Income Taxes
Consolidated income before taxes and noncontrolling interests for domestic and foreign operations is as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In millions) |
Foreign | $ | 2,804 |
| | $ | 2,220 |
| | $ | 2,547 |
|
Domestic | 248 |
| | 35 |
| | 75 |
|
Total income before income taxes | $ | 3,052 |
| | $ | 2,255 |
| | $ | 2,622 |
|
The components of the income tax (benefit) expense are as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In millions) |
Foreign: | | | | | |
Current | $ | 258 |
| | $ | 206 |
| | $ | 213 |
|
Deferred | 12 |
| | 29 |
| | 3 |
|
Federal: | | | | | |
Current | 30 |
| | 9 |
| | 4 |
|
Deferred | (509 | ) | | (5 | ) | | 16 |
|
Total income tax (benefit) expense | $ | (209 | ) | | $ | 239 |
| | $ | 236 |
|
The reconciliation of the statutory federal income tax rate and the Company's effective tax rate is as follows:
|
| | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Statutory federal income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
Increase (decrease) in tax rate resulting from: | | | | | |
U.S. foreign tax credits | (105.9 | )% | | (119.3 | )% | | (100.7 | )% |
Repatriation of foreign earnings | 72.1 | % | | 79.8 | % | | 68.0 | % |
Foreign and U.S. tax rate differential | (18.8 | )% | | (20.4 | )% | | (20.0 | )% |
Change in valuation allowance | 18.3 | % | | 43.2 | % | | 34.5 | % |
Tax exempt income of foreign subsidiary (Macao) | (7.9 | )% | | (8.7 | )% | | (7.8 | )% |
Other, net | 0.4 | % | | 1.0 | % | | — | % |
Effective tax rate | (6.8 | )% | | 10.6 | % | | 9.0 | % |
The Company's foreign and U.S. tax rate differential reflects the fact that income earned in Singapore and Macao is taxed at local rates, which are lower than U.S. tax rates. The Company received a 5-year income tax exemption in Macao that exempts the Company from paying corporate income tax on profits generated by gaming operations. The Company will continue to benefit from this tax exemption through the end of 2018. In December 2017, the Company requested an additional income tax exemption for either an additional 5-year period or through June 26, 2022, the date the Company's subconcession agreement expires. Had the Company not received the income tax exemption in Macao, consolidated net income attributable to Las Vegas Sands Corp. would have been reduced by $158 million, $127 million and $132 million, and diluted earnings per share would have been reduced by $0.20, $0.16 and $0.17 per share for the years ended December 31, 2017, 2016 and 2015, respectively. In May 2014, the Company entered into an agreement with the Macao government, effective through the end of 2018 that provides for an annual payment of 42 million patacas (approximately $5 million at exchange rates in effect on December 31, 2017) that is a substitution for a 12% tax otherwise due from VML shareholders on dividend distributions paid from VML gaming profits. VML intends to request an additional agreement with the Macao government to correspond to the income tax exemption for gaming operations; however, there is no certainty that the agreement will be granted, which could have a significant impact on the Company's tax obligation in Macao and a material adverse effect on the Company's financial condition or cash flows. In September 2013, the Company and the Internal Revenue Service ("IRS") entered into a Pre-Filing Agreement providing that the Macao special gaming tax (35% of gross gaming revenue) qualifies as a tax paid in lieu of an income tax and could be claimed as a U.S. foreign tax credit.
U.S. tax reform made significant changes to U.S. income tax laws including lowering the U.S. corporate tax rate to 21% effective beginning in 2018 and transitioning from a worldwide tax system to a territorial tax system resulting in dividends from the Company's foreign subsidiaries not being subject to U.S. income tax and creating a one-time tax on previously unremitted earnings of foreign subsidiaries. As a result, the Company recorded a tax benefit of $526 million relating to the reduction of the valuation allowance on certain deferred tax assets that were previously determined not likely to be utilized and also the revaluation of its U.S. deferred tax liabilities at the reduced corporate income tax rate of 21%. The Company recorded the impact of enactment of U.S. tax reform subject to SAB 118, which provides for a twelve month measurement period to complete the accounting required under ASC 740. While the Company believes these provisional amounts represent a reasonable estimate of the ultimate enactment-related impact that U.S. tax reform will have on the Company's consolidated financial statements, it is possible that the Company may materially adjust these amounts for related administrative guidance, notices, implementing regulations, potential legislative amendments and interpretations as the new tax law evolves. These adjustments could have an impact on the Company's tax assets and liabilities, effective tax rate and earnings per share.
