INCOME TAXES
The Company has filed, for prior taxable years through its taxable year ended December 31, 2011, consolidated U.S. federal tax returns, which included all of its then wholly owned domestic subsidiaries. For its taxable year commencing January 1, 2012, the Company filed, and intends to continue to file, as a REIT, and its domestic TRSs filed, and intend to continue to file, separate tax returns as required. The Company also files tax returns in various states and countries. The Company’s state tax returns reflect different combinations of the Company’s subsidiaries and are dependent on the connection each subsidiary has with a particular state and form of organization. The following information pertains to the Company’s income taxes on a consolidated basis.
The income tax provision from continuing operations consisted of the following for the years ended December 31,:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | (0.1 | ) | | $ | (26.5 | ) | | $ | (73.9 | ) |
State | (3.8 | ) | | (2.0 | ) | | (21.2 | ) |
Foreign | (113.4 | ) | | (100.1 | ) | | (55.1 | ) |
Deferred: | | | | | |
Federal | 0.2 |
| | (0.6 | ) | | 9.1 |
|
State | 1.0 |
| | (0.3 | ) | | — |
|
Foreign | 85.4 |
| | (26.0 | ) | | (16.9 | ) |
Income tax provision | $ | (30.7 | ) | | $ | (155.5 | ) | | $ | (158.0 | ) |
The effective tax rate (“ETR”) on income from continuing operations for the years ended December 31, 2017, 2016 and 2015 differs from the federal statutory rate primarily due to the Company’s qualification for taxation as a REIT, as well as adjustments for foreign items. As a REIT, the Company may deduct earnings distributed to stockholders against the income generated by its REIT operations. In addition, the Company is able to offset certain income by utilizing its NOLs, subject to specified limitations.
The Tax Act significantly changes how the U.S. taxes corporations. The Tax Act contains several key provisions including, among other things, a reduction in the corporate income rate from 35% to 21% for tax years beginning after December 31, 2017. As a result of this change in tax rate, the rate at which the Company’s deferred tax assets of the Company’s taxable REIT subsidiaries decreased, resulting in additional tax expense of $2.4 million, which did not significantly impact the Company's effective tax rate. However, the full impact of this change in tax law is provisional and subject to further analysis.
In 2015, there was an income tax law change in Ghana that disallowed unused capital allowances to be carried into 2016, which resulted in a charge to income tax expense for the year ended December 31, 2015. In 2017, the Ghana Revenue Authority issued Practice Note Number DT/2016/010 (the “Practice Note”), which clarified the Capital Allowance section of the Income Tax Act of 2015. The Practice Note allowed for unused Capital Allowance from 2015 to be treated as a deduction in 2016. As a result, the Company recorded a tax benefit of $17.8 million for the year ended December 31, 2017.
Reconciliation between the U.S. statutory rate and the effective rate from continuing operations is as follows for the years ended December 31:
|
| | | | | | | | |
| 2017 | | 2016 | | 2015 |
Statutory tax rate | 35 | % | | 35 | % | | 35 | % |
Adjustment to reflect REIT status (1) | (35 | ) | | (35 | ) | | (35 | ) |
Foreign taxes | 1 |
| | 5 |
| | 3 |
|
Foreign withholding taxes | 3 |
| | 4 |
| | 3 |
|
Uncertain tax positions | — |
| | 5 |
| | — |
|
Changes in tax laws | (2 | ) | | — |
| | 2 |
|
MIPT tax election (2) | — |
| | — |
| | 11 |
|
Effective tax rate | 2 | % | | 14 | % | | 19 | % |
_______________
(1) As a result of the ability to utilize the dividends paid deduction to offset our REIT income and gains.
(2) Includes federal and state taxes, net of federal benefit.
The domestic and foreign components of income from continuing operations before income taxes are as follows for the years ended December 31,:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
United States | $ | 971.2 |
| | $ | 882.6 |
| | $ | 785.2 |
|
Foreign | 284.9 |
| | 243.3 |
| | 44.8 |
|
Total | $ | 1,256.1 |
| | $ | 1,125.9 |
| | $ | 830.0 |
|
The components of the net deferred tax asset and liability and related valuation allowance were as follows as of December 31,:
|
| | | | | | | |
| 2017 | | 2016 |
Assets: | | | |
Net operating loss carryforwards | $ | 287.0 |
| | $ | 278.7 |
|
Accrued asset retirement obligations | 157.0 |
| | 130.0 |
|
Stock-based compensation | 3.9 |
| | 4.3 |
|
Unearned revenue | 19.3 |
| | 29.0 |
|
Unrealized loss on foreign currency | 27.4 |
| | 26.9 |
|
Other accruals and allowances | 50.2 |
| | 45.6 |
|
Items not currently deductible and other | 28.0 |
| | 26.9 |
|
Liabilities: | | | |
Depreciation and amortization | (1,073.9 | ) | | (942.4 | ) |
Deferred rent | (35.9 | ) | | (27.1 | ) |
Other | (14.7 | ) | | (9.4 | ) |
Subtotal | (551.7 | ) | | (437.5 | ) |
Valuation allowance | (142.0 | ) | | (144.4 | ) |
Net deferred tax liabilities | $ | (693.7 | ) | | $ | (581.9 | ) |
Effective January 1, 2016, the Company adopted new guidance on the accounting for share-based payment transactions. As part of this new guidance, excess windfall tax benefits and tax deficiencies related to the Company’s stock option exercises and restricted stock unit vestings are recognized as an income tax benefit or expense in the consolidated statement of operations in the period in which the deduction occurs. Excess windfall tax benefits and tax deficiencies are therefore not anticipated when determining the annual ETR and are instead recognized in the interim period in which those items occur.
