Provision For Income Taxes

9 Months Ended

Sep. 30, 2023

Provision For Income Taxes

Provision For Income Taxes

NOTE 12—PROVISION FOR INCOME TAXES

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Effective income tax rate		31.6	%		9.3	%		12.0	%		(185.2)	%

Benefit from income taxes for the three and nine months ended September 30, 2023 totaled $(17.7) million and $(59.5) million, respectively, resulting in an effective tax rate of 31.6% and 12.0% respectively. Provision for income taxes for the three and nine months ended September 30, 2022 totaled $(12.1) million and $41.4 million, respectively, resulting in an effective tax rate of 9.3% and (185.2)%, respectively.

The most significant drivers of the increase in the effective income tax rate for the three and nine months ended September 30, 2023 compared to the prior year was the change in the Company’s forecasted earnings, where the overall decrease in profitability is expected to be generated primarily in lower rate jurisdictions, and a reduction in losses not anticipated to provide a tax benefit.

The effective tax rate for the nine months ended September 30, 2023 was impacted by a $349.0 million charge related to goodwill impairment, as described within Note 9 of the condensed consolidated financial statements, for which the Company recorded a tax benefit of $63.5 million.

Impacting the effective tax rate for the nine months ended September 30, 2022 was the revaluation of the Company’s net deferred tax assets in Switzerland, which were originally established as part of the Swiss cantonal tax reform measures enacted in 2019. This revaluation resulted in a one-time deferred tax expense of $15.3 million recorded in the second quarter of 2022. This expense was partially offset by the release of a valuation allowance of $8.5 million during the second quarter of 2022, as a result of improvements in actual and projected future results in one of the Company’s subsidiaries in Luxembourg. Additionally, the effective income tax rate for the nine months ended September 30, 2022 was impacted by a $35.6 million charge related to the European Commission request for information, as described within Note 13 in the condensed consolidated financial statements, for which the Company estimates no tax benefit.

In determining the need for a valuation allowance, the Company weighs both positive and negative evidence in the various jurisdictions in which it operates to determine whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. Based on cumulative earnings in one of the Company’s Switzerland subsidiaries during the prior three years, as well as other positive evidence, the Company believes it is more likely than

not that the net deferred tax assets in the Company’s Switzerland subsidiary will be realized as of September 30, 2023. However, given the Company’s prior year losses and current year losses, the Company will continue to evaluate positive and negative evidence over the next 12 months, that could result in sufficient objective negative evidence for the Company to reach a conclusion that an increased or full valuation allowance against the net deferred tax assets in the Switzerland subsidiary will be needed. An increased or full valuation allowance would result in the material reduction of deferred tax assets and a corresponding increase to income tax expense in the period the valuation allowance is recorded. The exact timing and amount of the valuation allowance are subject to change on the basis of the losses sustained in Switzerland in the current year and forecasted future earnings, as well as other evidence. The Company’s Switzerland Subsidiary has $40.4 million of deferred tax assets as of September 30, 2023, net of its current valuation allowance.