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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes |
Income Taxes | Note 10 – 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 created 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 was 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 $10.1 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 was 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. 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 elected 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,
|  | 2019 |  | 2018 |  | 2017
U.S. |  | $ | 3,223 |  | $ | (4,347) |  | $ | (1,877)
Non-U.S. |  |  | 12,272 |  |  | 7,900 |  |  | 10,258
Total |  | $ | 15,495 |  | $ | 3,553 |  | $ | 8,381
For the years ended December 31, 2019, 2018, and 2017, domestic income excludes intercompany dividend income of $6.3 million, $133.3 million, and $0, respectively. The provision (benefit) for income taxes consists of the following:
|  | For the year ended December 31,
|  | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 433 |  | $ | (3,792) |  | $ | 14,299
State |  |  | 107 |  |  | 97 |  |  | 141
Foreign |  |  | 7,790 |  |  | 10,833 |  |  | 3,287
Total current |  |  | 8,330 |  |  | 7,138 |  |  | 17,727
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | (970) |  |  | (333) |  |  | 6,043
State |  |  | 24 |  |  | 15 |  |  | (200)
Foreign |  |  | (678) |  |  | (7,113) |  |  | 7,210
Total deferred |  |  | (1,624) |  |  | (7,431) |  |  | 13,053
Total |  | $ | 6,706 |  | $ | (293) |  | $ | 30,780
Our U.S. federal statutory rate for 2019 and 2018 was 21%. For 2017, our U.S. statutory rate was 35%. 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,
|  | 2019 |  | 2018 |  | 2017
Expected tax at statutory rate |  | $ | 3,255 |  | $ | 747 |  | $ | 2,933
Foreign taxes at other rates |  |  | (982) |  |  | (1,308) |  |  | (3,139)
US tax on foreign earnings, net of foreign tax credits |  |  | — |  |  | — |  |  | (226)
Valuation allowances on NOL carryforwards |  |  | 2,042 |  |  | 2,894 |  |  | 3,997
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 |  |  | 108 |  |  | (79) |  |  | (59)
Uncertain tax positions |  |  | 1,845 |  |  | — |  |  | —
Disallowed expenses and other |  |  | 438 |  |  | 449 |  |  | (818)
Total |  | $ | 6,706 |  | $ | (293) |  | $ | 30,780
Significant components of our deferred tax assets and liabilities are as follows:
|  | As of December 31,
|  | 2019 |  | 2018
Deferred tax assets: |  |  |  |  |  |
Stock and long-term compensation plans |  | $ | 2,405 |  | $ | 2,284
Foreign NOL & other carryforwards |  |  | 24,240 |  |  | 23,785
US state NOL carryforwards |  |  | 670 |  |  | 842
Deferred revenue |  |  | 684 |  |  | 627
Pension liability |  |  | 1,509 |  |  | 1,078
Lease liability |  |  | 2,807 |  |  | —
Amortization and depreciation |  |  | 586 |  |  | 770
Accrued expenses and other |  |  | 562 |  |  | 1,138
Total gross deferred tax assets |  |  | 33,463 |  |  | 30,524
Less: Valuation allowance |  |  | (17,255) |  |  | (15,170)
Net deferred income tax assets |  | $ | 16,208 |  | $ | 15,354
Deferred tax liabilities: |  |  |  |  |  |
Accruals |  | $ | 740 |  | $ | 549
Foreign tax on unremitted foreign earnings |  |  | 2,058 |  |  | 1,650
Right of use asset |  |  | 2,124 |  |  | —
Intangible assets |  |  | 8,046 |  |  | 10,215
Deferred tax liabilities |  | $ | 12,968 |  | $ | 12,414
Net deferred tax assets (liabilities) |  | $ | 3,240 |  | $ | 2,940
Deferred tax assets and liabilities are netted by tax jurisdiction. At December 31, 2019, 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 |  | $ | 50,191 |  | 2025-2039
United Kingdom |  |  | 4,592 |  | None
Other foreign |  |  | 7,039 |  | None
Canada province |  |  | 50,499 |  | 2025-2039
U.S. states |  |  | 8,961 |  | 2020-2030
|  |  | 121,282 |  |
Other Carryforwards |  |  |  |  |
Canada |  |  | 17,332 |  | None
Canada province |  |  | 31,463 |  | None
Canada (credit) |  |  | 1,962 |  | 2036
|  |  | 50,757 |  |
|  | $ | 172,039 |  |
The net change in the valuation allowance for the years ended December 31, 2019 and December 31, 2018 were increases of $2.1 million and $2.4 million respectively. Valuation allowances are reviewed on a regular basis and adjustments made as appropriate. The increase in the valuation allowance in 2019 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. For all other deferred tax assets, the Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Our policy is to record interest and penalties on income taxes as income tax expense. We provided $0.2 million in 2019 and less than $0.1 million during each of the years ended December 31, 2018, and 2017. ASC 740, Income Taxes sets a “more likely than not” criterion for recognizing the tax benefit of uncertain tax positions. As of December 31, 2019, 2018, and 2017, we had reserves of $2.9 million, $0.4 million, and $0.1 million, respectively.
|  | As of year ended December 31,
|  | 2019 |  | 2018 |  | 2017
Reserve at beginning of year |  | $ | 427 |  | $ | 107 |  | $ | 662
Increases related to prior year tax positions |  |  | 2,500 |  |  | 427 |  |  | 7
Lapse of statute of limitations |  |  | (4) |  |  | (107) |  |  | (562)
Total |  | $ | 2,923 |  | $ | 427 |  | $ | 107
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. During the second quarter of 2018, the Belgian tax authorities commenced an audit covering income tax returns filed for the years 2015-2018. During the fourth quarter of 2019, the scope of the audit expanded to also include income tax returns filed for the years 2013 and 2014. While we believe the positions we took were supportable under Belgian tax law, in lieu of extending the audit process or pursuing litigation, we negotiated a settlement with the Belgian tax authorities during the fourth quarter of 2019, and booked an accrual adjustment related to the settlement. The settlement agreement was signed and payment was made in January 2020. 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, 2019 is $2.1 million, of tax benefits that, if recognized, would affect the effective tax rate. We estimate that our unrecognized tax benefits as of December 31, 2019 will decrease by approximately $2.7 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 |  | 2011
Austria |  | 2013
Belgium |  | 2013
Canada |  | 2015
Netherlands |  | 2014
Singapore |  | 2014
Switzerland |  | 2017
United Kingdom |  | 2018
United States |  | 2016

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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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