Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.20.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Significant components of the provision for income tax expense (benefit) are as follows:
Year Ended December 31,
2020 2019 2018
(in thousands)
Current:
  Federal $ —  $ —  $ (55)
  Foreign 7,978  61,834  40,239 
  State 1,024  5,523  6,828 
Total current 9,002  67,357  47,012 
Deferred:
  Federal (16,366) 5,314  2,246 
  Foreign (20,772) (6,345) (8,697)
  State (739) 566  204 
Total deferred (37,877) (465) (6,247)
Income tax expense (benefit) $ (28,875) $ 66,892  $ 40,765 

The domestic income (loss) before income taxes was $(1.5) billion, $36.1 million and $43.5 million for 2020, 2019 and 2018, respectively. Foreign income (loss) before income taxes was $(374.5) million, $149.0 million and $87.6 million for 2020, 2019 and 2018, respectively.
Significant components of our deferred tax liabilities and assets are as follows:
December 31,
2020 2019
(in thousands)
Deferred tax liabilities:
          Leases $ 206,701  $ 192,870 
          Intangible assets 170,517  161,843 
          Prepaid expenses 17,786  5,876 
          Other 31,835  19,186 
Total deferred tax liabilities 426,839  379,775 
Deferred tax assets:
          Intangible assets 38,846  40,926 
          Accrued expenses 40,843  60,479 
          Net operating loss carryforwards 955,160  488,081 
          Foreign tax and other credit carryforwards 51,119  47,215 
          Equity compensation 25,209  22,503 
          Leases 224,776  211,206 
          Other 34,171  12,751 
Total gross deferred tax assets 1,370,124  883,161 
          Valuation allowance 1,100,407  667,242 
Total net deferred tax assets 269,717  215,919 
Net deferred tax liabilities $ (157,122) $ (163,856)

Each reporting period, we evaluate the realizability of all of our deferred tax assets in each tax jurisdiction. As of December 31, 2020, we continued to maintain a full valuation allowance against our net deferred tax assets in certain jurisdictions due to cumulative pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred in those tax jurisdictions in 2020, 2019 and 2018.
During 2020 and 2019, we recorded net deferred tax liabilities of $35.3 million and $43.3 million, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.
As of December 31, 2020, we have United States federal, state and foreign deferred tax assets related to net operating loss carryforwards of $393.9 million, $148.2 million and $413.1 million, respectively. The increase in net operating loss carryforwards is primarily attributed to increases in loss carryforwards during 2020. The majority of the increase in net operating loss carryforwards are in jurisdictions for which we maintain a full valuation allowance against net deferred tax assets. Based on current statutory carryforward periods, the operating loss carryforwards will expire on various dates beginning in 2025. Our federal net operating loss may be subject to statutory limitations on the amount that can be used in any given year.
The reconciliation of income tax computed at the United States federal statutory rates to income tax expense (benefit) is:
Year Ended December 31,
2020 2019 2018
(in thousands)
Income tax expense (benefit) at United States statutory rate of 21%
 $ (389,900) $ 38,872  $ 27,532 
State income taxes, net of federal tax benefits 713  3,137  4,860 
Differences between foreign and United States statutory rates
 (12,794) 6,384  2,650 
Non-United States income inclusions and exclusions 1,809  (3,222) (3,425)
United States income inclusions and exclusions (16,495) (2,582) (13,790)
Nondeductible items 39,861  10,118  26,376 
Tax contingencies (1,302) (1,340) 389 
Tax expense from acquired goodwill 6,950  6,107  4,353 
Change in valuation allowance 344,161  8,536  (8,845)
Other, net (1,878) 882  665 
$ (28,875) $ 66,892  $ 40,765 
Income tax expense (benefit) is principally attributable to our earnings in foreign tax jurisdictions along with state income taxes.
Amounts included in differences between foreign and United States statutory rates are impacted by changes in the mix of international earnings subject to various tax rates which can differ greatly in their proximity to the United States statutory rate. The differences between statutory rates is also impacted by our Luxembourg affiliates and tax rulings which include the application of a reduced Luxembourg effective rate to the net income before tax resulting from our financing activities in Luxembourg.
Amounts included in United States income inclusions and exclusions include the favorable impact of tax deductions for vesting of restricted stock awards and exercises of stock options partially offset in 2019 and 2018 by unfavorable inclusions for GILTI under the provisions associated with the TCJA.
Nondeductible items for all years presented include the impact of increased nondeductible expenses pursuant to the provisions of the TCJA including nondeductible executive compensation. The 2020 nondeductible expenses also include adjustments for nondeductible noncontrolling interest.
Nondeductible items in 2018 includes our goodwill impairment for Artist Services (non-management) which was not deductible for income tax purposes.
The change in valuation allowance for each period presented resulted primarily from changes in the income (loss) within jurisdictions with full valuation allowances, including the United States.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
Year Ended December 31,
2020 2019 2018
(in thousands)
Balance at January 1 $ 21,723  $ 34,071  $ 30,630 
Additions:
          Increase for current year positions 1,689  2,215  1,531 
          Increase for prior year positions —  1,898  2,995 
          Interest and penalties for prior years 352  458  106 
Reductions:
          Decrease for prior year positions (2,109) (3,272) — 
          Expiration of applicable statute of limitations —  —  (730)
          Settlements for prior year positions (17) (13,852) (9)
Foreign exchange 94  205  (452)
Balance at December 31 $ 21,732  $ 21,723  $ 34,071 
In February 2019, the Company reached a settlement agreement with the Canadian taxing authority regarding existing uncertain tax positions. The gross liability for unrecognized tax benefits primarily decreased in 2019 due to this settlement.
If we were to prevail on all uncertain tax positions, the net effect would be a decrease to our income tax provision of approximately $0.5 million. The remaining $21.2 million is offset by deferred tax assets that represent tax benefits that would be received in the event that we did not prevail on all uncertain tax positions. As of December 31, 2020, it is not expected that the total amounts of unrecognized tax benefits will increase or decrease materially within the next year.
We regularly assess the likelihood of additional assessments in each taxing jurisdiction resulting from current and subsequent years’ examinations. Liabilities for income taxes are established for future income tax assessments when it is probable there will be future assessments and the amount can be reasonably estimated. Once established, liabilities for uncertain tax positions are adjusted only when there is more information available or when an event occurs necessitating a change to the liabilities. As of December 31, 2020, we believe that the resolution of income tax matters for open years will not have a material effect on our consolidated financial statements although the resolution of income tax matters could impact our effective tax rate for a particular future period.
The tax years 2009 through 2020 remain open to examination by the primary tax jurisdictions to which we are subject.