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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
INCOME TAXES |
INCOME TAXES | 12. INCOME TAXES Tax Reform The Tax Cuts and Jobs Act of 2017 (“2017 Tax Act” also commonly referred to as U.S. tax reform), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system and the U.S. Virgin Islands mirror code which replaces “United States” with “U.S. Virgin Islands” throughout the Internal Revenue Code. These changes include a U.S. federal statutory rate reduction from 35% to 21%, which results in a U.S. Virgin Islands rate change of 38.5% to 23.1% under the mirror tax code which allows for a 10% surcharge on the U.S. federal tax rate, 100% expensing of certain qualified capital investments, the elimination or reduction of the alternative minimum tax regime, certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes two base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low taxed income (GILTI) and eliminates the deduction of certain payments made to related foreign corporations, and impose a minimum tax if greater than regular tax under the base-erosion and anti-abuse tax (BEAT). These changes are effective beginning in 2018. The 2017 Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax). Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during the year ended December 31, 2017, the Company recorded a benefit totaling $10.6 million related to its current estimate of applying the provisions of the 2017 Tax Act. Transition Toll Tax The 2017 Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. As of December 31, 2017, the Company has accrued income tax liabilities of $7.4 million under the Transition Toll Tax, of which $0.6 million is expected to be paid within one year. The Transition Toll Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. At December 31, 2017, the Company continues to assert its earnings are permanently reinvested outside the U.S., however the tax impact of subsequent cash distributions from its foreign subsidiaries will be limited to foreign withholding, where applicable, and state taxes. Future cash dividends from Guyana are expected to be made in 2018, however no deferred tax liability has been recorded because these distributions are not subject to Guyanese withholding tax and the US state tax impact is minimal. Effect on Deferred Tax Assets and Liabilities and other Adjustments The Company’s deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. As the Company’s deferred tax liabilities exceed the balance of its deferred tax assets at the date of enactment, the Company has recorded a tax benefit of $18.0 million, reflecting the decrease in the U.S. and U.S. Virgin Islands corporate income tax rates, including the state impact, net of federal benefit. The BEAT provisions in the 2017 Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2017. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the 2017 Tax Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes ( the “deferred method”). The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on not only its current structure and estimated future results of global operations but also its intent and ability to modify its structure and/or our business, the Company is not yet able to reasonably estimate the effect of this provision of the 2017 Tax Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI. Status of our Assessment The Company’s preliminary estimate of the Transition Toll Tax and the remeasurement of its deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in its estimates. The final determination of the Transition Toll Tax and the remeasurement of its deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act. The components of income before income taxes for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):
|  | 2017 |  | 2016 |  | 2015 |
Domestic |  | $ | 25,232 |  | $ | 28,047 |  | $ | 50,563 |
Foreign |  |  | 22,321 |  |  | 17,327 |  |  | 5,638 |
Total |  | $ | 47,553 |  | $ | 45,374 |  | $ | 56,201 |
The following is a reconciliation from the tax computed at statutory income tax rates to the Company’s income tax expense for the years ended December 31, 2017, 2016, and 2015 (in thousands):
|  | 2017 |  | 2016 |  | 2015 |
Tax computed at statutory U.S. federal income tax rates |  | $ | 16,644 |  | $ | 15,782 |  | $ | 19,652 |
Non controlling interest |  |  | (2,887) |  |  | (2,893) |  |  | (2,807) |
Foreign tax rate differential |  |  | (6,621) |  |  | (3,074) |  |  | 1,659 |
Over (under) provided in prior periods |  |  | (18) |  |  | 1,069 |  |  | 652 |
Nondeductible expenses |  |  | 929 |  |  | 1,134 |  |  | 1,113 |
Goodwill Impairment |  |  | — |  |  | 2,622 |  |  | — |
Capitalized transactions costs |  |  | 53 |  |  | 3,138 |  |  | — |
Change in tax reserves |  |  | 4,433 |  |  | 2,561 |  |  | 2,564 |
State Taxes, net of federal benefit |  |  | 1,075 |  |  | 1,853 |  |  | 935 |
Change in valuation allowance |  |  | 6,137 |  |  | (7,292) |  |  | (5,949) |
Foreign tax credit expiration |  |  | — |  |  | 4,179 |  |  | 6,396 |
Refund Claim for Domestic Production Deduction |  |  | (3,382) |  |  | — |  |  | — |
Tax Cuts and Jobs Act of 2017 |  |  | (10,639) |  |  | — |  |  | — |
Capital loss |  |  | (6,990) |  |  | — |  |  | — |
Other, net |  |  | (75) |  |  | 2,081 |  |  | (78) |
Total Income Tax Expense |  | $ | (1,341) |  | $ | 21,160 |  | $ | 24,137 |
