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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes |
Income Taxes | Note 7 – Income Taxes Tax Reform enacted on December 22, 2017 introduced significant changes to U.S. income tax law. Effective in 2018, Tax Reform reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings which are referred to as the global intangible low-taxed income tax (“GILTI”). In addition, in 2017 we were subject to a one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. Due to the timing of the enactment and the complexity involved in applying the provisions of Tax Reform, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 31, 2017. As we collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we made adjustments, over the course of the year, to the provisional amounts, including refinements to deferred taxes. The accounting for the tax effects of Tax Reform has been completed as of December 31, 2018. Tax reform required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. We recorded a provisional amount for our one-time transitional tax liability and income tax expense of $18.2 million as of December 31, 2017. During 2018 we recorded a measurement period adjustment of $2.5 million as a reduction to the provisional estimates recorded at the end of 2017 due to the release of regulations on the one-time transition tax which reduced long term taxes payable. After the utilization of existing tax credits, we expect to pay U.S. federal taxes of approximately $10.6 million over eight years related to the repatriation tax. Due to the change in the statutory tax rate from Tax Reform, we remeasured our deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax expense of $2.3 million to reflect the reduced U.S. tax rate and other effects of Tax Reform as of December 31, 2017. During 2018, we recorded an adjustment of $0.5 million as a reduction of the provisional estimate which reduced current taxes payable. As a result of Tax Reform, earnings of all foreign subsidiaries have been designated as available for distribution. Previously, earnings of certain foreign subsidiaries were deemed permanently reinvested. During the fourth quarter of 2017, we provisionally provided deferred income tax expense of $7.3 million for foreign taxes on distributions from foreign subsidiaries previously designated as permanently reinvested. No adjustment has been made during 2018. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company could be subjected to incremental U.S. tax on GILTI income beginning in 2018. For 2018, the amount was less than $0.1 million. FASB Topic 740 allows the company to treat GILTI as either a deferred tax asset or liability or to account for the impacts in the period in which it is incurred. The Company has decided to account for GILTI tax in the period in which it is incurred. Income before income taxes was generated in the following jurisdictions:
|  | For the year ended December 31,
|  | 2018 |  | 2017 |  | 2016
U.S. |  | $ | (4,347) |  | $ | (1,877) |  | $ | (11,170)
Non-U.S. |  |  | 7,900 |  |  | 10,258 |  |  | 22,547
Total |  | $ | 3,553 |  | $ | 8,381 |  | $ | 11,377
For the years ended December 31, 2018, 2017, and 2016, domestic income excludes taxable intercompany dividend income of $133.3 million, $0, and $8.8 million, respectively. The provision (benefit) for income taxes consists of the following:
|  | For the year ended December 31,
|  | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (3,792) |  | $ | 14,299 |  | $ | (90)
State |  |  | 97 |  |  | 141 |  |  | 5
Foreign |  |  | 10,833 |  |  | 3,287 |  |  | 5,915
Total current |  |  | 7,138 |  |  | 17,727 |  |  | 5,830
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | (333) |  |  | 6,043 |  |  | (2,985)
State |  |  | 15 |  |  | (200) |  |  | 115
Foreign |  |  | (7,113) |  |  | 7,210 |  |  | (2,097)
Total deferred |  |  | (7,431) |  |  | 13,053 |  |  | (4,967)
Total |  | $ | (293) |  | $ | 30,780 |  | $ | 863
Our U.S. federal statutory rate for 2018 was 21%. For 2017 and 2016, our U.S. statutory rate varied with taxable income and was 35% and 34%, respectively. The differences between the income tax provisions computed using the statutory federal income tax rate and the provisions for income taxes reported in the consolidated statements of operations are as follows:
|  | For the year ended December 31,
|  | 2018 |  | 2017 |  | 2016
Expected tax at statutory rate |  | $ | 747 |  | $ | 2,933 |  | $ | 3,884
Foreign taxes at other rates |  |  | (1,308) |  |  | (3,139) |  |  | (7,512)
US tax on foreign earnings, net of foreign tax credits |  |  | — |  |  | (226) |  |  | (405)
Valuation allowances on NOL carryforwards |  |  | 2,894 |  |  | 3,997 |  |  | 3,816
US tax reform - deemed repatriation |  |  | (2,534) |  |  | 18,472 |  |  | —
US tax reform - changes in indefinite reinvestment assertion |  |  | — |  |  | 7,281 |  |  | —
US tax reform - deferred tax expense from tax rate change |  |  | (462) |  |  | 2,339 |  |  | —
