mpany also has subsidiaries in the United Kingdom, TPRUK and Third Point Re UK, which are subject to applicable taxes in that jurisdiction.
The Company is subject to withholding taxes on income sourced in the United States and in other countries, subject to each countries’ specific tax regulations. Income subject to withholding taxes includes, but is not limited to, dividends, capital gains and interest on certain investments. The Company has recorded uncertain tax positions related to investment transactions in certain foreign jurisdictions. As of December 31, 2017, the Company has accrued $1.9 million (December 31, 2016 - $1.6 million) for uncertain tax positions.
For the years ended December 31, 2017, 2016 and 2015, the Company recorded income tax expense (benefit), as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| ($ in thousands) |
Income tax expense (benefit) related to U.S. and U.K. subsidiaries | $ | 9,248 |
| | $ | (1,232 | ) | | $ | (6,633 | ) |
Change in uncertain tax positions | 155 |
| | 147 |
| | (1,100 | ) |
Withholding taxes on certain investment transactions | 2,573 |
| | 6,678 |
| | 4,828 |
|
| $ | 11,976 |
| | $ | 5,593 |
| | $ | (2,905 | ) |
The following is a summary of the Company’s income (loss) before income tax expense (benefit) by jurisdiction for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| ($ in thousands) |
Bermuda | $ | 266,497 |
| | $ | 38,243 |
| | $ | (71,416 | ) |
United States | 27,172 |
| | (3,687 | ) | | (18,981 | ) |
United Kingdom | 78 |
| | (87 | ) | | 53 |
|
Income (loss) before income tax expense (benefit) | $ | 293,747 |
| | $ | 34,469 |
| | $ | (90,344 | ) |
The Company’s expected income tax provision computed on pre-tax income at the weighted average tax rate has been calculated as the sum of the pre-tax income in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. Statutory tax rates of 0.0%, 35.0% and 19.25% have been used for Bermuda, the United States and the United Kingdom, respectively. As of December 31, 2017, the Company has income tax returns open for examination in the United States for the tax years 2015 and 2016.
The following table presents a reconciliation of expected income taxes to income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| ($ in thousands) |
Bermuda (expected tax expense at 0%) | $ | — |
| | $ | — |
| | $ | — |
|
Foreign taxes at local expected rates: | | | | | |
United States | 9,510 |
| | (1,290 | ) | | (6,644 | ) |
United Kingdom | 15 |
| | (17 | ) | | 11 |
|
Withholding taxes on certain investment transactions | 2,573 |
| | 6,678 |
| | 4,828 |
|
Change in uncertain tax positions | 155 |
| | 147 |
| | (1,100 | ) |
Non-deductible expenses and other | (277 | ) | | 75 |
| | — |
|
Income tax expense (benefit) | $ | 11,976 |
| | $ | 5,593 |
| | $ | (2,905 | ) |
The following table presents the Company’s current and deferred incomes taxes for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| ($ in thousands) |
Current tax expense | $ | 2,824 |
| | $ | 6,825 |
| | $ | 3,728 |
|
Deferred tax expense (benefit) | 9,152 |
| | (1,232 | ) | | (6,633 | ) |
Income tax expense (benefit) | $ | 11,976 |
| | $ | 5,593 |
| | $ | (2,905 | ) |
The following table presents the tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities as of December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| ($ in thousands) |
Deferred tax assets: | | | | | |
Discounting of loss and loss adjustment expense reserves | $ | 330 |
| | $ | 451 |
| | $ | 119 |
|
Unearned premiums | 1,634 |
| | 2,486 |
| | 2,329 |
|
Temporary differences in recognition of expenses | 138 |
| | 1,134 |
| | 573 |
|
Net operating and capital loss carryforwards
| 7,048 |
| | 13,326 |
| | 7,839 |
|
Total deferred tax assets | 9,150 |
| | 17,397 |
| | 10,860 |
|
| | | | | |
Deferred tax liabilities: | | | | | |
Deferred acquisition costs | 7,798 |
| | 4,079 |
| | 3,515 |
|
Unrealized gains on investments | 2,435 |
| | 5,438 |
| | 712 |
|
Total deferred tax liabilities | 10,233 |
| | 9,517 |
| | 4,227 |
|
Net deferred tax asset (liability) | $ | (1,083 | ) | | $ | 7,880 |
| | $ | 6,633 |
|
The deferred tax assets and liabilities as of December 31, 2017 were primarily related to U.S. income tax. To evaluate the recoverability of the deferred tax assets, the Company considers the timing of the reversal of deferred income and expense items as well as the likelihood that the Company will generate sufficient taxable income to realize future tax benefits. The Company believes that it is more likely than not that it will generate sufficient taxable income and realize the future tax benefits in order to recover the deferred assets and, accordingly, no valuation allowance was recorded as of December 31, 2017 and 2016. As of December 31, 2017, deferred tax assets include $26.1 million net operating loss related to the Company’s U.S. subsidiaries that can be carried forward for twenty years and part of which will begin to expire in 2035.