Income Taxes

Income Before Income Tax Provision

The following table presents the domestic and foreign components of income (loss) before income tax provision:



	Year Ended December 31,
	2018		2017		2016
	(in millions)
Domestic	$	636	$	556	$	(153	)
Foreign	428		316		286
Income before income tax provision	$	1,064	$	872	$	133

Income Tax Provision

The income tax provision consists of the following amounts:



	Year Ended December 31,
	2018		2017			2016
Current income tax provision:	(in millions)
Federal	$	103	$	51		$	37
State	56		17			21
Foreign	146		68			106
Total current income tax provision	305		136			164
Deferred income tax provision (benefit):
Federal	185		(16		)	(98		)
State	116		24			(35		)
Foreign	—		(1		)	(4		)
Total deferred income provision (benefit)	301		7			(137		)
Total income tax provision	$	606	$	143		$	27

We have determined that undistributed earnings of certain non-U.S. subsidiaries will be reinvested for an indefinite period of time. We have both the intent and ability to indefinitely reinvest these earnings. As of December 31, 2018, the cumulative amount of undistributed earnings in these subsidiaries is $387 million. Given our intent to reinvest these earnings for an indefinite period of time, we have not accrued a deferred tax liability on these earnings. A determination of an unrecognized deferred tax liability related to these earnings is not practicable.

A reconciliation of the income tax provision, based on the U.S. federal statutory rate, to our actual income tax provision for the years ended December 31, 2018, 2017 and 2016 is as follows:



	Year Ended December 31,
	2018		2017		2016
Federal income tax provision at the statutory rate	21.0	%	35.0	%	35.0	%
State income tax provision, net of federal effect	3.7	%	2.6	%	(6.7	)%
Change in deferred taxes due to change in law	27.0	%	(9.9	)%	(1.2	)%
Excess tax benefits related to employee share-based compensation	(0.7	)%	(4.0	)%	—	%
Non-U.S. subsidiary earnings	0.1	%	(6.0	)%	(7.3	)%
Tax credits and deductions	(0.2	)%	(1.0	)%	(5.1	)%
Change in unrecognized tax benefits	4.7	%	(0.8	)%	4.2	%
Other, net	1.4	%	0.5	%	1.4	%
Actual income tax provision	57.0	%	16.4	%	20.3	%

The majority of the increase in our effective tax rate in 2018 compared to 2017 and the decrease in our effective tax rate in 2017 compared to 2016 was the result of the final and provisional impacts from The Tax Cuts and Jobs Act which was enacted on December 22, 2017. See “Tax Cuts and Jobs Act” below for further discussion of the impacts of this legislation on our financial statements. Also impacting the increase in the effective tax rate in 2018 compared to 2017 was the reversal of certain Swedish tax benefits recorded in prior periods and the tax expense associated with the sale of the Public Relations Solutions and Digital Media Services businesses.

We recorded income tax benefits of $9 million in 2018, $40 million in 2017 and $41 million in 2016, primarily related to share-based compensation. In 2018 and 2017, the benefit was included in income tax expense and in 2016, the benefit was recorded as additional paid-in-capital in the Consolidated Balance Sheets due to the adoption of accounting guidance on January 1, 2017. This guidance requires all income tax effects of share-based awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled on a prospective basis, as opposed to stockholders’ equity.

We are subject to examination by federal, state and local, and foreign tax authorities. We regularly assess the likelihood of additional assessments by each jurisdiction and have established tax reserves that we believe are adequate in relation to the potential for additional assessments. We believe that the resolution of tax matters will not have a material effect on our financial condition but may be material to our operating results for a particular period and the effective tax rate for that period.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including the history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Deferred Income Taxes

The temporary differences, which give rise to our deferred tax assets and (liabilities), consisted of the following:



	December 31,
	2018			2017
Deferred tax assets:	(in millions)
Deferred revenues	$	19		$	25
U.S. federal net operating loss	—			1
Foreign net operating loss	23			30
State net operating loss	4			4
Compensation and benefits	33			42
Foreign currency translation	—			292
Tax credits	—			7
Federal benefit of uncertain tax positions	17			—
Other	25			20
Gross deferred tax assets	121			421
Less: valuation allowance	(23		)	(30		)
Total deferred tax assets, net of valuation allowance	$	98		$	391

Deferred tax liabilities:
Amortization of software development costs and depreciation	$	(41	)	$	(47	)
Amortization of acquired intangible assets	(498		)	(510		)
Investments	(34		)	(26		)
Other	(22		)	(19		)
Gross deferred tax liabilities	(595		)	(602		)
Net deferred tax liabilities	$	(497	)	$	(211	)
Reported as:
Non-current deferred tax assets⁽¹⁾	4			14
Deferred tax liabilities, net	(501		)	(225		)
Net deferred tax liabilities	$	(497	)	$	(211	)

____________


⁽¹⁾	Included in other non-current assets in the Consolidated Balance Sheets.

