INCOME TAXES
The net loss before income tax expense (benefit) consists of the following: |
| | | | | | | | | | | |
| For the Year Ended December 31, |
(In thousands) | 2016 | | 2015 | | 2014 |
U.S. | $ | (73,208 | ) | | $ | (383,411 | ) | | $ | (858 | ) |
Foreign | 3,392 |
| | 19,064 |
| | (2,481 | ) |
Total | $ | (69,816 | ) | | $ | (364,347 | ) | | $ | (3,339 | ) |
Income tax provision consisted of the following: |
| | | | | | | | | | | |
(In thousands) | Current | | Deferred | | Total |
Year Ended December 31, 2016 | | | | |
|
|
U.S. federal | $ | — |
| | $ | — |
| | $ | — |
|
Foreign | 7,960 |
| | 722 |
| | 8,682 |
|
Total | $ | 7,960 |
| | $ | 722 |
| | $ | 8,682 |
|
| | | | | |
Year Ended December 31, 2015 | | | | | |
U.S. federal | $ | — |
| | $ | — |
| | $ | — |
|
Foreign | 2,425 |
| | 2,910 |
| | 5,335 |
|
Total | $ | 2,425 |
| | $ | 2,910 |
| | $ | 5,335 |
|
| | | | | |
Year Ended December 31, 2014 | | | | | |
U.S. federal | $ | — |
| | $ | — |
| | $ | — |
|
Foreign | 239 |
| | 1,461 |
| | 1,700 |
|
Total | $ | 239 |
| | $ | 1,461 |
| | $ | 1,700 |
|
Effective Tax Rate
Income tax expense (benefit) differed from the amounts computed by applying the statutory U.S. federal income tax rate of 35% to loss before income taxes. |
| | | | | | | | | |
| | Year ended December 31, |
| | 2016 | | 2015 | | 2014 |
Income tax benefit at U.S. federal statutory rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
Increase (reduction) in income taxes: | | | | | | |
Branch income | | (1.8 | )% | | (0.6 | )% | | 26.1 | % |
Foreign rate differential | | 7.0 | % | | 0.3 | % | | (9.8 | )% |
Impact of tax holiday | | (16.2 | )% | | (0.1 | )% | | 6.3 | % |
Non-deductible expenses | | (1.8 | )% | | (0.1 | )% | | (37.2 | )% |
Imputed interest | | (13.3 | )% | | (0.9 | )% | | — | % |
Change in valuation allowance | | 29.5 | % | | (23.7 | )% | | (62.6 | )% |
Foreign taxes | | — | % | | (0.1 | )% | | (11.4 | )% |
Non-Allocable Partnership Loss | | (40.3 | )% | | (11.2 | )% | | — | % |
Loss from holding companies not benefited | | (4.5 | )% | | — | % | | — | % |
Withholding taxes | | (3.6 | )% | | — | % | | — | % |
Hedge mark-to-market | | (1.8 | )% | | — | % | | — | % |
Other | | (0.6 | )% | | (0.1 | )% | | 2.7 | % |
Effective tax (expense) benefit rate | | (12.4 | )% |
| (1.5 | )% |
| (50.9 | )% |
The branch income line item represents pre-tax income or loss generated in foreign pass-through entities, inclusive of permanent differences, multiplied by the U.S. statutory rate. This line item reflects the double taxation of foreign income or loss which will occur as a result of such income or loss being subject to tax both in the foreign jurisdiction to which the entity relates as well as the U.S. The U.S. statutory rate, rather than the local foreign rate, is applied to this income or loss so that the impact of the rate differential between the U.S. statutory rate and the various foreign rates can be separately shown in the line item “Foreign rate differential”.
The foreign taxes line item represents the future U.S. tax implications associated with foreign tax expense or benefit generated in each foreign jurisdiction. To the extent a foreign jurisdiction generates tax expense, that expense is generally expected to result in U.S. tax deductions in the future. To the extent a foreign jurisdiction recognizes a tax benefit, that benefit is generally expected to result in an increase to U.S. taxable income in the future.
As of December 31, 2016, the Company owns 64.9% of Global LLC and consolidates the results of Global LLC through its controlling interest. The Company records SunEdison’s 35.1% ownership of Global LLC as a non-controlling interest in the financial statements. Global LLC is treated as a partnership for income tax purposes. As such, the Company records income tax on its 64.9% of Global LLC’s taxable income and SunEdison records income tax on its 35.1% share of taxable income generated by Global LLC.
For the year ended December 31, 2016, the overall effective tax rate was different than the statutory rate of 35.0% primarily due to change in valuation allowances in the Company's U.S. and foreign jurisdictions, imputed interest in the Netherlands, the impact of tax holidays as well as losses allocable to non-controlling interests. For the year ended December 31, 2016, the Company decreased its valuation allowance by $20.8 million, of which $20.6 million was recorded to continuing operations and $0.2 million was recorded to the balance sheet. In addition, the Company allocates taxes to its minority owner, of which $0.9 million was allocated for the year ended December 31, 2016.
