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Income Taxes | 12 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Effects of the Tax Cuts and Jobs Act On December 22, 2017, the President of the United States signed and enacted into law H.R. 1, the Tax Cuts and Jobs Act (“the Tax Reform”). Among the significant changes to the U.S. Internal Revenue Code, the Tax Reform lowered the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. The Company computed its income tax expense for the years ending September 30, 2020 and 2019 using a U.S. statutory tax rate of 21%. The Company computed income tax expense for the year ended September 30, 2018 using a U.S. statutory tax rate of 24.5%. The Tax Reform imposed a mandatory repatriation transition tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain foreign subsidiaries for the year ended September 30, 2018. The Tax Reform also established new tax laws that affected the years ending September 30, 2020 and 2019, including, but not limited to, (1) elimination of the corporate alternative minimum tax, (2) a new provision designed to tax global intangible low-taxed income (“GILTI”), (3) limitations on the utilization of net operating losses incurred in tax years beginning after September 30, 2018 to 80% of taxable income per tax year, (4) the creation of the base erosion anti-abuse tax (“BEAT”), (5) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, and (6) limitations on the deductibility of interest expense and certain executive compensation. The Company made the policy election to treat GILTI as a current period expense when incurred. For the year ended September 30, 2018, the Company recorded income tax expense of $8.6 million related to the remeasurement of deferred tax assets and liabilities, which increased the effective tax rate by 8.5%. The Tax Reform also included a mandatory repatriation transition tax on previously untaxed accumulated and current E&P of certain of the Company’s foreign subsidiaries. To determine the amount of the transition tax, the Company determined, in addition to other factors, the amount of post 1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company recorded a transition tax obligation of $11.2 million during the year ended September 30, 2018, which increased the effective tax rate by 11% during the year ended September 30, 2018. Coronavirus Aid, Relief, and Economic Security Act On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which provides economic relief in response to the coronavirus pandemic. The CARES Act, among other things, includes provisions to allow certain net operating losses to be carried-back up to five years, to increase interest deduction limitations, accelerates the refunds of alternative minimum tax credits, and makes technical corrections to tax depreciation methods for qualified leasehold improvement property. The Company evaluated and properly accounted for the provisions of the CARES Act and there was no material impact to the Company’s consolidated financial statements. Income tax expense (benefit) for the years ended September 30, 2020, 2019, and 2018 was allocated as follows:
| Year Ended September 30,
(in millions) | 2020 |  | 2019 |  | 2018
Income tax expense attributable to income from operations | $ | 37.1 |  |  | $ | 25.9 |  |  | $ | 46.0 |
Taxes allocated to stockholders’ equity, related to pension liabilities | — |  |  | (0.2) |  |  | 0.1 |
Total income tax expense | $ | 37.1 |  |  | $ | 25.7 |  |  | $ | 46.1 |
The components of income tax expense (benefit) attributable to income from operations were as follows:
| Year Ended September 30,
(in millions) | 2020 |  | 2019 |  | 2018
Current taxes: |  |  |  |  |
U.S. federal | $ | (0.6) |  |  | $ | (1.9) |  |  | $ | 0.8 |
U.S. State and local | 2.3 |  |  | (0.8) |  |  | 0.5 |
International | 31.3 |  |  | 24.9 |  |  | 22.4 |
Total current taxes | 33.0 |  |  | 22.2 |  |  | 23.7 |
Deferred taxes | 4.1 |  |  | 3.7 |  |  | 22.3 |
Income tax expense | $ | 37.1 |  |  | $ | 25.9 |  |  | $ | 46.0 |
U.S. and international components of income (loss) from operations, before tax, was as follows:
| Year Ended September 30,
(in millions) | 2020 |  | 2019 |  | 2018
U.S. | $ | 88.8 |  |  | $ | (2.6) |  |  | $ | 9.9 |
International | 117.9 |  |  | 113.6 |  |  | 91.6 |
Income from operations, before tax | $ | 206.7 |  |  | $ | 111.0 |  |  | $ | 101.5 |
Items accounting for the difference between income taxes computed at the federal statutory rate and income tax expense were as follows:
| Year Ended September 30,
| 2020 |  | 2019 |  | 2018
Federal statutory rate effect of: | 21.0 | % |  | 21.0 | % |  | 24.5 | %
U.S. State and local income taxes | 1.0 | % |  | (1.5) | % |  | 0.8 | %
Foreign earnings and losses taxed at different rates | 0.1 | % |  | 0.7 | % |  | (0.8) | %
Change in foreign valuation allowance | 1.0 | % |  | 1.0 | % |  | (0.8) | %
Change in state valuation allowance | 0.2 | % |  | 0.5 | % |  | — | %
U.S. permanent items | 0.9 | % |  | 0.1 | % |  | (0.2) | %
Foreign permanent items | 0.5 | % |  | 0.7 | % |  | 2.1 | %
U.S. bargain purchase gain | (8.3) | % |  | (1.0) | % |  | — | %
Remeasurement of deferred tax | — | % |  | — | % |  | 8.5 | %
Repatriation Transition tax | — | % |  | — | % |  | 11.0 | %
GILTI | 0.7 | % |  | 2.2 | % |  | — | %
Other reconciling items | 0.9 | % |  | (0.4) | % |  | 0.2 | %
Effective rate | 18.0 | % |  | 23.3 | % |  | 45.3 | %
The components of deferred income tax assets and liabilities were as follows:
(in millions) | September 30, 2020 |  | September 30, 2019
Deferred tax assets: |  |  |
Share-based compensation | $ | 3.1 |  |  | $ | 3.3 |
Deferred compensation | 4.1 |  |  | 3.6 |
Foreign net operating loss carryforwards | 5.4 |  |  | 2.6 |
