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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Note 10. Income Taxes A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:
(in millions) |  | Interest and Penalties |  |  | Unrecognised Tax Benefits |  |  | Total |
Opening balance at January 1, 2016 |  | $ | 0.3 |  |  | $ | 3.6 |  |  | $ | 3.9 |
Reductions for tax positions of prior periods |  |  | (0.1 | ) |  |  | (0.6 | ) |  |  | (0.7 | )
Additions for tax positions of prior periods |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Additions for current year tax positions |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Reductions due to lapsed statute of limitations |  |  | (0.1 | ) |  |  | (0.8 | ) |  |  | (0.9 | )
Closing balance at 31 December, 2016 |  |  | 0.1 |  |  |  | 2.2 |  |  |  | 2.3 |
Current |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Non-current |  | $ | 0.1 |  |  | $ | 2.2 |  |  | $ | 2.3 |
Opening balance at January 1, 2017 |  | $ | 0.1 |  |  | $ | 2.2 |  |  | $ | 2.3 |
Reductions for tax positions of prior periods |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Additions for tax positions of prior periods |  |  | 0.2 |  |  |  | 0.5 |  |  |  | 0.7 |
Additions for current year tax positions |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Reductions due to lapsed statute of limitations |  |  | 0.0 |  |  |  | (0.5 | ) |  |  | (0.5 | )
Closing balance at 31 December, 2017 |  |  | 0.3 |  |  |  | 2.2 |  |  |  | 2.5 |
Current |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Non-current |  | $ | 0.3 |  |  | $ | 2.2 |  |  | $ | 2.5 |
Opening balance at January 1, 2018 |  | $ | 0.3 |  |  | $ | 2.2 |  |  | $ | 2.5 |
Reductions for tax positions of prior periods |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Additions for tax positions of prior periods |  |  | 0.4 |  |  |  | 11.7 |  |  |  | 12.1 |
Additions for current year tax positions |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Reductions due to lapsed statute of limitations |  |  | (0.1 | ) |  |  | (0.5 | ) |  |  | (0.6 | )
Closing balance at 31 December, 2018 |  |  | 0.6 |  |  |  | 13.4 |  |  |  | 14.0 |
Current |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Non-current |  | $ | 0.6 |  |  | $ | 13.4 |  |  | $ | 14.0 |
All of the $13.4 million of unrecognized tax benefits would impact our effective tax rate if recognized. As previously disclosed, the Company and certain U.S. subsidiaries were subject to a federal income tax examination in respect of 2015. The examination was completed in the first quarter of 2018 with no additional cost to the company. As previously disclosed, tax audits have been opened by the Italian tax authorities in respect of Innospec Performance Chemicals Italia Srl, acquired as part of the Huntsman business, in relation to the period 2011 to 2013 inclusive. The Company believes that additional tax of approximately $0.5 million, together with associated interest of $0.2 million, may arise as a result of the 2011 audit. This amount was recorded at December 31, 2017. During 2018, the Company determined that additional tax of approximately $0.9 million, together with associated interest of $0.3 million, may arise as a result of the 2012 and 2013 audits collectively. As any additional tax arising as a consequence of the tax audit would be reimbursed by the previous owner under the terms of the sale and purchase agreement, an unrecognized tax benefit of $1.9 million is recorded, together with an indemnification asset of the same amount to reflect the fact that the final liability would be reimbursed by the previous owner. In the fourth quarter of 2018, the Company has recorded an uncertain tax position of $10.8 million. This portion primarily relates to a potential adjustment that could arise as a consequence of the Tax Act, but for which retrospective adjustment to the filed 2017 U.S. federal income tax returns are not permissible. The Company and its U.S. subsidiaries remain open to examination by the IRS for years 2016 onwards. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Spain (2014 onwards), France (2015 onwards), Germany (2015 onwards), Switzerland (2016 onwards) and the United Kingdom (2017 onwards). The sources of income before income taxes were as follows:
