Income Taxes |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes Breakdown of Income Taxes Our tax provision for interim periods is determined using an estimate of our annual effective tax rate (“AETR”), adjusted for discrete items arising in that quarter. To calculate our estimated AETR, we estimate our income before taxes and the related tax expense or benefit for the full fiscal year (total of expected current and deferred tax provisions), excluding the effect of significant unusual or infrequently occurring items or comprehensive income items not recognized in the statement of income. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated annual tax rate does change, we make a cumulative adjustment in that quarter. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, are subject to significant volatility due to several factors including our ability to accurately predict our income (loss) before provision for income taxes in multiple jurisdictions and the changes in foreign exchange rates. Our effective tax rate in the future will depend on the portion of our profits earned within and outside of France. The condensed consolidated statements of income line item “Provision for income taxes” can be broken down as follows:
For the three months ended March 31, 2017 and 2018, we used an annual estimated tax rate of 29% and 37%, respectively, to calculate the provision for income taxes. The effective tax rate was 22% and 37% for the three months ended March 31, 2017 and 2018, respectively. The difference between the annual estimated tax rate and the effective tax rate for three months ended March 31, 2017 was due to the tax impact of discrete items such as share-based compensation in the United States. Discrete items were immaterial for the three months ended March 31, 2018 resulting in no difference between the annual estimated tax rate and the effective tax rate. Our estimated annual effective tax rate includes our preliminary estimates for the impact of the U.S. Tax Cuts and Jobs Act (the "Tax Act") which was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. federal income tax rate from 35% to 21% and creates new taxes on certain related-party payments, referred to as a base erosion anti-avoidance tax, or “BEAT”. The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Tax Act also modifies the limitation on the amount of deductible interest expense and the limitation on the deductibility of certain executive compensation. Our estimates are preliminary, and our effective tax rate may be impacted as more information becomes available regarding the tax reform. Current tax assets and liabilities The total amount of current tax assets consists mainly of prepayments of income taxes and credits of Criteo Corp., Criteo do Brasil LTDA, and Criteo B.V.. The current tax liabilities refers mainly to the net corporate tax payables of Criteo S.A., K.K. and Criteo Deutschland. Ongoing tax inspection in the United States On September 27, 2017, we received a draft notice of proposed adjustment "NOPA" from the Internal Revenue Service ("IRS") audit of Criteo Corp. for the year ended December 31, 2014, confirmed by the definitive notice dated February 8, 2018. If the IRS prevails in its position, it could result in an additional federal tax liability of an estimated maximum aggregate amount of approximately $15.0 million, excluding related fees, interest and penalties. We strongly disagree with the IRS's position as asserted in the notice of proposed adjustment and intend to contest it. |