The components of income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):
\ |  |  |  |  |  |  |  |  |  |
|  | 2017 |  | 2016 |  | 2015 |
Current: |  |  |  |  |  |  |  |  |  |
United States—Federal |  | $ | 375 |  | $ | 15,763 |  | $ | (1,308) |
United States—State |  |  | 500 |  |  | 505 |  |  | (383) |
Foreign |  |  | 11,289 |  |  | 10,528 |  |  | 7,959 |
Total current income tax expense |  | $ | 12,164 |  | $ | 26,796 |  | $ | 6,268 |
Deferred: |  |  |  |  |  |  |  |  |  |
United States—Federal |  | $ | (10,892) |  | $ | (1,880) |  | $ | 16,760 |
United States—State |  |  | 950 |  |  | (291) |  |  | 1,636 |
Foreign |  |  | (3,563) |  |  | (3,465) |  |  | (527) |
Total deferred income tax expense (benefit) |  |  | (13,505) |  |  | (5,636) |  |  | 17,869 |
Consolidated: |  |  |  |  |  |  |  |  |  |
United States—Federal |  | $ | (10,517) |  | $ | 13,883 |  | $ | 15,452 |
United States—State |  |  | 1,450 |  |  | 214 |  |  | 1,253 |
Foreign |  |  | 7,726 |  |  | 7,063 |  |  | 7,432 |
Total income tax expense |  | $ | (1,341) |  | $ | 21,160 |  | $ | 24,137 |
The significant components of deferred tax assets and liabilities are as follows as of December 31, 2017 and 2016 (in thousands):
|  | 2017 |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |
Receivables reserve |  | $ | 1,524 |  | $ | 1,470 |
Temporary differences not currently deductible for tax |  |  | 7,869 |  |  | 8,918 |
Deferred compensation |  |  | 1,446 |  |  | 2,461 |
Pension |  |  | 245 |  |  | 1,085 |
Net operating losses |  |  | 26,685 |  |  | 29,571 |
Tax Credits |  |  | 8,969 |  |  | — |
Total deferred tax asset |  |  | 46,738 |  |  | 43,505 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property, plant and equipment, net |  | $ | 35,630 |  | $ | 41,136 |
Intangible assets, net |  |  | 5,817 |  |  | 6,122 |
Total deferred tax liabilities |  |  | 41,447 |  |  | 47,258 |
Valuation allowance |  |  | (35,829) |  |  | (42,462) |
Net deferred tax liabilities |  | $ | (30,538) |  | $ | (46,215) |
Deferred tax assets and liabilities are reflected in the accompanying consolidated balance sheets as follows (in thousands):
|  | 2017 |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |
Current |  | $ | — |  | $ | — |
Long term |  |  | 1,194 |  |  | 407 |
Total deferred tax asset |  | $ | 1,194 |  | $ | 407 |
Deferred tax liabilities: |  |  |  |  |  |  |
Current |  | $ | — |  | $ | — |
Long term |  |  | (31,732) |  |  | (46,622) |
Total deferred tax liabilities |  | $ | (31,732) |  | $ | (46,622) |
Net deferred tax liabilities |  | $ | (30,538) |  | $ | (46,215) |
The Company’s effective tax rate for the year ended December 31, 2017 and 2016 was (2.8)% and 46.6%, respectively. The effective tax rate for the year ended December 31, 2017 was primarily impacted by the following items: (i) a $10.6 million benefit for the net impact of the 2017 Tax Act which includes lowering the U.S. corporate income tax rate to 21%, effective in 2018, resulting in an $18.0 million benefit on the remeasurement of the deferred tax assets and liabilities, partially offset by a provision of $7.4 million on the deemed repatriation of undistributed foreign earnings (ii) a $3.9 million benefit for the net capital transactions related to our businesses in New England, New York, BVI and St. Maarten, (iii) a $3.4 million benefit for an amended return refund claim filed for tax year 2013, (iv) a $4.4 million increase (net) in unrecognized tax benefits related to current year and prior year positions, (v) a $6.1 million provision (net) to record the change in valuation allowance and, (vi) the mix of income generated among the jurisdictions in which we operate. The effective tax rate for the year ended December 31, 2016 was impacted by the following items: (i) $3.1 million provision related to certain transactional charges incurred in connection with our acquisitions that had no tax benefit, (ii) $2.6 million provision related to an impairment charge to write down the value of assets related to our wireline business, (iii) $2.5 million provision related to the write-off of an unrecoverable tax receivable and (iv) the mix of income generated among the jurisdictions in which we operate. The Company’s effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. The Company’s consolidated tax rate will continue to be impacted by the mix of income generated among the jurisdictions in which it operates. As of December 31, 2017, the Company estimated that it had gross federal and foreign net operating loss (“NOL”) carryforwards of $2.2 million and $96.6 million respectively. Of these, $95.1 million will expire between 2024 and 2037 and $3.7 million may be carried forward indefinitely. In addition the Company estimated that it had gross federal capital loss carryforwards of $9.0 million which will expire in 2022. The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to realize the existing deferred tax assets. A significant piece of negative evidence evaluated is cumulative losses incurred in certain reporting jurisdictions over the three-year period ended December 31, 2017. Other negative evidence examined includes, but is not limited to, losses expected in early future years, a history of tax benefits expiring unused, uncertainties whose unfavorable resolution would adversely affect future results, and brief carryback, carry forward periods. On the basis of this