U.S. State and local net operating loss carryforwards | 9.0 |  |  | 9.2 |
U.S. federal net operating loss carryforwards | 1.8 |  |  | 1.1 |
Intangible assets | 9.9 |  |  | 4.8 |
Bad debt reserve | 4.4 |  |  | 1.3 |
Tax credit carryforwards | 0.2 |  |  | 0.5 |
Foreign tax credit carryforwards | 2.4 |  |  | 5.0 |
Other compensation | 5.8 |  |  | 2.2 |
Property and equipment | 7.3 |  |  | — |
Other | 1.9 |  |  | 1.1 |
Total gross deferred tax assets | 55.3 |  |  | 34.7 |
Less valuation allowance | (12.4) |  |  | (8.5) |
Deferred tax assets | 42.9 |  |  | 26.2 |
Deferred income tax liabilities: |  |  |
Unrealized gain on securities | 2.4 |  |  | 3.2 |
Prepaid expenses | 3.4 |  |  | 2.2 |
Property and equipment | — |  |  | 2.6 |
Pension liability | 0.2 |  |  | 0.2 |
Deferred income tax liabilities | 6.0 |  |  | 8.2 |
Deferred income taxes, net | $ | 36.9 |  |  | $ | 18.0 |
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. As of September 30, 2020 and September 30, 2019, the Company has net operating loss carryforwards for U.S. federal, state, local, and foreign income tax purposes of $6.9 million and $7.1 million, net of valuation allowances, respectively, which are available to offset future taxable income in these jurisdictions. The state and local net operating loss carryforwards of $4.7 million, net of valuation allowance, begin to expire after September 2022. The Company also has $0.6 million, net of valuation allowances, of federal net operating loss carryforwards, which consist of a portion that will expire in tax years ending 2031 through 2036. The remaining portion of the federal net operating loss carryforwards do not expire, but cannot be utilized until after 2037 and are limited by Internal Revenue Code (“IRC”) Section 382. As of September 30, 2020, Gain Capital UK Ltd. has a net operating loss carryforward of $0.9 million. As a result of Tax Reform, the AMT credit carryforward deferred tax asset was reclassified to income taxes receivable during the year ended September 30, 2018. As a result of the CARES Act, the AMT credit carryforward was 50% refundable during the year ending September 30, 2019 and the remaining 50% is refundable in the year ended September 30, 2020, to the extent it is not used to offset regular income tax liability. During the year ended September 30, 2018, the Company generated $5.1 million in foreign tax credit carryforwards as part of the mandatory repatriation transition tax. These credits are being fully utilized during the year ended September 30, 2020. The Company also has $1.3 million, net of valuation allowance, in foreign tax credits due to the merger with Gain, as further discussed in Note 21, which expire in 2023. In the judgment of management, the Company believes that sufficient taxable income will be earned to utilize the foreign tax credit carryforwards, net of valuation allowance, before they expire. The valuation allowance for deferred tax assets as of September 30, 2020 was $12.4 million. The net change in the total valuation allowance for the year ended September 30, 2020 was an increase of $3.9 million. Of this amount, $1.1 million was related to foreign tax credits acquired through the merger with Gain, which are limited by provision of IRC Section 383 and expire in 2023. The remaining increase is related to foreign and state net operating loss carryforwards. The valuation allowances as of September 30, 2020 and September 30, 2019 were primarily related to U.S. state and local and foreign net operating loss carryforwards that, in the judgment of management, are not more likely than not to be realized. T he Company does not intend to distribute earnings of its foreign subsidiaries in a taxable manner, and therefore intends to limit distributions to earnings previously taxed in the U.S., or earnings that would qualify for the 100 percent dividends received deduction, and earnings that would not result in any significant foreign taxes. The Company repatriated $30.0 million and $13.0 million during the years ended September 30, 2020 and September 30, 2019, respectively, of earnings previously taxed in the U.S. resulting in no significant incremental taxes. Therefore, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries. The Company had a de minimis balance of unrecognized tax benefits as of September 30, 2020, 2019, and 2018 that, if recognized, would affect the effective tax rate. Accrued interest and penalties are included in the related tax liability line in the consolidated balance sheets. The Company had no accrued interest and penalties included in the consolidated balance sheets as of September 30, 2020 and September 30, 2019. The Company recognizes accrued interest and penalties related to income taxes as a component of income tax expense. The Company had a de minimus amount of interest, net of federal benefit, and penalties recognized as a component of income tax expense during the years ended September 30, 2020, 2019, and 2018. The Company and its subsidiaries file income tax returns with the U.S. federal jurisdiction and various U.S. state and local and foreign jurisdictions. The Company has open tax years ranging from September 30, 2012 through September 30, 2020 with U.S. federal and state and local taxing authorities. In the U.K., the Company has open tax years ending September 30, 2018 to September 30, 2020. In Brazil, the Company has open tax years ranging from December 31, 2015 through December 31, 2019. In Argentina, the Company has open tax years ranging from September 30, 2013 to September 30, 2020. In Singapore, the Company has open tax years ranging from September 30, 2016 to September 30, 2020.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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