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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes U.S. and foreign income before income taxes consist of the following (in millions):
| 2019 |  | 2018 |  | 2017
United States | $ | (59.1 | ) |  | $ | (63.6 | ) |  | $ | (152.3 | )
Foreign | 296.4 |  |  | 248.5 |  |  | 131.2 |
| $ | 237.3 |  |  | $ | 184.9 |  |  | $ | (21.1 | )
The income tax provision (benefit) related to income before income taxes consists of the following components (in millions):
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
U.S. federal statutory tax | $ | (4.0 | ) |  | $ | 8.2 |  |  | $ | 94.6 |
State | 1.6 |  |  | (1.6 | ) |  | 5.6 |
Foreign | 35.9 |  |  | 46.3 |  |  | 34.2 |
| 33.5 |  |  | 52.9 |  |  | 134.4 |
Deferred: |  |  |  |  |
U.S. federal statutory tax | 11.0 |  |  | 4.0 |  |  | 15.1 |
State | 4.6 |  |  | (6.2 | ) |  | 8.9 |
Foreign | (12.2 | ) |  | (1.0 | ) |  | (10.0 | )
| 3.4 |  |  | 3.2 |  |  | 13.9 |
Non-current tax expense (income) | 19.3 |  |  | 6.2 |  |  | 0.9 |
| $ | 56.2 |  |  | $ | 55.9 |  |  | $ | 149.2 |
Non-current tax expense (income) is primarily related to income tax associated with the reserve for uncertain tax positions, including associated interest and penalties. A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
| 2019 |  | 2018 |  | 2017
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
Foreign earnings, net of foreign taxes | (13.8 | ) |  | (11.6 | ) |  | 245.4 |
State income taxes, net of U.S. federal income tax benefit | 2.2 |  |  | (3.3 | ) |  | (51.8 | )
U.S. tax on deemed dividends | 0.9 |  |  | (0.4 | ) |  | (14.0 | )
Tax Act - Transition Tax | 0.5 |  |  | 0.7 |  |  | (704.3 | )
Tax Reform - GILTI | 6.0 |  |  | 9.7 |  |  | — |
Tax Reform - BEAT | 0.1 |  |  | 2.8 |  |  | — |
Deferred tax impact on foreign unrepatriated earnings | 0.5 |  |  | (1.0 | ) |  | (65.5 | )
Goodwill impairment | — |  |  | — |  |  | (81.5 | )
Uncertain tax positions | 8.2 |  |  | 3.4 |  |  | (4.1 | )
Foreign currency adjustments | (6.1 | ) |  | 2.2 |  |  | (0.7 | )
Intercompany interest transfer pricing adjustment | 1.4 |  |  | 1.5 |  |  | — |
Tax authority settlements | — |  |  | — |  |  | (10.0 | )
Nontaxable interest income | (2.3 | ) |  | (2.7 | ) |  | 36.9 |
Nondeductible interest expense | 1.8 |  |  | — |  |  | (12.6 | )
Valuation allowance | 1.2 |  |  | 3.0 |  |  | (19.6 | )
Other permanent differences | 2.4 |  |  | 5.0 |  |  | (60.4 | )
Effective income tax rate | 23.7 | % |  | 30.2 | % |  | (707.1 | )%
For the year ended 2019, our effective income tax rate was 23.7%, and our income tax provision was $56.2 million, as compared to an effective income tax rate of 30.2% and an income tax provision of $55.9 million for 2018. The lower effective income tax rate for 2019, as compared to 2018, resulted principally from the benefits of differences in the results of our subsidiaries in tax jurisdictions with different income tax rates, the impacts of base erosion and anti-abuse minimum tax ("BEAT") and global intangible low-taxed income (“GILTI”), other permanent tax differences, and one-time return-to-provision foreign exchange statutory adjustments. These benefits were reduced by increases in uncertain tax positions and the effect of state income taxes. Several final and proposed regulations were issued for U.S. federal income tax purposes during 2019 regarding BEAT, foreign tax credits, and GILTI, among other areas. The Treasury Department and IRS released final and proposed regulations regarding BEAT on December 2, 2019 and provided an election to waive deductions for purposes of determining base erosion payments which we elected to apply to both 2018 and 2019. Our 2019 effective income tax rate and income tax expense reflect the results of this election for 2019 and the one-time benefit for 2018. For 2018, our effective income tax rate was 30.2%, for an income tax provision of $55.9 million, as compared to an effective income tax rate of (707.1)% and an income tax provision of $149.2 million for 2017. The lower effective income tax rate for 2018 resulted primarily from the effects of the Tax Act's $143.7 million one-time transition tax on historic accumulated foreign earnings. Without the transition tax charge, the effective income tax rate for 2017 would have been (25.9)%. For 2017, our effective income tax rate was (707.1)%, for an income tax provision of $149.2 million, which was primarily a result of differences in the results of our subsidiaries in tax jurisdictions with different income tax rates, the effects of the Act's $143.7 million one-time transition tax on historic accumulated foreign earnings, and a goodwill impairment. Without the transition tax charge, the effective income tax rate for 2017 would have been (25.9)%. We have analyzed our global working capital and cash requirements and the potential tax liabilities