefinitely reinvested in our international operations, therefore, the tax impact upon distribution is limited to mainly state income and withholding taxes and is not significant. During the year ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our new Swiss subsidiary, where our EMEA regional headquarters is located beginning January 1, 2020. The transfer of intellectual property rights did not result in a taxable gain; however, it did result in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights. Consequently, this transaction resulted in the recognition of a deferred tax asset and related one-time tax benefit of approximately $1,493.5 million during the year ended December 31, 2020, which is the net impact of the deferred tax asset recognized as a result of the additional Swiss tax deductible basis in the transferred assets and certain costs related to the transfer of fixed assets and inventory. As of December 31, 2021 and 2020, the significant components of our deferred tax assets and liabilities are (in thousands):
|  | December 31,
|  | 2021 |  | 2020
Deferred tax assets: |  |  |  |
Net operating loss and capital loss carryforwards |  | $ | 11,069 |  |  | $ | 20,728 |
Reserves and accruals |  | 47,641 |  |  | 34,469 |
Stock-based compensation |  | 13,576 |  |  | 10,842 |
Deferred revenue |  | 83,514 |  |  | 32,562 |
Amortizable tax basis in intangibles |  | 1,392,471 |  |  | 1,468,159 |
Net translation losses |  | 10,008 |  |  | 2,939 |
Credit carryforwards |  | 5,637 |  |  | 905 |
Total deferred tax assets |  | 1,563,916 |  |  | 1,570,604 |
Deferred tax liabilities: |  |  |  |
Depreciation and amortization |  | 11,915 |  |  | 14,730 |
Acquisition-related intangibles |  | 28,989 |  |  | 35,689 |
Prepaid expenses |  | 6,931 |  |  | 1,720 |
Total deferred tax liabilities |  | 47,835 |  |  | 52,139 |
Net deferred tax assets before valuation allowance |  | 1,516,081 |  |  | 1,518,465 |
Valuation allowance |  | (12,938) |  |  | (1,325) |
Net deferred tax assets |  | $ | 1,503,143 |  |  | $ | 1,517,140 |
The available positive evidence at December 31, 2021 included historical operating profits and a projection of future income sufficient to realize most of our remaining deferred tax assets. As of December 31, 2021, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain net operating loss, capital loss carryovers and unrealized translation losses as we are unable to forecast sufficient future profits to realize the deferred tax assets. The total valuation allowance as of December 31, 2021 was $12.9 million. During the year ended December 31, 2021, the valuation allowance increased by $11.6 million primarily due to deferred tax assets related to unrealized translation losses and net operating loss from one of our German subsidiaries that are not more likely than not to be realized. As of December 31, 2021, we have foreign net operating loss carryforwards of approximately $44.8 million, attributed mainly to losses in Israel, China and Germany. The losses in Israel and Germany can be carried forward indefinitely. The operating loss carryforwards in China, if not utilized, will expire beginning 2026. The changes in the balance of gross unrecognized tax benefits, which exclude interest and penalties, for the year ended December 31, 2021, 2020 and 2019, are as follows (in thousands):
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
Gross unrecognized tax benefits at January 1, |  | $ | 46,320 |  |  | $ | 46,650 |  |  | $ | 33,262 |
Increases related to tax positions taken during the current year |  | 27,710 |  |  | 20,592 |  |  | 19,012 |
Increases related to tax positions taken during a prior year |  | 5,471 |  |  | 10,201 |  |  | 143 |
Decreases related to tax positions taken during a prior year |  | (5,804) |  |  | (29,977) |  |  | (3,783) |
Decreases related to expiration of statute of limitations |  | (8,986) |  |  | — |  |  | (1,984) |
Decreases related to settlement with tax authorities |  | (1,416) |  |  | (1,146) |  |  | — |
Gross unrecognized tax benefits at December 31, |  | $ | 63,295 |  |  | $ | 46,320 |  |  | $ | 46,650 |
The total amount of gross unrecognized tax benefits as of December 31, 2021 was $63.3 million, of which $61.9 million would impact our effective tax rate if recognized. We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and Switzerland. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2018 and 2014, respectively. Our Israeli subsidiary is under tax audit for years 2016 through 2019. During the fourth quarter of 2021, the Israel Tax Authority issued a tax assessment in connection with a 2016 transaction to which our Israeli subsidiary was a party. We intend to file an administrative appeal during the first quarter of 2022 and will continue to vigorously defend our Israeli subsidiary’s tax return position. Based on our assessment of the information currently available, we have not derecognized or remeasured our tax positions with respect to this matter during the year. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2014. We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes. Interest and penalties included in tax expense for the year ended December 31, 2021, 2020 and 2019 as well as accrued as of December 31, 2021 and 2020 were not material. While we defend income tax audits in various jurisdictions and the results of such audits may differ materially from the amounts accrued for each year, we cannot currently ascertain the bases on which any given audit will be ultimately resolved. Accordingly, we are unable to estimate the range of possible adjustments to our balance of gross unrecognized tax benefits in the next 12 months.

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