Income taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

Income tax expense (benefit) for the years ended December 31, 2021, 2022 and 2023 is allocated as follows:

	Year ended December 31,
	2021		2022		2023
Income from continuing operations	$	113,681	$	111,832	$	(29,031)
Other comprehensive income:
Cash flow hedges	5,265		(4,947)		1,397
Retirement benefits	3,859		690		705

The components of income before income tax expense (benefit) from continuing operations are as follows:

	Year ended December 31,
	2021		2022		2023
Domestic (U.S.)	$	126,107	$	44,903	$	216,718
Foreign (other than U.S.)	357,022		420,333		385,506
Income before income tax expense (benefit)	$	483,129	$	465,236	$	602,224

Income tax expense (benefit) attributable to income from continuing operations consists of:

	Year ended December 31,
	2021		2022		2023
Current tax expense:
Domestic (U.S. federal)	$	34,538	$	17,525	$	20,222
Domestic (U.S. state)	5,605		4,582		7,558
Foreign (other than U.S.)	82,801		118,876		101,121
	$	122,944	$	140,983	$	128,901
Deferred tax expense (benefit):
Domestic (U.S. federal) (Note a)	$	(6,039)	$	(10,481)	$	(122,166)
Domestic (U.S. state) (Note b)	232		(1,910)		(32,112)
Foreign (other than U.S.)	(3,456)		(16,760)		(3,654)
	$	(9,263)	$	(29,151)	$	(157,932)
Total income tax expense (benefit)	$	113,681	$	111,832	$	(29,031)

(a)For the year ended December 31, 2023, the amount includes a U.S. federal tax benefit on the transfer of intellectual property rights amounting to $138,390.

(b)For the year ended December 31, 2023, the amount includes a state tax benefit on the transfer of intellectual property rights amounting to $33,800.

23. Income taxes (Continued)

Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the U.S. federal statutory income tax rate of 21% to income before income tax expense (benefit) as a result of the following:

	Year ended December 31,
	2021			2022			2023
Income before income tax expense (benefit)	$	483,129		$	465,236		$	602,224
Statutory income tax rates	21		%	21		%	21		%
Computed expected income tax expense	101,457			97,700			126,467
Increase (decrease) in income taxes resulting from:
Foreign tax rate differential	10,747			13,853			16,455
Tax benefit from tax holiday	(3,159)			(797)			(3,877)
True-up of prior years tax liability	7,590			2,096			343
Interest income on income tax refund	(7,780)			(2,168)			(173)
Non-deductible expenses	1,755			4,826			2,932
Impact of change in tax rates (Note c)	1,740			(116)			(36,099)
Change in valuation allowance (Note d)	6,244			10,752			(121,358)
Unrecognized tax benefits	(327)			1,236			(5,563)
Employment related tax incentive	(3,930)			(1,093)			(3,366)
Internal transfer of intellectual property rights (Note d)	—			—			(7,835)
State income taxes (Note e)	5,837			2,672			9,245
Excess tax benefit on share-based compensation	(7,773)			(10,418)			(5,274)
Others (Note f)	1,280			(6,711)			(928)
Reported income tax expense (benefit)	$	113,681		$	111,832		$	(29,031)

(c)For the year ended December 31, 2023, the amount includes a benefit of $35,771 resulting from a new income tax enacted in Bermuda on December 27, 2023, the impact of which has been fully offset by a valuation allowance.

(d)For the year ended December 31, 2023, the Company recorded an income tax benefit of $169,945 in connection with an intra-entity transfer of certain intellectual property rights from certain non-U.S. subsidiaries to certain wholly-owned US subsidiaries in an effort to better align with the Company’s business operations, which is reflected in the rows titled “change in valuation allowance” and “internal transfer of intellectual property rights” in the above reconciliation table.

(e)For the year ended December 31, 2023, the amount does not include a state tax benefit on the transfer of intellectual property rights amounting to $33,800.

(f)During the year ended December 31, 2022, the Company recorded a tax benefit on the outside basis difference on the stock of a subsidiary amounting to $6,881.

23. Income taxes (Continued)

The effect of the tax holiday on both basic and diluted earnings per share was $0.02, $0.00 and $0.02, respectively, for the years ended December 31, 2021, 2022 and 2023.