attributable to repatriation and have determined that we intend to continue our assertion that the earnings of certain of our non-U.S. subsidiaries are indefinitely reinvested. At December 31, 2019, $923.9 million of our foreign earnings are permanently reinvested in non-US business operations. For these investments, if not reinvested indefinitely, we could potentially owe approximately $203.3 million in foreign withholding tax. For the remaining $1.3 billion accumulated foreign earnings that are actually or deemed repatriated, we have made an estimate of the associated foreign withholding and state income tax effects of $12.0 million for 2019. The temporary differences which comprise our net deferred tax liabilities are as follows (in millions):
| As of December 31,
| 2019 |  | 2018
Gross Deferred Tax Assets: |  |  |
Bad debt reserve | $ | 4.2 |  |  | $ | 4.7 |
Net operating loss | 40.1 |  |  | 33.7 |
Accrued and other share-based compensation | 27.1 |  |  | 23.2 |
Accrued expenses | 6.0 |  |  | 10.2 |
U.S. foreign income tax credits | 3.0 |  |  | 2.3 |
Other income tax credits | 0.2 |  |  | 0.2 |
Customer deposits | 3.1 |  |  | 3.1 |
Investments | 1.9 |  |  | 1.9 |
Cash flow hedges | 3.9 |  |  | — |
Other | 0.7 |  |  | — |
Total gross deferred tax assets | 90.1 |  |  | 79.4 |
Less: Valuation allowance | 32.5 |  |  | 24.3 |
Gross deferred tax assets, net of valuation allowance | 57.6 |  |  | 55.1 |
Deferred Tax Liabilities: |  |  |
Depreciation | (11.7 | ) |  | (11.2 | )
Goodwill and intangible assets | (53.5 | ) |  | (47.5 | )
Unrealized foreign exchange | (6.3 | ) |  | (4.5 | )
Prepaid expenses, deductible for tax purposes | (4.2 | ) |  | (3.9 | )
Deferred tax costs on foreign unrepatriated earnings | (12.0 | ) |  | (11.3 | )
Unrealized derivatives | (3.8 | ) |  | (4.1 | )
Cash flow hedges | — |  |  | (2.5 | )
Other | — |  |  | (3.5 | )
Total gross deferred tax liabilities | (91.6 | ) |  | (88.5 | )
Net deferred tax liability | $ | 34.0 |  |  | $ | 33.4 |
Net deferred tax asset | — |  |  | — |
Reported on the consolidated balance sheets as: |  |  |
Identifiable intangible and other non-current assets for deferred tax assets, non-current | $ | 20.7 |  |  | $ | 11.4 |
Non-current income tax liabilities, net of deferred tax liabilities, non-current | $ | 54.1 |  |  | $ | 44.8 |
As of December 31, 2019 and 2018, we had gross net operating losses (“NOLs”) of approximately $375.9 million and $275.3 million, respectively. The NOLs as of December 31, 2019, originated in various U.S. states and non-U.S. countries. We have recorded a deferred tax asset of $40.1 million reflecting the benefit of the NOL carryforward as of December 31, 2019. This deferred tax asset expires as follows (in millions):
Net Operating Loss | Expiration Date | Deferred Tax Asset
US States | 2020-2039 | $ | 11.2 |
US States | Indefinite | $ | 2.5 |
Foreign | 2020-2039 | $ | 3.1 |
Foreign | Indefinite | $ | 23.3 |
| Total | $ | 40.1 |
We assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. On the basis of this evaluation, as of December 31, 2019, a valuation allowance of $32.5 million has been recorded to recognize only the portion of the deferred tax assets that are more likely than not to be realized, $27.1 million of which relates to the deferred tax asset for NOLs. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as growth projections. We operate under a special income tax concession in Singapore which began January 1, 2008 and is subject to renewal. Our current five-year income tax concession period began on January 1, 2018 and is conditional upon our meeting certain employment and investment thresholds which, if not met in accordance with our agreement, may eliminate the benefit beginning with the first year in which the conditions are not satisfied. The income tax concession reduces the income tax rate on qualified sales and derivative gains and losses. The impact of this tax concession decreased foreign income taxes by $4.3 million, $0, and $1.3 million for 2019, 2018, and 2017 respectively. The impact of the income tax concession on basic earnings per common share was $0.07, $0, and $0.02 for 2019, 2018, and 2017 respectively. On a diluted earnings per common share basis, the impact was $0.06, $0, and $0.02 for 2019, 2018, and 2017 respectively. Income Tax Contingencies We recorded a net increase of $9.5 million of liabilities related to unrecognized income tax benefits (“Unrecognized Tax Liabilities”) and a net decrease of $4.1 million of assets related to unrecognized income tax benefits (“Unrecognized Tax Assets”) during 2019. In addition, during 2019, we recorded a decrease of $0.2 million to our Unrecognized Tax Liabilities related to a foreign currency translation loss, which is included in other income (expense), net, in the accompanying consolidated statements of income and comprehensive income. As of