Entity information:
Income Taxes
Breakdown of Income Taxes
The Consolidated Statements of Income line item “Provision for income taxes” can be broken down as follows:
 
 
Year Ended December 31,
 
 
2015

2016

2017
 
 
(in thousands)
Current income tax
 
$
(25,265
)
 
$
(43,153
)
 
$
(44,920
)
France
 
(15,458
)

(20,204
)

(29,193
)
International
 
(9,807
)

(22,949
)

(15,727
)
Net change in deferred taxes
 
15,748

 
10,024

 
13,269

France
 
2,009


2,654


(1,080
)
International
 
13,739


7,370


14,349

Provision for income tax
 
$
(9,517
)
 
$
(33,129
)
 
$
(31,651
)


As mentioned in Note 1 (Principles and Accounting Methods), the French Research Tax Credit is not included in the line item “Provision for income taxes” but is deducted from “Research and development expenses” (see Note 17 - Allocation of Personnel Expenses) unlike the U.S. Research Tax Credit for an amount of $4.6 million for the year ended December 31, 2017. French business tax, CVAE, is included in the current tax balance for an amount of $3.0 million, $4.1 million and $5.5 million, for the years ended December 31, 2015, 2016 and 2017 respectively.

Income before taxes included income from France of $66.0 million, $79.4 million and $150.7 million for the periods ended December 31, 2015, 2016 and 2017 respectively and Income before taxes included income from International of $5.8 million, $41.1 million and $(22.4) million for the periods ended December 31, 2015, 2016 and 2017.

Reconciliation between the Effective and Nominal Tax Expense
The following table shows the reconciliation between the effective and nominal tax expense at the nominal standard French rate of 34.43% (excluding additional contributions):
 
 
Year Ended December 31,
 
 
2015

2016

2017
 
 
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
Income before taxes
 
$
71,793


$
120,458


$
128,310

Theoretical group tax-rates
 
34.43
%

34.43
%

34.43
%
Nominal tax expense
 
(24,718
)
 
(41,474
)
 
(44,177
)
 
 
 
 
 
 
 
Increase / decrease in tax expense arising from:
 
 
 
 
 
 
Research tax credit
 
1,352


1,701


6,829

Net effect of shared-based compensation (1)
 
2,048


(8,957
)

(605
)
Other permanent differences
 
(804
)

(3,518
)

(5,717
)
Non recognition of deferred tax assets related to tax losses and temporary differences (2)
 
(7,662
)

(7,738
)

(14,356
)
Utilization or recognition of previously unrecognized tax losses (3)
 
12,264


13,366


4,888

French CVAE included in income taxes
 
(3,052
)

(3,165
)

(2,867
)
Special tax deductions (4)
 
12,545


20,022


29,410

 Effect of different tax rates (5)
 
(1,046
)

(1,108
)

(6,667
)
Other differences
 
(444
)

(2,258
)

1,611

Effective tax expense
 
$
(9,517
)
 
$
(33,129
)
 
$
(31,651
)
 
 
 
 
 
 
 
Effective tax rate
 
13.3
%
 
27.5
%
 
24.7
%
Increases and decreases in tax expense are presented applying the theoretical Group tax rate to the concerned tax bases. The impact resulting from the differences between local tax rates and the Group theoretical rate is shown in the “effect of different tax rates.”
(1) 
While in most countries share-based compensation does not give rise to any tax effect either when granted or when exercised, the United States and the United Kingdom generally permit tax deductions in respect of share-based compensation. The tax deduction generated in the United States and United Kingdom in connection with the number of options exercised during the period was offset by the share-based compensation accounting expense exclusion.
(2)  
Deferred tax assets on which a valuation allowance has been recognized mainly relate to Criteo Ltd, Criteo Corp, Criteo Singapore Pte. Ltd and Criteo Advertising (Beijing) Co. Ltd tax losses.
(3) 
Recognition of previously unrecognized tax losses related to Criteo Corp for the 2015 and 2016 balances and Criteo do Brasil for the 2017 balance.
(4) 
Special tax deductions refer to the application of a reduced income tax rate on the majority of the technology royalties income invoiced by the Parent to its subsidiaries.
(5) 
Mainly related to difference in income tax rate between the Group theoretical rate and Criteo Corp including Hooklogic after the decrease of the U.S. federal income tax rate from 34% to 21% as a result of the 2017 Tax cut and Jobs Act.
Deferred Tax Assets and Liabilities
The following table shows the changes in the major sources of deferred tax assets and liabilities:
(in thousands)
 
Year ended December 31, 2015
 
Change recognized
in profit or loss
 
Change recognized
in OCI
 
Change in consolidation scope
 
Other
 
Currency translation adjustments
 
Year ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred tax assets:
 
 
 
 
 
 
 
 
 
 
 
 
 

Net operating loss carryforwards
 
$
28,423

 
$
(1,048
)
 
$
—

 
$
—

 
$
—

 
$
(912
)
 
$
26,463

Personnel-related accruals
 
7,302

 
257

 
—

 
—

 
(30
)
 
