Entity information:

• Entity registrant name: Nielsen Holdings plc
• CIK: 0001492633
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1492633/000156459018001617/0001564590-18-001617-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1492633/000156459018001617/nlsnnv-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1492633/000156459018001617/nlsnnv-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001492633
• Generator: Donnelley Financial Solutions
• Total assets: 16,866,000,000
• Income tax expense (benefit): 388,000,000
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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13. Income Taxes

Nielsen provides for income taxes utilizing the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in the consolidated statements of operations as an adjustment to income tax expense in the period that includes the enactment date.

The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Such tax positions are, based solely on their technical merits, more likely than not to be sustained upon examination by taxing authorities and reflect the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon settlement with the applicable taxing authority with full knowledge of all relevant information. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was signed into law. The TCJ Act significantly changes U.S. federal corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial-style tax system with a one-time mandatory tax on previously deferred foreign earnings of US subsidiaries. The Company is subject to the provisions of the Financial Accounting Standards Board ("FASB") ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. However, in December of 2017, the SEC staff issued SAB 118 which provides that companies that have not completed their accounting for the effects of the TCJ Act but can determine a reasonable estimate of those effects should include a provisional amount based on their reasonable estimate in their financial statements. The Company, as explained below, has made reasonable estimates in order to account for the effects of the TCJ Act.

 

As a result of the enactment of the TCJ Act, the Company has recorded a provisional net expense of $104 million during the fourth quarter of 2017. This amount, which is included in the Provision for Income Taxes in the Consolidated Statement of Operations, consists of two provisional components: (i) a $167 million expense, including $116 million of withholding and other taxes relating to the cost of the one-time mandatory tax on previously deferred earnings of certain non-U.S. subsidiaries that are owned either wholly or partially by a U.S. subsidiary of the Company, and (ii) a $63 million net benefit resulting from the remeasurement of Nielsen’s deferred tax balances including the impact of any associated valuation allowances in the U.S. based on the new lower corporate income tax rate.

Although the $104 million net expense represents what Nielsen believes is a reasonable estimate of the impact of the income tax effects of the TCJ Act on Nielsen’s Consolidated Financial Statements as of December 31, 2017, it should be considered provisional. In light of the complexity of the TCJ Act, Nielsen anticipates additional interpretive guidance from the U.S. Treasury.  In addition, once the Company finalizes certain tax positions when it files its 2017 U.S. tax return it will be able to conclude whether any further adjustments are required to its deferred tax balances in the U.S., as well as to the total liability associated with the one-time mandatory tax. Any adjustments to these provisional amounts will be reported as a component of the Provision for Income Taxes during the reporting period in which any such adjustments are determined, all of which will be reported no later than the fourth quarter of 2018.

 

The components of income before income taxes and equity in net income of affiliates, were:

 

The above amounts for UK and non-UK activities were determined based on the location of the taxing authorities.

The provision for income taxes attributable to the income before income taxes and equity in net income of affiliates consisted of:

 

The Company’s provision for income taxes for the years ended December 31, 2017, 2016 and 2015 was different from the amount computed by applying the statutory UK federal income tax rates to the underlying income before income taxes and equity in net income of affiliates as a result of the following:

 

 

The components of current and non-current deferred income tax assets/(liabilities) were:

 

 

Realization of deferred tax assets is based, in part, on Nielsen’s judgment and various factors including reversal of deferred tax liabilities, Nielsen’s ability to generate future taxable income in jurisdictions where such assets have arisen and potential tax planning strategies. Valuation allowances are recorded in order to reduce the deferred tax assets to the amount expected to be realized in the future.

At December 31, 2017 and 2016 the Company had net operating loss carryforwards of approximately $947 million and $788 million, respectively, which began to expire in 2018. In addition, the Company had tax credit carryforwards of approximately $72 million and $130 million at December 31, 2017 and 2016, respectively, which began to expire in 2018.

In certain jurisdictions, the Company has operating losses and other tax attributes that, due to the uncertainty of achieving sufficient profits to utilize these operating loss carryforwards and tax credit carryforwards, the Company currently believes it is more likely than not that a portion of these losses will not be realized. Therefore, the Company has a valuation allowance of approximately $104 million and $112 million at December 31, 2017 and 2016, respectively, related to net operating loss carryforwards, tax credit carryforwards and deferred tax assets related to other temporary differences. The Company also has a valuation allowance of $362 million related to its interest expense limitation carryforward due to the uncertainty created by the TCJ Act.

Other than as described above, the Company generally does not provide for taxes related to its undistributed earnings and the excess of the book value of its investment in non-U.S. subsidiaries over the corresponding tax basis (“basis differences”) because such earnings and basis differences totaling $3.4 billion would either not be taxable when remitted or are considered to be indefinitely reinvested.

At December 31, 2017 and 2016, the Company had gross uncertain tax positions of $452 million and $432 million, respectively. The Company has also accrued interest and penalties associated with these unrecognized tax benefits as of December 31, 2017 and 2016 of $53 million and $33 million, respectively. Estimated interest and penalties related to the underpayment of income taxes is classified as a component of benefit (provision) for income taxes in the Consolidated Statement of Operations. It is reasonably possible that a reduction in a range of $5 million to $18 million of uncertain tax positions may occur within the next twelve months as a result of projected resolutions of worldwide tax disputes and expirations of statute of limitations in various jurisdictions.

 

A reconciliation of the beginning and ending amount of gross uncertain tax positions is as follows:

 

If the balance of the Company’s uncertain tax positions is sustained by the taxing authorities in the Company’s favor, the reversal of the entire balance would reduce the Company’s effective tax rate in future periods.

The Company files numerous consolidated and separate income tax returns in the U.S. Federal jurisdiction and in many state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal income tax examinations for 2006 and prior periods. In addition, the Company has subsidiaries in various states, provinces and countries that are currently under audit for years ranging from 2003 through 2016.