The components of the Company’s deferred tax balances as of December 31, 2022 and 2023 are as follows:

	As of December 31,
	2022		2023
Deferred tax assets
Net operating loss carryforwards	$	49,810	$	86,556
Accrued expenses and other liabilities	72,588		77,516
Allowance for credit losses	8,441		5,772
Property, plant and equipment, net	7,474		8,934
Lease liabilities	51,913		45,295
Share-based compensation	32,777		33,490
Intangible assets, net	179,815		193,073
Retirement benefits	8,629		6,375
Contract liabilities	7,452		10,498
Tax credit carryforwards	17,199		22,449
Others	21,902		13,593
Total deferred tax assets	$	458,000	$	503,551
Less: Valuation allowance	(222,655)		(101,438)
Total deferred tax assets, net of valuation allowance	$	235,345	$	402,113
Deferred tax liabilities
Intangible assets, net	$	128	$	4
Property, plant and equipment, net	1,290		1,120
Right-of use assets	40,946		37,248
Retirement benefits	4,175		2,648
Investments in foreign subsidiaries not indefinitely reinvested	1,663		9,177
Derivative instruments	2,344		1,318
Goodwill	43,173		52,603
Others	10,319		10,780
Total deferred tax liabilities	$	104,038	$	114,898
Net of deferred tax assets and liabilities	$	131,307	$	287,215

	As of December 31,
Classified as	2022		2023
Deferred tax assets non-current	$	135,483	$	298,921
Deferred tax liabilities non-current	4,176		11,706
	$	131,307	$	287,215

23. Income taxes (Continued)

The change in the Company’s total valuation allowance for deferred tax assets as of December 31, 2021, 2022 and 2023 is as follows: 

	Year ended December 31,
	2021		2022		2023
Opening valuation allowance	$	206,011	$	212,192	$	222,655
Reduction during the year through continuing operations	(1,206)		(214)		(162,138)
Addition during the year through continuing operations	7,387		10,677		40,921
Closing valuation allowance	$	212,192	$	222,655	$	101,438

During the year ended December 31, 2023 the Company completed an intra-entity transfer of certain intellectual property rights from certain non-US subsidiaries to certain wholly-owned US subsidiaries in an effort to better align with the Company's business operations. As a result of this transfer, the Company received a step-up in tax basis of the transferred intellectual property assets to their current fair market value under applicable tax law. The determination of fair value involves judgments with respect to future revenue growth, operating margins and discount rates. The step-up in basis will be amortizable against future taxable income and, accordingly, the Company recognized a one-time tax benefit of $169,945. The Company expects to realize the deferred tax asset recorded as a result of the intellectual property transfer and will periodically assess such realizability. The tax-deductible amortization related to the transferred intellectual property rights will be recognized over a 15-year period.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences are deductible. In order to fully realize a deferred tax asset, the Company must generate future taxable income prior to the expiration of the deferred tax asset under applicable law.

Management considers the scheduled reversal of deferred tax liabilities, carryback availability and projected taxable income in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods during which the Company’s deferred tax assets are deductible, management believes that it is more likely than not that the Company will realize the benefits of its deductible temporary differences and carry forwards, net of the existing valuation allowances as of December 31, 2023. The amount of the Company’s deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

For the years ended December 31, 2021, 2022 and 2023, the Company recognized net excess tax benefits on share-based compensation of $7,773, $10,418 and $5,274, respectively, in income tax expense attributable to continuing operations.

As of December 31, 2023, the Company’s deferred tax assets related to net operating loss carryforwards of $426,761 amounted to $73,218 (excluding state and local operating loss carryforwards). Federal net operating losses of subsidiaries in Bermuda, Brazil, Germany, the United Kingdom, Israel, Hong Kong, the United States and Luxembourg (for 2016 and prior years) amounted to $331,451 and can be carried forward for an indefinite period.

23. Income taxes (Continued)

The Company’s remaining federal operating loss carryforwards expire as set forth in the table below:

	Europe		Others
Year ending December 31,
2024	$	—	$	1,785
2025	232		1,757
2026	1,073		—
2027	229		—
2028	5		423
2029	—		59
2032	—		196
2034	18,820		—
2035	7,357		—
2036	63,374		—
	$	91,090	$	4,220

In the table above, “Europe” includes federal net operating losses of subsidiaries in Slovakia, Latvia and Luxembourg, while “Others” includes net operating losses of subsidiaries in Argentina, Japan and the Philippines.

