Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesThe Tax Cuts and Jobs Act was enacted in December 2017 and included a number of changes to previous U.S. tax laws that impacted Nasdaq, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. In accordance with Staff Accounting Bulletin No.118, 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.

Income Before Income Tax Provision

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

	Year Ended December 31,
	2020		2019		2018
	(in millions)
Domestic	$	898	$	691	$	636
Foreign	314		328		428
Income before income tax provision	$	1,212	$	1,019	$	1,064

Income Tax Provision

The income tax provision consists of the following amounts:

	Year Ended December 31,
	2020		2019		2018
	(in millions)
Current income taxes provision:
Federal	$	114	$	120	$	103
State	50		40		56
Foreign	74		50		146
Total current income taxes provision	238		210		305
Deferred income taxes provision (benefit):
Federal	37		27		185
State	6		7		116
Foreign	(2)		1		—
Total deferred income taxes provision	41		35		301
Total income tax provision	$	279	$	245	$	606

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, 2020, the cumulative amount of undistributed earnings in these subsidiaries is $280 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, 2020, 2019 and 2018 is as follows:

	Year Ended December 31,
	2020		2019		2018
Federal income tax provision at the statutory rate	21.0	%	21.0	%	21.0	%
State income tax provision, net of federal effect	4.2	%	4.1	%	3.7	%
Change in deferred taxes due to U.S. tax law changes	—	%	—	%	27.0	%
Excess tax benefits related to employee share-based compensation	(0.6)	%	(0.5)	%	(0.7)	%
Non-U.S. subsidiary earnings	0.5	%	1.0	%	0.4	%
Tax credits and deductions	(0.2)	%	(0.2)	%	(0.2)	%
Change in unrecognized tax benefits	(0.6)	%	(0.1)	%	4.7	%
Other, net	(1.3)	%	(1.3)	%	1.1	%
Actual income tax provision	23.0	%	24.0	%	57.0	%

The majority of the decrease in our effective tax rate in 2020 compared to 2019 was the result of favorable audit settlements and remeasurement of our deferred inventory, which is included in “Other, net” in the table above. The decrease in our effective tax rate in 2019 compared to 2018 was primarily due to the remeasurement of our U.S. deferred tax inventory in 2018 from the Tax Cuts and Jobs Act. The higher effective tax rate in 2018 was also impacted by the reversal of certain Swedish tax benefits recorded in prior years.

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 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,
	2020		2019
	(in millions)
Deferred tax assets:
Deferred revenues	$	8	$	10
U.S. federal net operating loss	3		—
Foreign net operating loss	4		4
State net operating loss	2		2
Compensation and benefits	28		32
Federal benefit of uncertain tax positions	5		6
Operating lease liabilities	97		101
Unrealized losses	54		—
Other	39		20
Gross deferred tax assets	240		175
Less: valuation allowance	(3)		—
Total deferred tax assets, net of valuation allowance	$	237	$	175
Deferred tax liabilities:
Amortization of software development costs and depreciation	$	(55)	$	(42)
Amortization of acquired intangible assets	(499)		(495)
Investments	(77)		(58)
Unrealized gains	—		(31)
Operating lease assets	(86)		(89)
Other	(19)		(11)
Gross deferred tax liabilities	$	(736)	$	(726)
Net deferred tax liabilities	$	(499)	$	(551)
Reported as:
Non-current deferred tax assets(1)	$	3	$	1
Deferred tax liabilities, net	(502)		(552)
Net deferred tax liabilities	$	(499)	$	(551)

____________

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

As of December 31, 2020, we recognized a valuation allowance of $3 million due to recurring operating losses in a foreign jurisdiction. As of December 31, 2019, we did not recognize a valuation allowance against Nasdaq’s deferred tax assets. Based on all available positive and negative evidence, we believe the sources of future taxable income are sufficient to realize the remainder of Nasdaq's deferred tax asset inventory.

As of December 31, 2020, Nasdaq has deferred tax assets associated with NOLs in U.S. state and local and non-U.S. jurisdictions with the following expiration dates:

Jurisdiction	Amount		Expiration Date
	(in millions)
Foreign NOL	$	4	No expiration
Federal NOL	3		No expiration
State NOL	2		2025-2036

Unrecognized Tax Benefits

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

	Year Ended December 31,
	2020		2019		2018
	(in millions)
Beginning balance	$	48	$	52	$	45
Additions as a result of tax positions taken in prior periods	9		10		28
Additions as a result of tax positions taken in the current period	2		1		6
Reductions related to settlements with taxing authorities	(6)		(10)		(23)
Reductions as a result of lapses of the applicable statute of limitations	(11)		(5)		(4)
Ending balance	$	42	$	48	$	52

We had $42 million of unrecognized tax benefits as of December 31, 2020, $48 million as of December 31, 2019, and $52 million as of December 31, 2018 which, if recognized in the future, would affect our effective tax rate. Nasdaq does not believe that our unrecognized tax benefits will materially change over the next 12 months.

We recognize interest and/or penalties related to income tax matters in the provision for income taxes in our Consolidated Statements of Income, which was a $2 million tax benefit for the year ended December 31, 2020 and a tax provision of $3 million for the year ended December 31, 2019 and $2 million for 2018. Accrued interest and penalties, net of tax effect were $8 million as of December 31, 2020 and $12 million as of December 31, 2019.

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. We are subject to examination by federal, state and local, and foreign tax authorities. Our Federal income tax return for the years 2017 through 2019 is subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for the years 2007 through 2018. Non-U.S. tax returns are subject to examination by the respective tax authorities for the years 2014 through 2019. 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. Examination outcomes and the timing of examination settlements are subject to uncertainty. 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. We do not expect to settle any material tax audits in the next twelve months.

The Swedish Tax Agency disallowed certain interest expense deductions for the years 2013 - 2018. We appealed this decision to the Lower Administrative Court which denied our appeal in 2018. During 2018, we further appealed to the Administrative Court of Appeal, however, we were no longer able to assert that we were more than likely to be successful and, as such, we recorded a related tax expense. In November 2019, the Administrative Court of Appeal upheld the disallowance of these deductions. As we have not recognized any benefits related to the disallowed deductions and we have paid the related assessments from the Swedish Tax Agency, the decision of the Administrative Court of Appeal does not impact our consolidated financial statements.