The primary tax affected components of the Company's net deferred tax assets (liabilities) are as follows:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In millions) |
Deferred tax assets: | | | |
U.S. foreign tax credit carryforwards | $ | 4,937 |
| | $ | 3,953 |
|
Net operating loss carryforwards | 262 |
| | 248 |
|
Allowance for doubtful accounts | 21 |
| | 31 |
|
Deferred gain on the sale of The Grand Canal Shoppes and The Shoppes at The Palazzo | 16 |
| | 28 |
|
Accrued expenses | 16 |
| | 26 |
|
Stock-based compensation | 14 |
| | 32 |
|
Pre-opening expenses | 14 |
| | 27 |
|
State deferred items | 8 |
| | 10 |
|
Other | — |
| | 3 |
|
| 5,288 |
| | 4,358 |
|
Less — valuation allowances | (4,690 | ) | | (4,197 | ) |
Total deferred tax assets | 598 |
| | 161 |
|
Deferred tax liabilities: | | | |
Property and equipment | (246 | ) | | (273 | ) |
Prepaid expenses | (5 | ) | | (5 | ) |
Other | (60 | ) | | (83 | ) |
Total deferred tax liabilities | (311 | ) | | (361 | ) |
Deferred tax assets (liabilities), net | $ | 287 |
| | $ | (200 | ) |
In March 2016, the FASB issued an accounting standard update to simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification in the statement of cash flows and electing an accounting policy to either estimate the number of forfeitures or account for forfeitures when they occur. The Company adopted this guidance effective January 1, 2017, and as a result, excess tax benefits or deficiencies related to the exercise or vesting of share-based awards are now reflected in the accompanying condensed consolidated statements of operations as a component of income tax expense, whereas previously they were recognized in stockholders' equity when realized. As a result of the prior guidance that required that deferred tax assets are not recognized for net operating loss carryforwards or credit carryforwards resulting from windfall tax benefits, the Company had windfall tax benefits of $379 million as of December 31, 2016, that were not reflected in deferred tax assets. With the adoption of the new accounting standard, the Company recorded these deferred tax assets, but established a full valuation allowance against those deferred tax assets based on the determination that it was "more-likely-than-not" that those deferred tax assets would not be realized. The accompanying consolidated statements of cash flows present excess tax benefits as an operating activity on a retrospective basis. The reclassification of the prior period had an immaterial impact on the Company's cash flows from operating and financing activities. The Company has elected to account for forfeitures as they occur rather than account for forfeitures based upon an estimated rate. This change in accounting policy was adopted on a modified retrospective basis and resulted in a $(2) million cumulative effect adjustment to retained earnings.
U.S. tax reform required the Company to compute a one-time mandatory tax on the previously unremitted earnings of its foreign subsidiaries during the year ended December 31, 2017. This one-time deemed repatriation of these earnings did not result in a cash tax liability for the Company as the incremental U.S. taxable income was fully offset by the utilization of the U.S. foreign tax credits generated as a result of the deemed repatriation. In addition, the deemed repatriation generated excess U.S. foreign tax credits that will be available to be carried forward to tax years beyond 2017. The Company's U.S. foreign tax credit carryforwards were $5.0 billion and $4.14 billion as of December 31, 2017 and 2016, respectively, which will begin to expire in 2021. The Company's state net operating loss carryforwards were $237 million and $249 million as of December 31, 2017 and 2016, respectively, which will begin to expire in 2024. There was a valuation allowance of $4.43 billion and $3.96 billion as of December 31, 2017 and 2016, respectively, provided on certain net U.S. deferred tax assets, as the Company believes these assets do not meet the "more-likely-than-not" criteria for recognition. Net operating loss carryforwards for the Company's foreign subsidiaries were $2.14 billion and $2.01 billion as of December 31, 2017 and 2016, respectively, which begin to expire in 2018. There are valuation allowances of $261 million and $234 million as of December 31, 2017 and 2016, respectively, provided on the net deferred tax assets of certain foreign jurisdictions, as the Company believes these assets do not meet the "more-likely-than-not" criteria for recognition.