At December 31, 2017 and 2016, the Company has provided a valuation allowance of $142.0 million and $144.4 million, respectively, which primarily relates to foreign items. During 2017, the Company decreased the amounts recorded as valuation allowances in certain foreign jurisdictions as the Company believes these deferred tax assets are more likely than not to be realized. The decrease in the valuation allowance for the year ending December 31, 2017, is offset by an increase due to uncertainty as to the timing of, and the Company’s ability to recover, net deferred tax assets in certain foreign operations in the foreseeable future as well as fluctuations in foreign currency exchange rates. The amount of deferred tax assets considered realizable, however, could be adjusted if objective evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth.
A summary of the activity in the valuation allowance is as follows:
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| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Balance as of January 1, | | $ | 144.4 |
| | $ | 137.0 |
| | $ | 141.2 |
|
Additions (1) | | 11.6 |
| | 14.1 |
| | 19.5 |
|
Reversals | | (9.1 | ) | | — |
| | — |
|
Foreign currency translation | | (4.9 | ) | | (6.7 | ) | | (23.7 | ) |
Balance as of December 31, | | $ | 142.0 |
| | $ | 144.4 |
| | $ | 137.0 |
|
_______________
(1) Includes net charges to expense and allowances established through goodwill at acquisition.
The recoverability of the Company’s deferred tax assets has been assessed utilizing projections based on its current operations. Accordingly, the recoverability of the deferred tax assets is not dependent on material asset sales or other non-routine transactions. Based on its current outlook of future taxable income during the carryforward period, the Company believes that deferred tax assets, other than those for which a valuation allowance has been recorded, will be realized.
The Tax Act requires a mandatory one-time inclusion of accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been included in the calculation of U.S. taxable income. Notwithstanding the inclusion of these amounts in the determination of U.S. taxable income, the Company intends to continue to invest these foreign earnings indefinitely outside of the U.S. and does not expect to incur any significant, additional taxes, primarily withholding taxes, related to such amounts.
At December 31, 2017, the Company had net federal, state and foreign operating loss carryforwards available to reduce future taxable income. If not utilized, the Company’s NOLs expire as follows:
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| | | | | | | | | | | |
Years ended December 31, | Federal | | State | | Foreign |
2018 to 2022 | $ | — |
| | $ | 90.7 |
| | $ | 73.2 |
|
2023 to 2027 | — |
| | 361.3 |
| | 192.3 |
|
2028 to 2032 | 141.6 |
| | 85.9 |
| | — |
|
2033 to 2037 | 24.6 |
| | 122.7 |
| | — |
|
Indefinite carryforward | — |
| | — |
| | 739.7 |
|
Total | $ | 166.2 |
| | $ | 660.6 |
| | $ | 1,005.2 |
|
As of December 31, 2017 and 2016, the total amount of unrecognized tax benefits that would impact the ETR, if recognized, is $105.8 million and $102.9 million, respectively. The amount of unrecognized tax benefits for the year ended December 31, 2017 includes additions to the Company’s existing tax positions of $7.6 million.
The Company expects the unrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this timeframe, or if the applicable statute of limitations lapses. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $11.8 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows for the years ended December 31,:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Balance at January 1 | $ | 107.6 |
| | $ | 28.1 |
| | $ | 31.9 |
|
Additions based on tax positions related to the current year | 7.6 |
| | 82.9 |
| | 5.0 |
|
Additions for tax positions of prior years | — |
| | — |
| | — |
|
Foreign currency | 1.9 |
| | (0.2 | ) | | (5.3 | ) |
Reduction as a result of the lapse of statute of limitations and effective settlements | (0.4 | ) | | (3.2 | ) | | (3.5 | ) |
Balance at December 31 | $ | 116.7 |
| | $ | 107.6 |
| | $ | 28.1 |
|
During the years ended December 31, 2017, 2016 and 2015, the statute of limitations on certain unrecognized tax benefits lapsed and certain positions were effectively settled, which resulted in a decrease of $0.4 million, $3.2 million and $3.5 million, respectively, in the liability for uncertain tax benefits, all of which reduced the income tax provision.
The Company recorded penalties and tax-related interest expense to the tax provision of $5.0 million, $9.2 million and $3.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. In addition, due to the expiration of the statute of limitations in certain jurisdictions, the Company reduced its liability for penalties and income tax-related interest expense related to uncertain tax positions during the years ended December 31, 2017, 2016 and 2015 by $0.6 million, $3.4 million and $3.1 million, respectively.
As of December 31, 2017 and 2016, the total amount of accrued income tax-related interest and penalties included in the consolidated balance sheets were $29.0 million and $24.3 million, respectively.
The Company has filed for prior taxable years, and for its taxable year ended December 31, 2017 will file, numerous consolidated and separate income tax returns, including U.S. federal and state tax returns and foreign tax returns. The Company is subject to examination in the U.S. and various state and foreign jurisdictions for certain tax years. As a result of the Company’s ability to carryforward federal, state and foreign NOLs, the applicable tax years generally remain open to examination several years after the applicable loss carryforwards have been used or have expired. The Company regularly assesses the likelihood of additional assessments in each of the tax jurisdictions resulting from these examinations. The Company believes that adequate provisions have been made for income taxes for all periods through December 31, 2017.