As of December 31, 2023, the Company had additional deferred tax assets of $13,338 for state and local tax loss carryforwards of $194,666, of which $154,336 will expire in various years from 2024 through 2042. The remaining state and local net operating losses can be carried forward for an indefinite period.

As of December 31, 2023, the Company had a total United States foreign tax credit carryforward of $22,449 which will expire as set forth in the table below:

Year ending December 31,	Amount
2027	$	5,044
2028	3,304
2029	1,833
2030	832
2031	5,302
2033	6,134
	$	22,449

23. Income taxes (Continued)

Undistributed earnings of the Company’s foreign (non-Bermuda) subsidiaries for which a deferred tax liability has not been recognized due to being indefinitely reinvested amounted to approximately $1,073,210 as of December 31, 2023. The Company plans to indefinitely reinvest the subsidiaries’ undistributed earnings, except for those earnings for which a deferred tax liability has already been accrued or which can be repatriated in a tax-free manner. Accordingly, with limited exceptions, the Company does not accrue any income, distribution or withholding taxes that would arise if such earnings were repatriated. Due to the Company’s changing corporate structure, the various methods that are available to repatriate earnings and uncertainty relative to the applicable taxes at the time of repatriation, it is not practicable to determine the amount of tax that would be imposed upon repatriation. If undistributed earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company will accrue the applicable amount of taxes associated with such earnings at that time.

As of December 31, 2023, $581,396 of the Company’s $583,670 in cash and cash equivalents was held by the Company’s foreign (non-Bermuda) subsidiaries. $207,953 of this cash is held by foreign subsidiaries for which the Company expects to incur and has accrued a deferred tax liability on the repatriation of $92,252 of retained earnings. $277,742 of the Company’s cash and cash equivalents is held by foreign subsidiaries in jurisdictions where no tax is expected to be imposed upon repatriation. The remaining $95,701 in cash and cash equivalents held by foreign subsidiaries is being indefinitely reinvested.

The Company reports its gain/loss on derivatives designated as cash flow hedges, actuarial gain/loss on retirement benefits and currency translation adjustment, net of income taxes to the extent applicable, in OCI.

The following table summarizes activities related to our unrecognized tax benefits from January 1 to December 31 for each of 2021, 2022 and 2023:

	2021		2022		2023
Opening Balance at January 1	$	34,300	$	25,651	$	25,430
Increase related to prior year tax positions, including recorded in acquisition accounting	2,992		2,869		1,385
Decrease related to prior year tax positions due to lapse of applicable statute of limitation	(455)		(1,313)		(4,658)
Increase related to current year tax positions	1,385		1,426		677
Decrease related to settlements with taxing authorities	(11,170)		(4)		(1,144)
Decrease related to prior year tax positions for other reasons	(455)		(1,802)		(2,405)
Effect of exchange rate changes	(946)		(1,397)		(49)
Closing Balance at December 31	$	25,651	$	25,430	$	19,236

As of December 31, 2022 and 2023, the Company had unrecognized tax benefits amounting to $25,430 and $19,236, respectively, which, if recognized, would affect the Company's effective tax rate.

As of December 31, 2022 and 2023, the Company had accrued $2,871 and $3,312, respectively, in interest and $374 and $499, respectively, for penalties relating to income taxes.

During the years ended December 31, 2021, 2022 and 2023, the Company recognized $(13,851), $(2,583) and $220, respectively, in interest expense (income) related to income taxes.

For all tax years that remain open to examinations by U.S. federal and various state, local, and other U.S. taxing authorities, the Company estimates that it is reasonably possible that the total amount of its unrecognized tax benefits for existing tax positions will vary. However, the Company does not expect significant changes within the next twelve months other than adjustments depending on the progress of tax matters or examinations with various taxing authorities, which are difficult to predict.

With certain immaterial exceptions, the Company is no longer subject to U.S. federal, state and local or other U.S. income tax examinations by taxing authorities for years prior to 2018. The Company’s subsidiaries in India and China are open to examination by relevant taxing authorities for tax years beginning on or after April 1, 2016 and January 1, 2014, respectively. The Company regularly reviews the likelihood of additional tax assessments and adjusts its unrecognized tax benefits as additional information or events require.