Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s Consolidated Financial Statements include U.S. federal, state and local income taxes on the Company’s allocable share of the U.S. results of operations, as well as taxes payable to jurisdictions outside the U.S. In addition, certain of the Company’s entities are taxed as U.S. partnerships and are subject to the UBT in New York City. Therefore, the tax liability or benefit related to the partnership income or loss, except for UBT, rests with the partners (see Note 2—“Limited Partnership Interests in BGC Holdings and Newmark Holdings” for discussion of partnership interests), rather than the partnership entity.

The provision for income taxes consisted of the following (in thousands):

	Year Ended December 31,
	2023		2022		2021
Current:
U.S. federal	$	19,297	$	12,949	$	(7,267)
U.S. state and local	5,033		6,147		4,940
Foreign	54,787		34,506		36,699
UBT	373		(390)		588
	79,490		53,212		34,960
Deferred:
U.S. federal	(41,491)		(17,083)		(1,000)
U.S. state and local	(14,989)		(1,596)		(1,515)
Foreign	(5,914)		3,971		(12,098)
UBT	1,838		80		2,666
	(60,556)		(14,628)		(11,947)
Provision for income taxes	$	18,934	$	38,584	$	23,013

The Company had pre-tax income (loss) of $57.7 million, $97.5 million and $176.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company had pre-tax income (loss) from domestic operations of $(383.9) million, $(286.8) million and $(642.4) million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company had pre-tax income (loss) from foreign operations of $441.6 million, $384.3 million and $818.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Differences between the Company’s actual income tax expense and the amount calculated utilizing the U.S. federal statutory rates were as follows (in thousands):

	Year Ended December 31,
	2023		2022		2021
Tax expense at federal statutory rate	$	12,207	$	20,584	$	37,065
Non-controlling interest	1,982		2,366		2,440
Incremental impact of foreign taxes compared to federal tax rate	3,838		8,122		5,009
Other permanent differences	7,536		2,287		11,797
U.S. state and local taxes, net of U.S. federal benefit	(4,778)		(876)		2,737
New York City UBT	—		(1,071)		2,929
Other rate changes	(862)		153		(7,007)
Impact of Corporate Conversion	(12,446)		—		—
Nontaxable gain on insurance disposition	—		—		(65,231)
Uncertain tax positions	(797)		3,496		(6,936)
U.S. tax on foreign earnings, net of tax credits	12,388		4,808		31,299
Prior year adjustments	4,078		4,189		(714)
Valuation allowance	(4,190)		(4,670)		11,532
Other	(23)		(804)		(1,907)
Provision for income taxes	$	18,934	$	38,584	$	23,013

As of December 31, 2023, the Company’s intention is to permanently reinvest undistributed foreign pre-tax earnings in the Company’s foreign operations. While the one-time transition tax eliminated most of the income tax effects of repatriating the undistributed earnings, there could still be foreign and state and local tax effects on the distribution. Accordingly, no provision has been recorded on foreign and state and local taxes that would be applicable upon distribution of such earnings to the U.S. Further, determination of an estimate of deferred tax liability associated with the distribution of foreign earnings is not practicable. However, this policy will be further re-evaluated and assessed based on the Company’s overall business needs and requirements.

The Company has finalized its accounting policy with respect to taxes on Global Intangible Low-Taxed Income (GILTI) and has elected to treat taxes associated with the GILTI provision using the Period Cost Method and thus has not recorded deferred taxes for basis differences under this regime as of December 31, 2023.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those assets will not be realized.

Significant components of the Company’s deferred tax asset and liability consisted of the following (in thousands):

	Year Ended December 31,
	2023		2022
Deferred tax asset
Basis difference of investments	$	23,522	$	15,857
Deferred compensation	90,270		70,361
Excess interest expense	55,040		39,645
Other deferred and accrued expenses	17,625		10,693
Net operating loss and credit carry-forwards	43,426		45,592
Total deferred tax asset1	229,883		182,148
Valuation allowance	(27,813)		(31,362)
Deferred tax asset, net of valuation allowance	202,070		150,786
Deferred tax liability
Depreciation and amortization	10,618		19,675
Total deferred tax liability1	10,618		19,675
Net deferred tax asset	$	191,452	$	131,111

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1Before netting within tax jurisdictions.

The Company has deferred tax assets associated with net operating losses in U.S. federal, state and local, and non-U.S. jurisdictions of $1.1 million, $3.2 million and $28.4 million, respectively. These losses will begin to expire for Federal, state and local, and non-U.S. jurisdictions in 2038, 2025 and 2024, respectively. The Company has deferred tax assets associated with tax credits in the U.S. of $16.7 million, which will begin to expire in 2030. The Company’s deferred tax asset and liability are included in the Company’s Consolidated Statements of Financial Condition as components of “Other assets” and “Accounts payable, accrued and other liabilities,” respectively.

Pursuant to U.S. GAAP guidance, Accounting for Uncertainty in Income Taxes, the Company provides for uncertain tax positions as a component of income tax expense based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

A reconciliation of the beginning to the ending amounts of gross unrecognized tax benefits for the years ended December 31, 2023 and 2022 is as follows (in thousands):

Balance, December 31, 2021	$	4,394
Increases for prior year tax positions	3,159
Decreases for prior year tax positions	—
Increases for current year tax positions	—
Decreases related to settlements with taxing authorities	—
Decreases related to a lapse of applicable statute of limitations	—
Balance, December 31, 2022	$	7,553
Increases for prior year tax positions	—
Decreases for prior year tax positions	(884)
Increases for current year tax positions	—
Decreases related to settlements with taxing authorities	—
Decreases related to a lapse of applicable statute of limitations	—
Balance, December 31, 2023	$	6,669

As of December 31, 2023, the Company’s unrecognized tax benefits, excluding related interest and penalties, were $6.7 million, of which $6.7 million, if recognized, would affect the effective tax rate. The Company is currently open to examination by tax authorities in U.S. federal, state and local jurisdictions and certain non-U.S. jurisdictions for tax years beginning 2017, 2011 and 2013, respectively. The Company is currently under examination by tax authorities in the U.S. federal and certain state, local and foreign jurisdictions. The Company does not believe that the amounts of unrecognized tax benefits will materially change over the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits in “Provision (benefit) for income taxes” in the Company’s Consolidated Statements of Operations. As of December 31, 2023, the Company had accrued $3.4 million for income tax-related interest and penalties of which $0.6 million was accrued during 2023.