Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes is attributable to the following geographic locations for the years ended December 31, (in thousands):

	2022		2021		2020
Domestic	$	334,486	$	137,492	$	18,395
Foreign	494,883		471,460		497,830
Income before income taxes	$	829,369	$	608,952	$	516,225

The tax benefit (expenses) for income taxes consisted of the following components for the years ended December 31, (in thousands):

	2022		2021		2020
Current:
Federal	$	1,679	$	7,753	$	4,552
State and local	(892)		(156)		1,597
Foreign	(83,210)		(76,450)		(171,092)
Subtotal	(82,423)		(68,853)		(164,943)
Deferred:
Federal	(16,284)		11,060		16,553
State and local	(5,024)		(1,411)		704
Foreign	(21,061)		(50,020)		1,535
Subtotal	(42,369)		(40,371)		18,792
Income tax expense	$	(124,792)	$	(109,224)	$	(146,151)

State and foreign taxes not based on income are included in general and administrative expenses and the aggregate amounts were not significant for the years ended December 31, 2022, 2021 and 2020.

The fiscal 2022, 2021, and 2020 income tax benefit (expenses) differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pre-tax income as a result of the following for the years ended December 31 (in thousands):

	2022		2021		2020
Federal tax at statutory rate	$	(174,168)	$	(127,880)	$	(109,906)
State and local tax (expense) benefit	(5,916)		(1,513)		2,071
Deferred tax assets generated in current year not benefited	(39,196)		(19,703)		(12,852)
Foreign income tax rate differential	(12,379)		(18,918)		(16,364)
Non-deductible expenses	(5,995)		(10,579)		(4,427)
Stock-based compensation expense	(8,321)		(1,385)		(954)
Change in valuation allowance	(19,793)		(595)		390
Foreign financing activities	(5,519)		(4,805)		(11,743)
Uncertain tax positions reserve	45,317		50,059		(38,014)
Tax adjustments related to REIT	107,312		39,164		50,107
Change in deferred tax adjustments	(239)		(1,251)		(136)
Effect of tax rate change on deferred tax assets	(3,126)		(12,297)		—
Other, net	(2,769)		479		(4,323)
Total income tax expense	$	(124,792)	$	(109,224)	$	(146,151)

Of the unrecognized tax benefits being realized in the years ended December 31, 2022 and 2021, approximately $2.0 million and $32.0 million, respectively, are related to the uncertain tax position inherited from the

acquisition of Metronode in 2018. The uncertain tax position was covered by an indemnification agreement with the Seller. As such, the realization of the unrecognized tax benefit resulted in an impairment of the indemnification asset for the same amount, which has been included in Other Income (Expense) on the Consolidated Statements of Operations for the years ended December 31, 2022 and 2021.

Our accounting policy is to treat any tax on Global Intangible Low-Taxed Income ("GILTI") inclusions as a current period cost included in the tax expense in the year incurred. We believe the GILTI inclusion provision will result in no material financial statement impact provided we satisfy our REIT distribution requirement with respect to the GILTI inclusions.

As a result of our conversion to a REIT effective January 1, 2015, it is no longer our intent to indefinitely reinvest undistributed foreign earnings. However, no deferred tax liability has been recognized to account for this change because the expected recovery of the basis difference will not result in material U.S. taxes in the post-REIT conversion periods due to the fact that the majority of our foreign subsidiaries are either QRSs or owned directly by our REIT and QRSs, and the foreign withholding tax effect would be immaterial. We continue to assess the foreign withholding tax impact of our current policy and do not believe the distribution of our foreign earnings would trigger any significant foreign withholding taxes, as the majority of the foreign jurisdictions where we operate do not impose withholding taxes on dividend distributions to a corporate U.S. parent.

The types of temporary differences that give rise to significant portions of our deferred tax assets and liabilities are set out below as of December 31 (in thousands):

	2022		2021(1)
Deferred tax assets:
Stock-based compensation expense	$	9,002	$	9,057
Net unrealized losses	3,988		—
Operating lease liabilities	253,005		225,261
Capital lease liabilities	—		13,927
Deferred revenue	13,887		14,429
Goodwill	20,511		30,842
Loss carryforwards and tax credits	142,270		201,132
Others, net	32,543		7,257
Gross deferred tax assets	475,206		501,905
Valuation allowance	(166,594)		(100,746)
Total deferred tax assets, net	308,612		401,159
Deferred tax liabilities:
Net unrealized gains	—		(1,462)
Capital lease liabilities	(8,033)		—
Property, plant and equipment	(221,343)		(262,532)
Right-of-use assets	(256,837)		(233,199)
Deferred income	(28,314)		(33,052)
Intangible assets	(132,816)		(151,385)
Total deferred tax liabilities	(647,343)		(681,630)
Net deferred tax liabilities	$	(338,731)	$	(280,471)

(1) The prior year amounts presented in the table above have been reclassified to conform with the current year presentation.

