The 2017 U.S. Tax Act was signed into law on December 22, 2017. The 2017 Tax Act made significant changes to the previous tax law, which included the reduction of the federal statutory rate from 35% to 21% and the recognition of a one-time repatriation tax on accumulated untaxed earnings of foreign subsidiaries. As of December 31, 2018, the Company finalized its calculations and completed its accounting for the income tax effect of the 2017 Tax Act, for which the finalization adjustments recognized during 2018 were not significant.

A number of these provisions continue to have an impact on our effective tax rate, including limitations on the deductibility of executive compensation and the elimination of certain tax deductions. Additionally, the implementation of a territorial tax system, which subjects certain foreign earnings to additional taxation as global intangible low-taxed income, continues to adversely affect income tax expense.


	Years Ended December 31,
	2020		2019		2018
Federal statutory rate	21.0	%	21.0	%	21.0	%
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit	1.2	%	1.0	%	(0.4)	%
Foreign operations	(7.9)	%	(20.0)	%	(21.8)	%

Excess tax benefits from stock compensation	(1.0)	%	(5.6)	%	(7.8)	%
Charitable contributions	(0.3)	%	(0.6)	%	(1.2)	%
Nondeductible meals and entertainment	0.4	%	1.5	%	1.6	%

Intercompany profit in inventory	1.2	%	1.2	%	6.2	%
Nondeductible facilitative costs	1.4	%	0.8	%	—	%
Changes in valuation allowances	0.1	%	0.2	%	0.2	%
Uncertain tax positions	0.5	%	0.2	%	0.4	%
Research and development credit	(1.6)	%	(2.9)	%	(2.6)	%
Return to provision	(2.3)	%	1.7	%	(2.9)	%
Global intangible low-taxed income ("GILTI")	2.5	%	7.6	%	3.5	%
Nondeductible executive compensation	2.4	%	3.0	%	1.6	%
Carryback of Federal net operating loss ("NOL")	—	%	0.1	%	(3.7)	%
Other	0.5	%	0.4	%	—	%
Swiss tax holiday	—	%	(15.7)	%	—	%
IPR&D expense	—	%	22.7	%	—	%
Foreign-Derived Intangible Income	(0.8)	%	—	%	—	%
Transfer of Intra-entity of certain intellectual property - Rate Differential on FMV Step-Up	(63.3)	%	—	%	—	%
Assets held for sale - Outside Basis Difference	2.8	%	—	%	—	%
Effective tax rate	(43.2)	%	16.5	%	(5.9)	%

Our effective tax rate was (43.2)% and 16.5% of income before income taxes for the years ended December 31, 2020 and December 31, 2019, respectively. In 2020, the Company’s lower worldwide effective tax rate, as compared to 2019, is primarily driven by an $59.2 million income tax benefit on an intra-entity transfer of certain intellectual property, substantially completed during the fourth quarter in 2020. Excluding this transaction, the effective worldwide tax rate for 2020 is 20.2%.

In December 2020, the Company completed an intra-entity transfer of certain intellectual property rights to one of its subsidiaries in Switzerland. While the transfer did not result in a taxable gain, the Company’s Swiss subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property rights. The Company determined the fair value using a discounted cash flow model based on expectations of revenue growth rates, royalty rates, discount rates, and useful lives of the intellectual property. The Company recorded a $59.2 million deferred tax benefit in Switzerland related to the amortizable tax basis in the transferred intellectual property.

During 2020, the Company’s foreign operations generated a $48.2 million decrease in income tax expense when compared to the same period in 2019, because of the intra-entity transfer of certain intellectual property, geographic and business mix of taxable earnings and losses, among other factors. The 2020 foreign effective tax rate is (57.1)%, compared to 3.5% in 2019. The Company’s foreign tax rate is primarily based upon statutory rates and is also impacted by the intra-entity transfer of certain intellectual property as described above.

During 2019, the Company's foreign operations generated a $5.7 million decrease in income tax expense when compared with 2018, because of geographic and business mix of taxable earnings and losses, among other factors. The 2019 foreign effective tax rate is 3.5%, compared to 11.6% in 2018. The Company's foreign tax rate is primarily based upon statutory rates and is also impacted by the tax holiday in Switzerland, described below.