evaluation, the Company believed it was more likely than not that the benefit from some of these federal, state, and foreign deferred taxes would not be realized. In recognition of this risk at December 31, 2017 the Company has provided a valuation allowance against certain federal and foreign deferred tax assets for $10.1 and $25.7 million respectively. As part of the 2017 Tax Act, the transition tax on foreign unremitted earnings generated foreign tax credits, of which, only a portion can be utilized to offset the 2017 federal transition tax liability. The remaining credit of $8.2 million has been recorded as a deferred tax asset; however, as the Company does not expect to have sufficient foreign source income in the future to be able to utilize this credit, a valuation allowance has been recorded against it. In 2017, the Company had business restructuring transactions which result in capital losses for tax purposes which can only be utilized against capital gains. The Company has recorded a valuation allowance of $1.9 million against the capital losses in excess of available capital gains. The foreign valuation allowance primarily relates to foreign net operating losses of $24.3 million, while the remaining $1.4 million is on other net foreign deferred tax assets which the Company does not expect to be able to realize. As of December 31, 2017 there were no state net operating loss deferred tax assets, therefore no state valuation allowance exists as of this date. At December 31, 2016, the Company’s state and foreign NOL carryforward valuation allowances were $0.5 million and $27.8 million, respectively. The remaining valuation allowance of $14.1 million was applied to the other foreign deferred taxes for entities with a full valuation allowance at December 31, 2016. As of December 31, 2017, the Company has approximately $303.7 million of undistributed earnings of its foreign subsidiaries, of which $262.1 million are provisionally considered to be indefinitely reinvested. As such, the Company has not provided deferred tax on those earnings. As the 2017 Tax Act resulted in a one-time transition tax on the deemed repatriation of foreign earnings for federal tax purposes, the tax impact of subsequent cash distributions is limited to foreign withholding and exchange rate gains or losses, where applicable, and state taxes. The Company received a $41.6 million cash distribution from GT&T in early 2018 but does not expect any additional tax liability associated with the distribution. The Company had unrecognized tax benefits (including interest and penalty) of $24.1 million as of December 31, 2017, $20.0 million as of December 31, 2016 and, $18.9 million as of December 31, 2015. The net increase of the reserve during the year ended December 31, 2017 was attributable to an increase in tax positions for prior periods of $1.1 million, a net increase in tax positions for the current period of $3.4 million and partially offset by a settlement of a prior year position of $0.4 million. The following shows the activity related to unrecognized tax benefits (not including interest and penalty) during the three years ended December 31, 2017 (in thousands):
Gross unrecognized tax benefits at December 31, 2014 |  |  | 15,499 |
Increase in unrecognized tax benefits taken during a prior period |  |  | — |
Increase in unrecognized tax benefits taken during the current period |  |  | 1,717 |
Lapse in statute of limitations |  |  | — |
Settlements |  |  | — |
Gross unrecognized tax benefits at December 31, 2015 |  |  | 17,216 |
Increase in unrecognized tax benefits taken during a prior period |  |  | 561 |
Increase in unrecognized tax benefits taken during the current period |  |  | 2,321 |
Lapse in statute of limitations |  |  | (1,673) |
Settlements |  |  | (521) |
Gross unrecognized uncertain tax benefits at December 31, 2016 |  |  | 17,904 |
Increase in unrecognized tax benefits taken during a prior period |  |  | — |
Increase in unrecognized tax benefits taken during the current period |  |  | 3,394 |
Lapse in statute of limitations |  |  | (2) |
Settlements |  |  | (335) |
Gross unrecognized uncertain tax benefits at December 31, 2017 |  | $ | 20,961 |
The Company’s accounting policy is to classify interest and penalties related to income tax matters as part of income tax expense. The accrued amounts for interest and penalties are $3.1 million as of December 31, 2017, and $2.1 million as of December 31, 2016, and $1.7 million as of December 31, 2015. Of the $24.1 million of gross unrecognized uncertain tax benefits (including interest and penalty), $22.3 million, if recognized, would impact the effective tax rate. The Company and its subsidiaries file income tax returns in the U.S. and in various, state and local and foreign jurisdictions. The statute of limitations related to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2012. The 2013 federal tax year remains open up to the amount of the refund claim requested on an amended tax return until such refund is remitted to the Company. The 2013 and 2014 federal tax returns are currently under IRS audit. The expiration of the statute of limitations related to the various state and foreign income tax returns that the Company and subsidiaries file varies by jurisdiction.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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