Undistributed earnings of subsidiaries are accounted for as a temporary difference, except that deferred tax liabilities are not recorded for undistributed earnings of foreign subsidiaries that are deemed to be indefinitely reinvested in foreign jurisdictions. U.S. tax reform required the Company to compute a tax on previously unremitted earnings of its foreign subsidiaries upon transition from a worldwide tax system to a territorial tax system during the year ended December 31, 2017. The Company expects these earnings to be exempt from U.S. income tax if distributed as these earnings were taxed during the year ended December 31, 2017, under U.S. tax reform. The Company does not consider current year's tax earnings and profits of its foreign subsidiaries to be indefinitely reinvested. Beginning with the year ended December 31, 2015, the Company's major foreign subsidiaries distributed, and may continue to distribute, earnings in excess of their current year's tax earnings and profits in order to meet the Company's liquidity needs. As of December 31, 2017, the amount of earnings and profits of foreign subsidiaries that the Company does not intend to repatriate was $3.30 billion. The Company does not expect withholding taxes or other foreign income taxes to apply should these earnings be distributed in the form of dividends or otherwise. If the Company's current agreement with the Macao government that provides for a fixed annual payment that is a substitution for a 12% tax otherwise due on dividend distributions from the Company's Macao gaming operations is not extended beyond December 31, 2018, a 12% tax would be due on distributions from earnings generated after 2018.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, is as follows:
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| | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
| (In millions) |
Balance at the beginning of the year | $ | 74 |
| | $ | 65 |
| | $ | 63 |
|
Additions to tax positions related to prior years | 1 |
| | 14 |
| | 2 |
|
Additions to tax positions related to current year | 18 |
| | 7 |
| | 4 |
|
Settlements | — |
| | (10 | ) | | (1 | ) |
Lapse in statutes of limitations | (1 | ) | | (2 | ) | | (2 | ) |
Exchange rate fluctuations | — |
| | — |
| | (1 | ) |
Balance at the end of the year | $ | 92 |
| | $ | 74 |
| | $ | 65 |
|
As of December 31, 2017, 2016 and 2015, unrecognized tax benefits of $62 million, $58 million and $57 million, respectively, were recorded as reductions to the U.S. foreign tax credit deferred tax asset. As of December 31, 2017, 2016 and 2015, unrecognized tax benefits of $30 million, $16 million and $3 million, respectively, were recorded in other long-term liabilities. As of December 31, 2015, unrecognized tax benefits of $5 million were recorded in income taxes payable.
Included in the unrecognized tax benefit balance as of December 31, 2017, 2016 and 2015, are $80 million, $65 million and $53 million, respectively, of uncertain tax benefits that would affect the effective income tax rate if recognized.
The Company's major tax jurisdictions are the U.S., Macao, and Singapore. The Company is subject to examination for tax years beginning 2010 in the U.S. and tax years beginning in 2013 in Macao and Singapore. The Company believes it has adequately reserved for its uncertain tax positions; however, there is no assurance that the taxing authorities will not propose adjustments that are different from the Company's expected outcome and it could impact the provision for income taxes.
The Company recognizes interest and penalties, if any, related to unrecognized tax positions in the provision for income taxes in the accompanying consolidated statement of operations. Interest and penalties of $1 million were accrued as of December 31, 2017. No interest or penalties were accrued as of December 31, 2016. The Company does not expect a significant increase or decrease in unrecognized tax benefits over the next twelve months.