Income taxes

12 Months Ended

Dec. 31, 2021

Income taxes

Income taxes

9.     Income taxes

The expense for the year can be reconciled to income before income taxes as follows:

Year ended December 31,	2021			2020			2019
Earnings before income tax	$	205,232		$	235,888		$	190,763
Statutory federal and provincial tax rate in British Columbia, Canada		27.00	%		27.00	%		27.00	%
Expected income tax expense	$	55,413		$	63,690		$	51,506
Non-deductible expenses		7,854			4,732			3,705
Adjustment to prior year provision to statutory tax returns		(1,826)			(865)			4
Changes in the valuation of deferred tax assets		(355)			(2,027)			(550)
Different tax rates of subsidiaries operating in foreign jurisdictions		(6,257)			(12,016)			(11,818)
U.S. tax reform impacts		3,584			17,105			6,949
Change in enacted tax rates		121			391			(1,016)
Derecognition of deferred tax asset from purchase price adjustment		947			—			—
Unrecognized tax benefits		(474)			817			(2,347)
Benefits of deductible stock options vested and exercised		(2,121)			(4,070)			(1,780)
Deductions for tax purposes in excess of accounting expenses		(2,709)			(1,831)			(287)
Other		(799)			(396)			(2,743)
	$	53,378		$	65,530		$	41,623

The income tax expense (recovery) consists of:

Year ended December 31,	2021		2020		2019
Canadian:
Current tax expense	$	21,664	$	27,766	$	19,752
Deferred tax expense		5,639		3,970		3,346
Foreign:
Current tax expense before application of operating loss carryforwards		30,093		30,280		24,815
Tax benefit of operating loss carryforwards		(2,238)		(1,668)		(11,770)
Total current tax expense		27,855		28,612		13,045
Deferred tax expense before adjustment
to opening valuation allowance		(1,781)		6,127		5,727
Adjustment to opening valuation allowance		1		(945)		(247)
Total deferred tax (recovery) expense		(1,780)		5,182		5,480
	$	53,378	$	65,530	$	41,623

The foreign provision for income taxes is based on foreign pre-tax earnings of $100,161,000, $117,212,000, and $108,714,000, in 2021, 2020, and 2019 respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings that we intend to repatriate in the foreseeable future. As of December 31, 2021, income taxes have not been provided on a cumulative total of $685,650,000 of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $13,700,000. Earnings retained by subsidiaries and equity-accounted investments amount to approximately $702,650,000 (2020: $645,828,000; 2019: $500,430,000). The Company accrues withholding and other taxes that would become payable on the distribution of earnings only to the extent that either the Company does not control the relevant entity or it is expected that these earnings will be remitted in the foreseeable future.

9.     Income taxes (continued)

The tax effects of temporary differences that give rise to significant deferred tax assets and deferred tax liabilities were as follows:

As at December 31,	2021		2020
Deferred tax assets:
Working capital	$	16,622	$	13,185
Property, plant and equipment		6,098		6,467
Share-based compensation		5,661		5,606
Tax losses and tax credit carryforwards		31,001		25,943
Lease liabilities		28,769		29,393
Other		7,336		8,848
		95,487		89,442
Deferred tax liabilities:
Property, plant and equipment	$	(18,305)	$	(16,838)
Goodwill		(7,382)		(2,255)
Intangible assets		(66,320)		(52,218)
Right-of-use assets		(25,606)		(26,206)
Long-term debt		(3,605)		(3,571)
Other		(5,932)		(7,165)
		(127,150)		(108,253)
Net deferred tax liabilities	$	(31,663)	$	(18,811)
Valuation allowance		(13,162)		(12,995)
	$	(44,825)	$	(31,806)

At December 31, 2021, the Company had non-capital loss carryforwards that are available to reduce taxable income in the future years. These non-capital loss carryforwards expire as follows:

2022	$	3,330
2023		4,304
2024		189
2025		122
2026 and thereafter		73,009
	$	80,954

The Company has capital loss carryforwards of approximately $82,211,000 (2020: $43,476,000) available to reduce future capital gains and interest deduction carryforwards of $2,454,000 (2020: $3,374,000), both of which carryforward indefinitely.

Tax losses are denominated in the currency of the countries in which the respective subsidiaries are located and operate. Fluctuations in currency exchange rates could reduce the U.S. dollar equivalent value of these tax loss and tax credit carry forwards in future years.

In assessing the realizability of our deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible and the loss carry forwards or tax credits can be utilized. Management considers projected future taxable income and tax planning strategies in making our assessment.

9.     Income taxes (continued)

Uncertain tax positions

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of the benefit to recognize in the financial statements. The tax position is measured as the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies unrecognized tax benefits that are not expected to result in the payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets.

At December 31, 2021, the Company had gross unrecognized tax benefits of $18,859,000 (2020: $20,298,000). Of this total, $8,570,000 (2020: $9,248,000) represents the net amount of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.

Reconciliation of gross unrecognized tax benefits:

As at December 31,	2021		2020
Unrecognized tax benefits, beginning of year	$	20,298	$	20,232
Increases - tax positions taken in prior period		452		1,487
Increases - tax positions taken in current period		1,077		558
Settlement and lapse of statute of limitations		(3,303)		(2,591)
Currency translation adjustment		335		612
Unrecognized tax benefits, end of year	$	18,859	$	20,298

Interest expense and penalties related to unrecognized tax benefits are recorded within the provision for income tax expense on the consolidated income statement. At December 31, 2021, the Company had accrued $3,896,000 (2020: $4,003,000) for interest and penalties.

In the normal course of business, the Company is subject to audit by the Canadian federal and provincial taxing authorities, by the U.S. federal and various state taxing authorities and by the taxing authorities in various foreign jurisdictions. Tax years ranging from 2014 to 2021 remain subject to examination in Canada, the United States, Luxembourg, and the Netherlands.

The Canada Revenue Agency (“CRA”) is currently conducting an audit of the Company’s 2014, 2015, 2017, and 2018 taxation years. Management believes that the Company is in full compliance with Canadian tax laws. However, the CRA could challenge the manner in which the Company has filed its income tax returns and reported its income. In the event that the CRA challenges the manner in which the Company has filed its tax returns and reported its income, the Company will have the option to appeal any such decision. If the Company is not successful, however, the CRA audit could potentially result in additional income taxes, penalties and interest, which could have a material adverse effect on the Company.