16.

Income Taxes

Components of Loss before Income Taxes

Components of earnings (loss) before income taxes for the years ended December 31, were as follows (in thousands):


	2013		2012		2011
Domestic	$	(404,910)	$	(65,566)	$	(303,695)
International		741,172		(37,251)		30,527

Earnings (loss) before income taxes	$	336,262	$	(102,817)	$	(273,168)

Summary of Current and Deferred Income Taxes

Components of the provision for income taxes for the years ended December 31, were as follows (in thousands):


	2013		2012		2011
Current income tax expense (benefit):
United States Federal	$	20,009	$	(27,897)	$	(9,392)
International		99,478		46,294		30,010
State and local		8,501		7,383		4,177

Total current tax expense		127,988		25,780		24,795

Deferred income tax expense (benefit):
United States Federal		(1,133)		152		(1,333)
International		(18,934)		(22,119)		(18,470)

Total deferred tax benefit		(20,067)		(21,967)		(19,803)

Total income tax expense, included in continuing and discontinued operations	$	107,921	$	3,813	$	4,992

Current Income Taxes

Current income tax expense is generally a function of the level of income recognized by our taxable REIT subsidiaries (“TRS”), state income taxes, taxes incurred in foreign jurisdictions and interest and penalties associated with our uncertain tax positions. The increase in current income tax expense during 2013 is primarily due to the contribution of properties to our unconsolidated co-investment ventures that were held in certain foreign jurisdictions and United States TRSs. Current income tax expense resulting from the contribution of properties was partially offset by the utilization of net operating losses and section 163(j) interest limitation generated in prior years that had been previously recognized as deferred income tax assets in certain of our TRSs operating in the United States.

For the years ended December 31, 2013, 2012 and 2011, we recognized a net benefit for uncertain tax positions of $1.8 million, $28.5 million and $9.0 million, respectively. The benefit that was recognized in all years relates to the reversal of certain expenses due to the expiration of the statute of limitations and settlements with the taxing authorities.

During the years ended December 31, 2013, 2012 and 2011, cash paid for income taxes, net of refunds, was $99.5 million, $38.4 million and $41.2 million, respectively.

Deferred Income Taxes

Deferred income tax is generally a function of the period’s temporary differences (principally basis differences between tax and financial reporting for real estate assets and equity investments) and generation of tax net operating losses that may be realized in future periods depending on sufficient taxable income.

For federal income tax purposes, certain acquisitions have been treated as tax-free transactions resulting in a carry-over basis in assets and liabilities. For financial reporting purposes and in accordance with purchase accounting, we record all of the acquired assets and liabilities at the estimated fair values at the date of acquisition. For our taxable subsidiaries, including international jurisdictions, we recognize the deferred income tax liabilities that represent the tax effect of the difference between the tax basis carried over and the fair value of the tangible and intangible assets at the date of acquisition. If taxable income is generated in these subsidiaries, we recognize a deferred income tax benefit in earnings as a result of the reversal of the deferred income tax liability previously recorded at the acquisition date and we record current income tax expense representing the entire current income tax liability. Any increases or decreases to the deferred income tax liability recorded in connection with these acquisitions, related to tax uncertainties acquired, are reflected in earnings.

Deferred income tax assets and liabilities as of December 31, were as follows (in thousands):


	2013		2012
Gross deferred income tax assets:
Net operating loss carryforwards (1)	$	391,764	$	611,027
Basis difference - real estate properties		133,767		172,336
Basis difference - equity investments		9,238		13,163
Basis difference - intangibles		8,113		17,408
Alternative minimum tax credit carryforward		1,387		1,387
Foreign tax credit carryforward		1,963		1,963
Section 163(j) interest limitation		33,224		53,542
Capital loss carryforward		32,054		30,395
Other - temporary differences		16,774		16,746

Total gross deferred income tax assets		628,284		917,967
Valuation allowance		(583,675)		(859,305)

Gross deferred income tax assets, net of valuation allowance		44,609		58,662

Gross deferred income tax liabilities:
Basis difference - real estate properties		167,074		436,961
Built-in-gains - real estate properties		5,409		6,402
Basis difference - equity investments		877		958
Built-in-gains - equity investments		21,707		22,053
Basis difference- intangibles		8,823		10,591
Other - temporary differences		5,269		5,123

Total gross deferred income tax liabilities		209,159		482,088

Net deferred income tax liabilities	$	164,550	$	423,426

(1)	At December 31, 2013, we had net operating loss (“NOL”) carryforwards as follows (in millions):


	U.S.		Europe		Mexico		Japan		Other
Gross NOL carryforward	$	69.5	$	692.5	$	442.3	$	118.2	$	61.6

Tax-effected NOL carryforward		26.1		195.6		132.7		22.7		14.7
Valuation allowance		(26.1)		(175.0)		(127.5)		(22.7)		(14.5)

Net deferred tax asset-NOL carryforward	$	-	$	20.6	$	5.2	$	-	$	0.2

Expiration periods		2027-2032		2014-indefinite		2014-2023		2014-2022		2014-indefinite

The decrease in net deferred tax liabilities is due to the transfer of deferred tax balances on real estate properties that were contributed to our unconsolidated co-investment ventures, principally the initial contribution of 195 properties to PELP in the first quarter of 2013.

In addition, we utilized net operating losses and section 163(j) interest limitation of $28.8 million which was generated in prior years in certain TRSs operating in the United States to offset current income tax expense resulting from the contribution of properties to our unconsolidated co-investment ventures. There was a full valuation allowance recorded against these deferred tax assets as of December 31, 2012, as the transaction was not deemed probable under the accounting rules at that time.

We record a valuation allowance against deferred tax assets in certain jurisdictions when we cannot sustain a conclusion that it is more likely than not that we can realize the deferred tax assets and NOL carryforwards during the periods in which these temporary differences become deductible. The deferred tax asset valuation allowance is adequate to reduce the total deferred tax asset to an amount that we estimate will “more-likely-than-not” be realized.

Liability for Uncertain Tax Positions

During the years ended December 31, 2013, 2012 and 2011, we believe that we have complied with the real estate investment trust requirements of the Internal Revenue Code. The statute of limitations for our tax returns is generally three years. As such, our tax returns that remain subject to examination would be primarily from 2010 and thereafter. Our major tax jurisdictions outside the United States are Brazil, Canada, China, France, Germany, Japan, Luxembourg, Mexico, Netherlands, Poland, Singapore, Spain, and the United Kingdom.

The liability for uncertain tax positions principally consisted of estimated federal and state income tax liabilities and included accrued interest and penalties of $0.9 million and $0.8 million at December 31, 2013 and 2012, respectively. A reconciliation of the liability for uncertain tax positions was as follows (in thousands):


	2013		2012
Balance at January 1,	$	7,943	$	36,464
Additions for tax positions taken during the current year		-		-
Additions for tax positions taken during a prior year		405		407
Reductions for tax positions taken during a prior year		-		(124)
Settlements with taxing authorities		(7,030)		-
Reductions due to lapse of applicable statute of limitations		-		(28,804)

Balance at December 31,	$	1,318	$	7,943