A valuation allowance has been established with regards to the tax benefits associated with certain net operating losses, or NOLs, as it is more likely than not that these benefits will not be realized in the foreseeable future.

As of December 31, 2018, the expiration dates for the NOLs are as follows:



Jurisdiction	Amount		Expiration Date
	(in millions)
Foreign NOL	$	3	2019-2025
Foreign NOL	20		No expiration date
State NOL	4		2025-2036

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Year Ended December 31,
	2018			2017			2016
	(in millions)
Beginning balance	$	45		$	48		$	40
Additions as a result of tax positions taken in prior periods	28			2			9
Additions as a result of tax positions taken in the current period	6			5			3
Reductions related to settlements with taxing authorities	(23		)	—			(4		)
Reductions as a result of lapses of the applicable statute of limitations	(4		)	(10		)	—
Ending balance	$	52		$	45		$	48

As of December 31, 2018, we had $43 million of unrecognized tax benefits, $45 million as of December 31, 2017 and $48 million as of December 31, 2016 which, if recognized in the future, would affect our effective tax rate. Nasdaq believes it is reasonably possible that our unrecognized tax benefits could decrease within the next 12 months by as much as $12 million, principally as a result of potential resolutions or settlements of prior years’ tax items.

We recognize interest and/or penalties related to income tax matters in the provision for income taxes in our Consolidated Statements of Income and were $2 million for the year ended December 31, 2018, $1 million for 2017 and $2 million for 2016. Accrued interest and penalties, net of tax effect were $10 million as of December 31, 2018 and $9 million as of December 31, 2017.

Tax Audits

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for the years 2008 through 2014 are currently under examination by the Internal Revenue Services and we are subject to examination by the Internal Revenue Service for years 2015 through 2017. Several state tax returns are currently under examination by the respective tax authorities for the years 2007 through 2016 and we are subject to examination for the year 2017. Non-U.S. tax returns are subject to examination by the respective tax authorities for the years 2009 through 2017. Although the results of such examinations may have an impact on our unrecognized tax benefits, we do not anticipate that such impact will be material to our consolidated financial position or results of operations. In addition, we do not anticipate that the amount of unrecognized tax benefits as of December 31, 2018 will decrease in the next twelve months as we do not expect to settle any material tax audits.

The Swedish Tax Agency has disallowed certain interest expense deductions for the years 2013 - 2016. We appealed to the Lower Administrative Court for the years 2013 - 2015. In the first quarter of 2018, the Lower Administrative Court denied our appeal. We have appealed to the Administrative Court of Appeal. Through March 31, 2018, we had recorded tax benefits of $56 million associated with this matter. We continue to pay all assessments from the Swedish Tax Agency while this matter is pending and have paid $40 million through December 31, 2018. In the second quarter of 2018, the Administrative Court of Appeal decided similar cases against other taxpayers. Although we continue to assert the validity of these interest expense deductions, the decisions of the court lead us to conclude that we can no longer assert that we are more than likely to be successful in our appeal. As such, in 2018, we recorded tax expense of $41 million, or $0.24 per diluted share, which is net of any related U.S. tax benefits and reflects the impact of foreign currency translation. We expect to record future quarterly net tax expense of $1 million related to this matter.

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act contained several key provisions, including a reduction of the U.S. corporate income tax rate from 35% to 21%. It also imposed a transition tax on unremitted aggregate accumulated earnings of non-U.S. subsidiaries, which did not impact us and the act also created a new requirement to provide U.S. tax on foreign earnings, global intangible low-taxed income, or GILTI, which was immaterial for 2018. To the extent that we incur future expense under the GILTI provisions, we will record the expense as a component of income tax expense as a current-period expense when incurred. We were required to remeasure all of our U.S. deferred tax assets and liabilities as of December 22, 2017 and record the impact of such remeasurement in our 2017 financial statements. The net effect of applying the provisions of the act on our 2017 Consolidated Statement of Income was a non-cash provisional tax benefit of $89 million, substantially all of which reflects the estimated impact associated with the remeasurement of our net U.S. deferred tax liability at the lower U.S. federal corporate income tax rate.

SAB 118 provided guidance which allowed us to record provisional amounts during a measurement period of up to one year from the enactment date to finalize the recording of any related tax impacts. During the fourth quarter of 2018, we completed our accounting for the tax effects of the act, finalizing our analysis of the act and subsequent guidance issued by the U.S. Internal Revenue Service. As a result, we recorded a $290 million non-cash tax charge, reducing deferred tax assets relating to foreign currency translation.

Topic 220

On January 1, 2018, we adopted Topic 220. See “Income Statement - Reporting Comprehensive Income,” of “Recent Accounting Pronouncements,” of Note 2, “Summary of Significant Accounting Policies,” for further discussion of this standard. As a result of the adoption of this standard, we recorded a reclassification of $417 million related to the Tax Cuts and Jobs Act from accumulated other comprehensive loss to retained earnings within stockholders’ equity in the Consolidated Balance Sheets.