INCOME TAXES

Income/(Loss) Before Provision for Income Taxes

Income/(loss) before provision for income taxes based on geographic location is disclosed in the table below:



	For the Years Ended December 31,
	2018		2017			2016
Income/(loss) before provision for income taxes:
United States	$	44,527	$	(6,595	)	$	(9,300	)
Foreign	205,246		180,900			135,766
Total	$	249,773	$	174,305		$	126,466

Provision for Income Taxes

The provision for income taxes consists of the following:



	For the Years Ended December 31,
	2018			2017			2016
Current
Federal	$	10,814		$	65,571		$	13,324
State	4,123			(204		)	(63		)
Foreign	42,580			23,617			17,243
Deferred
Federal	(37,785		)	7,235			(3,581		)
State	(3,548		)	(90		)	312
Foreign	(6,667		)	5,416			(35		)
Total	$	9,517		$	101,545		$	27,200

The U.S. Tax Act significantly changed U.S. corporate income tax laws including a reduction of the U.S. corporate income tax rate from 35.0% to 21.0% effective January 1, 2018 and the creation of a territorial tax system with a one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. In addition, the U.S. Tax Act created new taxes on certain foreign-sourced earnings and certain related party payments, which are referred to as GILTI and the base erosion and anti-abuse tax (“BEAT”), respectively.

Due to the timing of the enactment and the complexity involved in applying the provisions of the U.S. Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of December 31, 2017. During the year ended December 31, 2018, the Company completed its analysis of the impact of the U.S. Tax Act and recorded the following adjustments to the recorded provisional amounts:

•

The one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax requires the Company to pay U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8.0% on the remaining earnings. During the year ended December 31, 2017, the Company recorded a provisional income tax expense and corresponding income taxes payable of $64,321 to be paid over the next 8 years associated with the one-time transition tax. During the year ended December 31, 2018, the Company completed its assessment and refined its estimate reducing the provisional charge by $4,935. The total charge for the one-time transition tax now totals $59,386.

•

In 2017, the Company provisionally reduced its net deferred tax assets by $10,311 reflecting the impact of the change in the U.S. statutory tax rate from 35.0% to 21.0% in the periods in which the net deferred tax assets are expected to be realized as a result of the U.S. Tax Act. In 2018, the Company completed its analysis, and consequently recorded an additional charge of $926 to further reduce its net deferred tax assets for a total charge of $11,237.

In 2017, the Company reassessed its accumulated foreign earnings in light of the U.S. Tax Act and determined $97,000 of its accumulated earnings in Belarus were no longer indefinitely reinvested. As a result, the Company recorded a charge of $4,850 in the provision for income taxes during the year ended December 31, 2017 for the withholding tax payable to Belarus when the earnings are distributed. In 2018, the Company remitted this full amount of accumulated earnings as dividends and also remitted as dividends certain earnings of its foreign subsidiaries in Canada, Cyprus, Ireland and Russia and additional earnings in Belarus. Based on proposed tax regulations issued by the U.S. Treasury Department during 2018, it was determined that an offsetting U.S. foreign tax credit could be claimed for the withholding tax paid to Belarus resulting in a net $4,850 income tax benefit recognized during the year ended December 31, 2018.

As of December 31, 2018, the Company has determined that all accumulated undistributed foreign earnings of $700,327 are expected to be indefinitely reinvested. Due to the enactment of the U.S. Tax Act and the one-time transition tax on accumulated foreign subsidiary earnings, these accumulated foreign earnings are no longer expected to be subject to U.S. federal income tax if repatriated but could be subject to state and foreign income and withholding taxes.

Effective Tax Rate Reconciliation

The reconciliation of the provision for income taxes at the federal statutory income tax rate to our effective income tax rate is as follows:



	For the Years Ended December 31,
	2018			2017			2016
Provision for income taxes at federal statutory rate	$	52,452		$	61,007		$	44,263
Increase/(decrease) in taxes resulting from:
Impact from U.S. Tax Act	(4,009		)	74,632			—
Entity classification election deferred tax asset impact	(25,962		)	—			—
GILTI and BEAT U.S. taxes	1,526			—			—
Excess tax benefits relating to stock-based compensation	(17,370		)	(9,307		)	—
Subsidiary withholding tax liability and related foreign tax credit	(4,850		)	4,850			—
Foreign tax expense and tax rate differential	(88		)	(39,997		)	(33,477		)
Effect of permanent differences	2,724			3,205			5,042
State taxes, net of federal benefit	3,452			(116		)	1,192
Change in valuation allowance	151			783			—
Stock-based compensation expense	652			6,908			9,535
Other	839			(420		)	645
Provision for income taxes	$	9,517		$	101,545		$	27,200