(in millions) |  | 2018 |  |  | 2017 |  |  | 2016 |
Domestic |  | $ | 37.1 |  |  | $ | 3.1 |  |  | $ | 16.8 |
Foreign |  |  | 94.5 |  |  |  | 125.0 |  |  |  | 86.3 |
|  | $ | 131.6 |  |  | $ | 128.1 |  |  | $ | 103.1 |
The components of income tax expense are summarized as follows:
(in millions) |  | 2018 |  |  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 12.5 |  |  | $ | 51.2 |  |  | $ | 4.4 |
State and local |  |  | 2.0 |  |  |  | 0.9 |  |  |  | 1.1 |
Foreign |  |  | 26.6 |  |  |  | 21.0 |  |  |  | 15.3 |
|  |  | 41.1 |  |  |  | 73.1 |  |  |  | 20.8 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 4.2 |  |  |  | (8.1 | ) |  |  | (0.7 | )
State and local |  |  | 0.3 |  |  |  | 0.7 |  |  |  | (0.3 | )
Foreign |  |  | 1.0 |  |  |  | 0.6 |  |  |  | 2.0 |
|  |  | 5.5 |  |  |  | (6.8 | ) |  |  | 1.0 |
|  | $ | 46.6 |  |  | $ | 66.3 |  |  | $ | 21.8 |
Cash payments for income taxes were $35.4 million, $24.2 million and $23.1 million during 2018, 2017 and 2016, respectively. The effective tax rate varies from the U.S. federal statutory rate because of the factors indicated below:
(in percent) |  | 2018 |  |  | 2017 |  |  | 2016 |
Statutory rate |  |  | 21.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Foreign income inclusions |  |  | 0.7 |  |  |  | 2.1 |  |  |  | 1.0 |
Foreign tax rate differential |  |  | (0.5 | ) |  |  | (13.7 | ) |  |  | (16.6 | )
Tax charge/(credit) from previous years |  |  | 0.7 |  |  |  | 1.1 |  |  |  | (0.7 | )
Net charge/(credit) from unrecognized tax benefits |  |  | 0.3 |  |  |  | (0.4 | ) |  |  | (1.6 | )
Foreign currency transactions |  |  | 1.4 |  |  |  | (0.9 | ) |  |  | 2.4 |
United Kingdom income tax rate reduction |  |  | 0.0 |  |  |  | 0.0 |  |  |  | (0.6 | )
Effect of U.S. tax law change |  |  | 9.3 |  |  |  | 31.7 |  |  |  | 0.0 |
Tax on unremitted earnings |  |  | 0.9 |  |  |  | 0.0 |  |  |  | 0.0 |
Non-deductible foreign interest |  |  | 1.3 |  |  |  | 1.1 |  |  |  | 0.0 |
Other items and adjustments, net |  |  | 0.3 |  |  |  | (4.2 | ) |  |  | 2.2 |
|  |  | 35.4 | % |  |  | 51.8 | % |  |  | 21.1 | %
The most significant factor impacting our effective tax rate in 2018 is the recognized implications of the Tax Act. On December 22, 2017 the U.S. government enacted comprehensive tax legislation, being the Tax Act. U.S. GAAP requires that the impact of tax legislation is recognized in the period in which the law is enacted. On the same date, SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118), which provided guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete their accounting under ASC 740, Income Taxes. Our accounting for the impact of the Tax Act is now complete: The FASB has released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The guidance indicates that either treating taxes on GILTI inclusions as current period costs, or accounting for deferred taxes on GILTI inclusions are both acceptable subject to an accounting policy election. The Company has elected to account for GILTI as a period cost in the year incurred. Deemed Repatriation Transition Tax: The deemed repatriation transition tax (“Transition Tax”) is a tax on certain previously untaxed accumulated earnings and profits (“E&P”) of the Company’s non-U.S. subsidiaries. At December 31, 2017, we were able to reasonably estimate the Transition Tax and recorded a provisional Transition Tax obligation of $47.7 million. On the basis of revised E&P computations that were completed during the reporting period we adjusted our Transition Tax estimate to $61.1 million. Net of related consequential impacts recorded in our 2017 U.S. federal income tax return, we have recorded an additional $12.3 million income tax expense in the fourth quarter. Our accounting in relation to the Transition Tax is now complete. Reduction of U.S. federal income tax rate: The Tax Act reduced the federal income tax rate from 35 per cent to 21 per cent, effective January 1, 2018. We were able to reasonably estimate the effect of the reduction in the tax rate on our U.S. deferred tax assets and liabilities, and recorded a net provisional reduction in our deferred income tax liabilities of $7.1 million with a corresponding net adjustment of $7.1 million of deferred income tax benefit at December 31, 2017. No changes have been made to these adjustments during 2018 and