The tax basis of REIT assets, excluding investments in TRSs, is greater than the amounts reported for such assets in the accompanying consolidated balance sheet by approximately $2.5 billion as of December 31, 2022.

Our accounting for deferred taxes involves weighing positive and negative evidence concerning the realizability of our deferred tax assets in each taxing jurisdiction. After considering evidence such as the nature, frequency and severity of current and cumulative financial reporting losses, the sources of future taxable income, taxable income in carryback years permitted by the tax laws and tax planning strategies, we concluded that valuation allowances were required in certain jurisdictions. The operations in most of the jurisdictions for which a valuation allowance has been established have a history of significant losses as of December 31, 2022. As such, we do not believe these operations have established a sustained history of profitability and that a valuation allowance is, therefore, necessary. We also provided a valuation allowance against certain gross deferred tax assets in certain taxing jurisdictions as these deferred tax assets are not expected to be realizable in the foreseeable future.

Changes in the valuation allowance for deferred tax assets for the years ended December 31, 2022, 2021 and 2020 are as follows (in thousands):

	2022		2021		2020
Beginning balance	$	100,746	$	82,344	$	57,812
Amounts from acquisitions	13,458		964		5,777
Amounts recognized into income	22,905		595		(390)
Current increase	36,513		19,539		15,044
Impact of foreign currency exchange	(7,028)		(2,696)		4,101
Ending balance	$	166,594	$	100,746	$	82,344

Our NOL carryforwards for federal, state and foreign tax purposes which expire, if not utilized, at various intervals from 2023, are outlined below (in thousands):

Expiration Date	Federal (1)		State (1)		Foreign (2) (3)		Total
2023	$	17,395	$	—	$	2,083	$	19,478
2024 to 2026	15,564		—		33,722		49,286
2027 to 2029	6,065		—		28,046		34,111
2030 to 2032	—		767		5,457		6,224
2033 to 2035	1,838		1,339		11,692		14,869
2036 to 2038	5,294		3,636		20,143		29,073
Thereafter	147,010		74,416		452,303		673,729
	$	193,166	$	80,158	$	553,446	$	826,770

(1)The total amount of NOL carryforwards that will not be available to offset our future taxable income after the dividends paid deduction due to Section 382 limitations was $36.7 million for federal and $22.7 million for state.

(2)In certain jurisdictions, the net operating loss carryforwards can only be used to offset a percentage of taxable income in a given year.

(3)If certain substantial changes in the entity's ownership occur or have determined to have occurred, there may be a limitation on the amount of the carryforwards that can be utilized.

As of December 31, 2022, we had tax credit carryforwards of $6.2 million, which expire, if not utilized, from 2023 to 2031. We also had capital losses of $7.2 million, which can be carried forward indefinitely.

The beginning and ending balances of our unrecognized tax benefits are reconciled below for the years ended December 31 (in thousands):

	2022		2021		2020
Beginning balance	$	148,300	$	207,759	$	173,726
Gross increases related to prior year tax positions	1,401		4,547		14,732
Gross decreases related to prior year tax positions	(43,575)		(58,356)		—
Gross increases related to current year tax positions	7,004		10,000		29,149
Decreases resulting from expiration of statute of limitation	(11,969)		(10,561)		(6,518)
Decreases resulting from settlements	(11,924)		(5,089)		(3,330)
Ending balance	$	89,237	$	148,300	$	207,759

We recognize interest and penalties related to unrecognized tax benefits within income tax expense in the consolidated statements of operations. We accrued $6.5 million, $13.6 million, and $21.3 million for interest and penalties as of December 31, 2022, 2021 and 2020, respectively.

The unrecognized tax benefits of $89.2 million as of December 31, 2022, if subsequently recognized, will affect our effective tax rate favorably at the time when such a benefit is recognized.

Due to various tax years open for examination and the ongoing tax audits and inquiries by the tax authorities in different jurisdictions, it is reasonably possible that the balance of unrecognized tax benefits could significantly increase or decrease over the next 12 months as we may be subject to either examination by tax authorities, tax audit settlements, or a lapse in statute of limitations. We are currently unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.

In general, our income tax returns for the years from 2019 through the current year remain open to examination by federal and state taxing authorities. In addition, our tax years of 2005 through current year remain open and subject to examination by local tax authorities in certain foreign jurisdictions in which we have major operations.