State income taxes, net of federal benefit |  |  | (79) |  |  | (59) |  |  | 83
Disallowed expenses and other |  |  | 449 |  |  | (818) |  |  | 997
Total |  | $ | (293) |  | $ | 30,780 |  | $ | 863
Significant components of our deferred tax assets and liabilities are as follows:
|  | As of December 31,
|  | 2018 |  | 2017
Deferred tax assets: |  |  |  |  |  |
Stock and long-term compensation plans |  | $ | 2,284 |  | $ | 1,855
Foreign NOL & other carryforwards |  |  | 23,785 |  |  | 20,864
US state NOL carryforwards |  |  | 842 |  |  | 823
Deferred revenue |  |  | 627 |  |  | 1,278
Pension liability, net |  |  | 1,078 |  |  | 974
Amortization and depreciation |  |  | 770 |  |  | 753
Accrued expenses and other |  |  | 1,138 |  |  | 1,246
Total gross deferred tax assets |  |  | 30,524 |  |  | 27,793
Less: Valuation allowance |  |  | (15,170) |  |  | (12,805)
Net deferred income tax assets |  | $ | 15,354 |  | $ | 14,988
Deferred tax liabilities: |  |  |  |  |  |
Accruals |  | $ | 549 |  | $ | 506
Foreign tax on unremitted foreign earnings |  |  | 1,650 |  |  | 7,434
Intangible assets |  |  | 10,215 |  |  | 9,341
Deferred tax liabilities |  | $ | 12,414 |  | $ | 17,281
Net deferred tax assets (liabilities) |  | $ | 2,940 |  | $ | (2,293)
Deferred tax assets and liabilities are netted by tax jurisdiction. At December 31, 2018, we had foreign and state net operating loss (NOL) carryforwards and other foreign deductible carryforwards as shown in the following table:
|  | Carryforward |  | Expiration
NOL Carryforward |  |  |  |  |
Canada |  | $ | 51,310 |  | 2024-2038
United Kingdom |  |  | 12,936 |  | None
Other foreign |  |  | 7,370 |  | None
Canada province |  |  | 49,282 |  | 2024-2038
U.S. states |  |  | 11,318 |  | 2019-2030
|  |  | 132,216 |  |
Other Carryforwards |  |  |  |  |
Canada |  |  | 10,829 |  | None
Canada province |  |  | 24,960 |  | None
Canada (credit) |  |  | 1,206 |  |
|  |  | 36,995 |  |
|  | $ | 169,211 |  |
The net change in the valuation allowance for the years ended December 31, 2018 and December 31, 2017 were increases of $2.4 million and $6.5, respectively, and a decrease for the year ended December 31, 2016 of $7.4 million. Valuation allowances are reviewed on a regular basis and adjustments made as appropriate. The increase in the valuation allowance in 2018 reflects NOLs and credits for which the realization is not more likely than not. The change in the valuation allowance also reflects other factors including, but not limited to, changes in our assessment of our ability to use existing NOLs and other deduction carryforwards, changes in currency rates, and adjustments to reflect differences between the actual returns filed and the estimates we made at financial reporting dates. The company expects to generate taxable income to realize deferred tax assets net of valuation allowance in each jurisdiction. Our policy is to record interest and penalties on income taxes as income tax expense. We provided less than $0.1 million during each of the years ended December 31, 2018, 2017, and 2016. ASC 740, Income Taxes sets a “more likely than not” criterion for recognizing the tax benefit of uncertain tax positions. As of December 31, 2018, 2017, and 2016, we had reserves of $0.4 million, $0.1 million, and $0.6 million, respectively.
|  | As of year ended December 31,
|  | 2018 |  | 2017 |  | 2016
Reserve at beginning of year |  | $ | 107 |  | $ | 662 |  | $ | 560
Increases related to prior year tax positions |  |  | 427 |  |  | 7 |  |  | 217
Lapse of statute of limitations |  |  | (107) |  |  | (562) |  |  | (115)
Total |  | $ | 427 |  | $ | 107 |  | $ | 662
We file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. We are subject to examination of our income tax returns by the IRS and other tax authorities. Our 2016 through 2018 tax years are currently being examined in Belgium. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. Included in the balance of unrecognized tax benefits as of December 31, 2018 is $0.3 million, of tax benefits that, if recognized, would affect the effective tax rate. Although the timing of resolution, settlement, and closure of audits is not certain, it is reasonably possible that certain non-U.S. tax audits may be concluded within the next 12 months, which could significantly increase or decrease the balance of our gross unrecognized tax benefits. We estimate that our unrecognized tax benefits as of December 31, 2018 could possibly decrease by approximately $0.4 million in the next 12 months. Our primary tax jurisdictions and the earliest tax year subject to audit are presented in the following table.
Australia |  | 2010
Austria |  | 2012
Belgium |  | 2016
Canada |  | 2014
Netherlands |  | 2013
Singapore |  | 2013
Switzerland |  | 2017
United Kingdom |  | 2017
United States |  | 2015

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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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