our accounting for the reduction in the rate is now complete. Indefinite reinvestment assertion: In previous periods, the Company did not recognize a deferred tax liability related to unremitted foreign earnings as the Company did not expect to make a repatriation in the foreseeable future. At December 31, 2018, the Company has changed its assertion with respect to the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries. Additional deferred income taxes of $1.1 million have been recorded, with a corresponding adjustment of $1.1 million to deferred income tax expense. As a consequence of the Company having operations outside of the U.S., it is exposed to foreign currency fluctuations. These have had a negative impact on the effective tax rate in 2018. In the United Kingdom, tax legislation prohibits a tax deduction in relation to certain intercompany interest expense arising. This has also had a negative impact on the effective tax rate in 2018. Other items do not have a material impact on the effective tax rate. Details of deferred tax assets and liabilities are analysed as follows:
(in millions) |  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Stock compensation |  | $ | 4.9 |  |  | $ | 4.3 |
Net operating loss carry forwards |  |  | 8.8 |  |  |  | 15.9 |
Other intangible assets |  |  | 5.6 |  |  |  | 4.8 |
Accretion expense |  |  | 3.3 |  |  |  | 3.3 |
Restructuring provision |  |  | 1.9 |  |  |  | 0.0 |
Other |  |  | 4.8 |  |  |  | 4.5 |
Subtotal |  |  | 29.3 |  |  |  | 32.8 |
Less valuation allowance |  |  | 0.0 |  |  |  | 0.0 |
Total net deferred tax assets |  | $ | 29.3 |  |  | $ | 32.8 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Property, plant and equipment |  | $ | (17.1 | ) |  | $ | (16.7 | )
Intangible assets including goodwill |  |  | (28.1 | ) |  |  | (27.0 | )
Pension asset |  |  | (15.0 | ) |  |  | (18.3 | )
Investment impairment recapture |  |  | (2.0 | ) |  |  | (3.5 | )
Customer relationships |  |  | (4.9 | ) |  |  | (5.8 | )
Unremitted overseas earnings |  |  | (1.1 | ) |  |  | 0.0 |
Other |  |  | (0.5 | ) |  |  | 0.0 |
Total deferred tax liabilities |  | $ | (68.7 | ) |  | $ | (71.3 | )
Net deferred tax liability |  | $ | (39.4 | ) |  | $ | (38.5 | )
Deferred tax assets |  | $ | 8.8 |  |  | $ | 6.5 |
Deferred tax liabilities |  |  | (48.2 | ) |  |  | (45.0 | )
|  | $ | (39.4 | ) |  | $ | (38.5 | )
The Company evaluates deferred tax assets to determine whether it is more likely than not that they will be realized. Deferred tax assets are reviewed each period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient positive evidence to support realizability. As a result of the Company’s assessment of its deferred tax assets at December 31, 2018, the Company considers it more likely than not it will recover the full benefit of its deferred tax assets and no valuation allowance is required. Should it be determined in the future that it is no longer more likely than not that these assets will be realized, a valuation allowance would be required, and the Company’s operating results would be adversely affected during the period in which such a determination would be made. Gross net operating loss carry forwards of $36.8 million result in a deferred tax asset of $8.8 million. The net operating loss carry forwards arose in the U.S. and in four of the Company’s foreign subsidiaries. Net operating loss carry forwards of $2.3 million arose from state and federal tax losses in prior periods in certain of the Company’s U.S. subsidiaries. It is expected that sufficient taxable profits will be generated in the U.S. against which the federal net operating loss carry forwards of $1.0 million can be relieved prior to their expiration in 2037, and the state net operating loss carry forwards of $1.3 million can be relieved before their expiration in the period 2022 to 2037. The net operating loss carry forward in four of the Company’s foreign subsidiaries totalling $34.4 million arose in prior and current periods and it is expected that sufficient taxable profits will be generated against which these net operating loss carry forwards can be relieved. These losses can be carried forward indefinitely without expiration.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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