The Company’s worldwide effective tax rate for years ended December 31, 2018, 2017 and 2016 was 3.8%, 58.3% and 21.5%, respectively. The provision for income taxes in the year ended December 31, 2018 was favorably impacted by the recognition of $25,962 of net deferred tax assets resulting from the Company’s decision to change the tax status and to classify most of its foreign subsidiaries as disregarded for U.S. income tax purposes. This change subjects the income of the disregarded foreign subsidiaries to U.S. income taxation, resulting in a reduced foreign tax rate differential benefit in 2018 as compared to 2017 and 2016. In addition, following the adoption of ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting on January 1, 2017, the Company recorded excess tax benefits upon vesting or exercise of stock-based awards of $17,370 and $9,307 during the years ended December 31, 2018 and 2017, respectively.

In Belarus, member technology companies of High-Technologies Park, including our subsidiary, have a full exemption from Belarus income tax through January 2049. However, beginning February 1, 2018, the earnings of the Company’s Belarus local subsidiary are subject to U. S. income taxation due to the Company’s decision to change the tax status of the subsidiary. Consequently, there was less income tax benefit from the Belarus tax exemption for the year ended December 31, 2018 compared to previous years. The aggregate dollar benefits derived from this tax holiday approximated $1,352, $15,503 and $13,605 for the years ended December 31, 2018, 2017 and 2016, respectively. The benefit the tax holiday had on diluted net income per share approximated $0.02, $0.28 and $0.26 for the years ended December 31, 2018, 2017 and 2016, respectively.

Deferred Income Taxes

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:



	As of December 31, 2018			As of December 31, 2017
Deferred tax assets:
Property and equipment	$	4,531		$	170
Intangible assets	1,262			1,456
Accrued expenses	32,067			4,392
Net operating loss carryforward	4,983			5,069
Deferred revenue	5,802			1,280
Stock-based compensation	27,558			16,197
Foreign currency exchange	5,772			—
Other assets	782			1,415
Deferred tax assets	$	82,757		$	29,979
Less: valuation allowance	(3,189		)	(924		)
Total deferred tax assets	$	79,568		$	29,055

Deferred tax liabilities:
Property and equipment	$	1,480		$	1,868
Intangible assets	5,582			3,077
Accrued revenue and expenses	1,540			1,352
U.S. taxation of foreign subsidiaries	3,000			—
Subsidiary withholding tax liability	—			4,850
Stock-based compensation	—			1,498
Other liabilities	933			239
Total deferred tax liabilities	$	12,535		$	12,884
Net deferred tax assets	$	67,033		$	16,171

As of December 31, 2018 and 2017, the Company classified $2,950 and $8,803, respectively, of deferred tax liabilities as Other noncurrent liabilities in the consolidated balance sheets.

Included in the stock-based compensation expense deferred tax asset at December 31, 2018 and 2017 is $7,561 and $8,512, respectively, that is related to acquisitions and is amortized for tax purposes over a 10 to 15-year period.

As of December 31, 2018, the Company’s domestic and foreign net operating loss (“NOL”) carryforwards for income tax purposes were approximately $4,183 and $22,808, respectively. If not utilized, the domestic NOL carryforwards will begin to expire in 2021. The foreign NOL carryforwards include $7,031 from jurisdictions with no expiration date, with the remainder expiring as follows: $2,309 in 2019, $404 in 2020, $5,098 in 2021, $5,678 in 2022, $1,501 in 2023, and $787 beyond 2023. The valuation allowance maintained by the Company as of December 31, 2018 relates primarily to net operating loss carryforwards of $18,123 in certain foreign jurisdictions that it believes are not likely to be realized.

Unrecognized Tax Benefits

As of December 31, 2018 and 2017, unrecognized tax benefits of $1,432 and $699, respectively, are included in Taxes payable, noncurrent within the consolidated balance sheets. These amounts are net of available foreign tax credit benefits and represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. There were no significant new tax positions that resulted in unrecognized tax benefits or reversal of prior year tax positions during the years ended December 31, 2018, 2017 and 2016. There were no tax positions for which it was reasonably possible that unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company files income tax returns in the United States and in various state, local and foreign jurisdictions. The Company’s significant tax jurisdictions are the United States, Russia, Germany, Ukraine, the United Kingdom, Hungary, Switzerland, Netherlands, Poland and India. The tax years subsequent to 2014 remain open to examination by the United States Internal Revenue Service and generally, the tax years subsequent to 2014 remain open to examination by various state and local taxing authorities and various foreign taxing authorities.