241

 
7,770

Other accruals
 
3,093

 
975

 
—

 
—

 
30

 
276

 
4,374

Projected benefit obligation
 
578

 
213

 
466

 
—

 
—

 
(50
)
 
1,207

Other
 
6,842

 
7,331

 
—

 
—

 
(482
)
 
(265
)
 
13,426

Deferred tax assets (gross)
 
46,238

 
7,728

 
466

 
—

 
(482
)
 
(710
)
 
53,240

Valuation allowance
 
(23,980
)
 
3,630

 
(16
)
 
—

 
—

 
545

 
(19,821
)
Deferred tax asset (net)
 
22,258

 
11,358

 
450

 
—

 
(482
)
 
(165
)
 
33,419

Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 

Intangible assets
 
(150
)
 
(6
)
 
(477
)
 
—

 
(33
)
 
35

 
(631
)
Other
 
(2,051
)
 
(1,328
)
 
—

 
—

 
515

 
20

 
(2,844
)
Deferred tax liabilities
 
(2,201
)
 
(1,334
)
 
(477
)
 
—

 
482

 
55

 
(3,475
)
Net deferred income tax balance
 
$
20,057

 
$
10,024

 
$
(27
)
 
$
—

 
$
—

 
$
(110
)
 
$
29,944

(in thousands)
 
Year ended December 31, 2016
 
Change recognized
in profit or loss
 
Change recognized
in OCI
 
Change in consolidation scope
 
Other
 
Currency translation adjustments
 
Year ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred tax assets:
 
 
 
 
 
 
 
 
 
 
 
 
 

Net operating loss carryforwards
 
$
26,463


$
3,404


$
—


$
6,294


$
246


$
865

 
$
37,272

Personnel-related accruals
 
7,770


(2,055
)

—


467


165


160

 
6,507

Other accruals
 
4,374


385


—


10


—


145

 
4,914

Projected benefit obligation
 
1,207


453


35


—


(110
)

189

 
1,774

Other
 
13,426


4,657


10,643


124


(165
)

702

 
29,387

Deferred tax assets (gross)
 
53,240

 
6,844

 
10,678

 
6,895

 
136

 
2,061

 
79,854

Valuation allowance
 
(19,821
)

(7,834
)

—


(5,653
)

(218
)

(1,541
)
 
(35,067
)
Deferred tax asset (net)
 
33,419

 
(990
)
 
10,678

 
1,242

 
(82
)
 
520

 
44,787

Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets
 
(631
)

11,176


—


(31,936
)

—


(271
)
 
(21,662
)
Other
 
(2,844
)

3,083


—


(796
)

82


74

 
(401
)
Total deferred tax liabilities
 
(3,475
)
 
14,259

 
—

 
(32,732
)
 
82

 
(197
)
 
(22,063
)
Net deferred income tax balance
 
$
29,944

 
$
13,269

 
$
10,678

 
$
(31,490
)
 
$
—

 
$
323

 
$
22,724


Amounts recognized in our Consolidated Financial Statements are calculated at the level of each subsidiary within our Consolidated Financial Statements. As at December 31, 2015, 2016 and 2017, the valuation allowance against net deferred income taxes amounted to $24.0 million, $19.9 million and $35.1 million, which related mainly to Criteo Corp. including Hooklogic Inc. ($12.4 million, $0.9 million and $14.7 million, respectively), Criteo do Brasil ($3.9 million, $3.6 million and nil, respectively), Criteo Ltd including Hooklogic Ltd ($4.7 million, $4.7 million and $6.3 million, respectively), Criteo China ($1.4 million, $3.7 million and $6.5 million, respectively) and Criteo France ($0.6 million, $3.0 million and $2.9 million, respectively).
The main changes that occurred in 2017 mainly relate to the deferred tax liability on Hooklogic intangible assets recognized in the context of the definitive purchase price allocation ("Change in consolidation scope"), the limited impact of the U.S. federal income tax decrease from 34% to 21% on the deferred tax assets and liabilities positions ("Change in profit or loss") as well as a deferred tax asset recognition through retained earnings based on the application of ASU 2016-09 Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting ("Change recognized in OCI").
In accordance with ASC 740 - Income taxes, no uncertain tax positions were identified as of December 31, 2017.
The Company has various net operating loss carryforwards in the U.S. and China for $6.6 million and $6.4 million, respectively, which begin to expire in 2030 and 2019, respectively. The Company has net operating loss carryforwards in the United Kingdom of $6.0 million which have no expiration date.
Current tax assets
The balance mainly related to the U.S. research tax credit receivable.
Ongoing tax inspection in the United States
On September 27, 2017, we received a draft notice of proposed adjustment "NOPA" from the Internal Revenue Service ("IRS") audit of Criteo Corp. for the year ended December 31, 2014, confirmed by the definitive notice dated February 8, 2018. If the IRS prevails in its position, it could result in an additional federal tax liability of an estimated maximum aggregate amount of approximately $15.0 million, excluding related fees, interest and penalties. We strongly disagree with the IRS's position as asserted in the notice of proposed adjustment and intend to contest it.