December 31, 2019, our Unrecognized Tax Liabilities, including penalties and interest, were $84.0 million and our Unrecognized Tax Assets were $25.5 million. During 2018, we recorded a net decrease of $1.8 million of liabilities related to Unrecognized Tax Benefits and a net increase of $4.3 million of assets related to Unrecognized Tax Benefits. In addition, during 2018, we recorded an increase of $0.9 million to our Unrecognized Tax Liabilities related to a foreign currency translation loss, which is included in other income (expense), net, in the accompanying consolidated statements of income and comprehensive income. As of December 31, 2018, our Unrecognized Tax Liabilities, including penalties and interest, were $70.2 million and our Unrecognized Tax Assets were $29.7 million. The following is a tabular reconciliation of the total amounts of gross unrecognized income tax liabilities for the year (in millions):
| 2019 |  | 2018 |  | 2017
Gross Unrecognized Tax Liabilities – opening balance | $ | 57.0 |  |  | $ | 58.8 |  |  | $ | 62.2 |
Gross increases – tax positions in prior period | 12.2 |  |  | 3.6 |  |  | 10.9 |
Gross decreases – tax positions in prior period | (13.5 | ) |  | (10.6 | ) |  | — |
Gross increases – tax positions in current period | 14.9 |  |  | 11.5 |  |  | 10.7 |
Gross decreases – tax positions in current period | — |  |  | — |  |  | — |
Settlements | (1.4 | ) |  | (1.5 | ) |  | (23.0 | )
Lapse of statute of limitations | (2.7 | ) |  | (4.8 | ) |  | (2.1 | )
Gross Unrecognized Tax Liabilities – ending balance | $ | 66.5 |  |  | $ | 57.0 |  |  | $ | 58.8 |
If our gross Unrecognized Tax Liabilities, net of our Unrecognized Tax Assets of $25.5 million, as of December 31, 2019, are settled by the taxing authorities in our favor or otherwise resolved, our income tax expense would be reduced by $41.1 million (exclusive of interest and penalties) in the period the matter is considered settled or resolved in accordance with Accounting Standards Codification 740. This would have the impact of reducing our 2019 effective income tax rate by 17.3%. As of December 31, 2019, it is possible that approximately $9 million of our unrecognized income tax liabilities may decrease within the next twelve months. We record accrued interest and penalties related to unrecognized income tax benefits as income tax expense. Related to the uncertain income tax benefits noted above, for interest we recorded expense of $4.6 million, $1.2 million and $3.4 million during 2019, 2018, and 2017, respectively. For penalties, we recorded income of $0.2 million and $1.9 million and expense of $0.1 million during 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, we had recognized liabilities of $13.1 million and $8.5 million for interest and $4.4 million and $4.6 million for penalties, respectively. We have various tax returns under examination both in the U.S. and foreign jurisdictions. The most significant of these are in Denmark for the 2013 - 2015 tax years, South Korea for the 2011 - 2014 tax years, and the U.S. for 2017 - 2018 tax years. In 2018, one of our subsidiaries in Denmark received an audit inquiry from the Danish tax authorities regarding transfer pricing and other related matters for the tax years 2013-2015. In Q2 2019, it received a proposed income adjustment of approximately $1.7 million related to the 2013 tax year. We are currently responding to the proposed income adjustment and other information requests from the Danish tax authorities. In 2017, the Korean Branch of one of our subsidiaries received income tax assessment notices for $9.8 million (KRW 11.3 billion) from the South Korea tax authorities. We believe that these assessments are without merit and are currently appealing the actions. In addition, in January of 2020, we received a notice of examination from the IRS for the 2017 - 2018 tax years. An unfavorable resolution of one or more of the above matters could have a material adverse effect on our result of operations or cash flows in the quarter or year in which the adjustments are recorded, or the tax is due or paid. As examinations are still in process or have not yet reached the final stages of the appeals process, the timing of the ultimate resolution or payments that may be required cannot be determined at this time. In many cases, our uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes these open tax years by jurisdiction with material uncertain tax positions:
| Open Tax Year
Jurisdiction | Examination in progress |  | Examination not yet initiated
Denmark | 2013 - 2015 |  | 2016 - 2019
South Korea | 2011 - 2014 |  | 2015 - 2019
United Kingdom | 2017 |  | 2018 - 2019
Other non-U.S. | None |  | 2014 - 2019

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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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