Deferred Taxes
The tax effects of the major items recorded as deferred tax assets and liabilities are: |
| | | | | | | |
| As of December 31, |
(In thousands) | 2016 | | 2015 |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 129,404 |
| | $ | 99,724 |
|
Asset retirement obligations | — |
| | 685 |
|
Derivatives | 14,434 |
| | 16,464 |
|
Unrealized currency loss | — |
| | 822 |
|
Investment in Partnership | 180,054 |
| | 214,799 |
|
Other | 2,300 |
| | 2,134 |
|
Total deferred tax assets | 326,192 |
| | 334,628 |
|
Valuation allowance | (240,678 | ) | | (261,501 | ) |
Net deferred tax assets | 85,514 |
| | 73,127 |
|
| | | |
Deferred tax liabilities: | | | |
Power plants | (83,594 | ) | | (64,973 | ) |
Intangible assets | (20,042 | ) | | (18,320 | ) |
Capitalized Interest | — |
| | (1,011 | ) |
Unrealized currency gain | (13,139 | ) | | (17,463 | ) |
Total deferred tax liabilities | (116,775 | ) | | (101,767 | ) |
|
|
| |
|
|
Net deferred tax liabilities | $ | (31,261 | ) | | $ | (28,640 | ) |
The Company regularly reviews its deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including cumulative losses, projected future pre-tax and taxable income (losses), the expected timing of the reversals of existing temporary differences and the expected impact of tax planning strategies. The Company’s total deferred tax liabilities, net of deferred tax assets, as of December 31, 2016 and December 31, 2015 were $31.3 million and $28.6 million, respectively.
As of December 31, 2016, the Company's most significant asset for which deferred taxes are being provided is its basis in the Global LLC partnership interest. The underlying solar generation facilities are controlled under Global LLC, and thus deferred tax assets and liabilities at the Company's project portfolio companies are captured within the deferred tax asset for investment in partnership. As of December 31, 2016, the Company has gross net operating loss carryforwards of $150.5 million in the United States and $367.4 million in multiple foreign jurisdictions that will expire beginning in 2036 and 2016, respectively. The Company believes that it is more likely than not that it will not generate sufficient taxable income to realize the deferred tax assets associated with most of its net operating losses and tax credit carryforwards and has recorded a valuation allowance against most of its net deferred tax assets.
As of December 31, 2016, the Company has identified no uncertain tax positions under ASC 740-10.
At December 31, 2016, the Company's subsidiaries in the United States have net operating loss carryforwards for income tax purposes of $150.5 million, which are available to offset future taxable income, if any, over a twenty-year period. In the event the Company has experienced an ownership change within the meaning of Section 382 of the Internal Revenue Code (“IRC”), the Company’s ability to utilize any net operating losses may be limited. The Company's subsidiaries in Malaysia have net operating loss carryforwards for income tax purposes of $25.1 million, which are available to offset future taxable income, if any, over an indefinite period. The Company's subsidiaries in South Africa have net operating loss carryforwards for income tax purposes of $232.3 million, which are available to offset future taxable income, if any, over an indefinite period. The Company's subsidiaries in India have net operating loss carryforwards for income tax purposes of $97.6 million, which are available to offset future taxable income, if any, over an indefinite period to the extent of unabsorbed tax depreciation. Any other carryforwards in India are available for an eight-year period from the period in which they were generated. The Company's subsidiaries in Thailand have net operating loss carryforwards for income tax purposes of $0.2 million which are available to offset future taxable income, if any, over a five-year period. The Company's subsidiaries in China have net operating loss carryforwards for income tax purposes of $8.9 million, which are available to offset future taxable income, if any, over a five-year period. The Company's subsidiary in Uruguay has net operating loss carryforwards for income tax purposes of $0.1 million, which are available to offset future taxable income, if any, over a five-year period. The Company's subsidiaries in Singapore have net operating loss carryforwards for income tax purposes of $3.2 million, which are available to offset future taxable income, if any, over an indefinite period. The Company's subsidiaries in Hong Kong have net operating loss carryforwards for income tax purposes of $0.8 million, which are available to offset future taxable income, if any, over an indefinite period.
The Company's subsidiaries in India had pretax income of $1.5 million in 2016 and pretax income of $0.9 million in 2015, have a 100% rate reduction tax holiday, which expires 15 years from the date of commissioning of the solar power plant and is available for a 10-year period starting from the date on which the project entity starts claiming the holiday. For its project entities, the tax holiday detriment totaled $5.0 million, $0.8 million and zero in 2016, 2015 and 2014, respectively. The tax holiday periods are effective through 2025 or 2029, based on the applicable power plant's commission date.
The Company's subsidiaries in Malaysia had pretax loss of $0.6 million in 2016 and pretax income of $1.3 million in 2015, received tax incentives for all three power plants allowing for accelerated tax depreciation on qualified solar assets.
The Company's subsidiaries in Thailand had pretax income of $13.2 million in 2016 and pretax loss of $3.4 million in 2015, have a 100% rate reduction tax holiday for the first eight years, and a 50% rate reduction for the next five years. For its project companies, the tax holiday detriment/(benefit) totaled $(1.2) million, $(0.4) million and $0.1 million in 2016, 2015 and 2014, respectively. The tax holiday is effective through 2026 or 2028, based on the applicable power plant's commercial operation date.
The Company's subsidiaries in South Africa had pretax income of $4.1 million in 2016 and pretax income of $12.2 million in 2015, and received tax incentives allowing for accelerated tax depreciation on qualified solar assets.
The Company's subsidiaries in China had a pretax income of $3.9 million in 2016 and pretax loss of $1.4 million in 2015, and have a 100% rate reduction tax holiday for the first three years, and a 50% rate reduction for the next three years. For its project entities, the tax holiday detriment/(benefit) totaled $7.8 million, $(0.1) million and $(0.3) million in 2016, 2015 and 2014, respectively. The tax holiday is effective through 2018.
The Company's subsidiaries in Brazil had a pretax income of $31.9 million in 2016 and pretax income of $6.0 million in 2015. Brazil has elected the presumed profit method which taxes gross receipts rather than adjusted taxable income. Interest income continues to be taxed at the statutory tax rate of 34%.
The Company's subsidiary in Uruguay, which had a pretax income of $1.3 million in 2016, has a 15% rate reduction tax holiday for a thirteen-year period. For its project entities, the tax holiday detriment/(benefit) totaled $(0.2) million in 2016.