During 2019, the Company finalized negotiations related to tax holidays in Switzerland, on a federal, cantonal, and communal level. The Company received a federal tax credit in Switzerland of $12.1 million ($0.14 per share), which may be used over a seven-year period, ending in 2024. The Company also received a reduction in its rate for the cantonal and communal level taxes during the third quarter of 2019, pursuant to tax reform in Switzerland.


	Years Ended December 31,
	2020		2019		2018
	(In thousands)
Current:
Federal	$	6,184	$	14,597	$	(3,880)
State	5,029		3,447		1,609
Foreign	12,553		10,905		7,057
Total current	$	23,766	$	28,949	$	4,786
Deferred:
Federal	(5,079)		(10,889)		(7,202)
State	(1,760)		(666)		(3,048)
Foreign	(57,299)		(7,491)		2,066
Total deferred	$	(64,138)	$	(19,046)	$	(8,184)
Provision for income taxes	$	(40,372)	$	9,903	$	(3,398)


	December 31,
	2020		2019
	(In thousands)
Assets:
Doubtful accounts	$	2,207	$	2,426
Inventory related items	47,034		39,548
Tax credits	18,319		19,134
Accrued vacation	3,403		3,206
Accrued bonus	4,883		6,017
Stock compensation	6,160		8,347
Deferred revenue	1,665		1,805
Net operating loss carryforwards	29,335		37,418
Capitalization of research and development expenses	13,044		9,781
Unrealized foreign exchange loss	23,798		8,105
Charitable contributions carryforward	203		235

Leases and Other	23,205		12,496
Total deferred tax assets	173,256		148,518
Less valuation allowance	(9,897)		(9,865)
Deferred tax assets after valuation allowance	$	163,359	$	138,653
Liabilities:
Intangible and fixed assets	(90,274)		(150,879)
Leases and Other	(15,585)		(11,704)
Total deferred tax liabilities	$	(105,859)	$	(162,583)

Total net deferred tax assets (liabilities)	$	57,500	$	(23,930)

At December 31, 2020, the Company had net operating loss carryforwards of $90.2 million for federal income tax purposes, $36.7 million for foreign income tax purposes and $41.6 million for state income tax purposes to offset future taxable income. The majority of the federal net operating loss carryforwards expire through 2037, while $11.8 million have an indefinite carry forward period. For foreign net operating loss carryforwards, $0.3 million expire through 2025, and the remaining $36.4 million have an indefinite carry forward period. The state net operating loss carryforwards expire through 2036.

The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it will not satisfy the more likely than not threshold for realization of the associated tax benefit. In the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made.

The Company’s valuation allowance increased by less than $0.1 million, increased by $2.9 million and decreased by $1.0 million at December 31, 2020, 2019 and 2018, respectively. The 2020 valuation allowance primarily remained unchanged from the prior period.The 2019 overall increase in the valuation allowance primarily resulted from certain assets from the Rebound and Arkis acquisitions.

As of December 31, 2020, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested. Such taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed. As such, the Company has determined the tax impact of repatriating these earnings would not be material as of December 31, 2020.


	Years Ended December 31,
	2020		2019		2018
	(In thousands)
Balance, beginning of year	$	676	$	676	$	424
Gross increases:
Current year tax positions	—		53		273
Prior years' tax positions	26		—		—
Gross decreases:


Statute of limitations lapses	—		—		(21)
Other	—		(53)		—
Balance, end of year	$	702	$	676	$	676

Approximately $0.7 million of the balance at December 31, 2020 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. There are no amounts within the balance of uncertain tax positions at December 31, 2020 related to tax positions for which it is reasonably possible that the amounts could be reduced during the twelve months following December 31, 2020.

The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The Company recognized a minimal benefit for the years ended December 31, 2020, 2019 and 2018. The Company had minimal interest and penalties accrued for the years ended December 31, 2020 and 2019 and 2018.