9. Income Taxes



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

	(in thousands, except percentages)
Income before income taxes	$	189,389		$	142,267		$	90,311		$	333,125
Provision for (benefit from) income taxes	$	20,865		$	8,545		$	(67,482	)	$	13,757
Effective tax rate	11.0		%	6.0		%	(74.7		)%	4.1		%

The effective tax rates above reflect tax expense recorded on pre-tax income in the three months ended September 30, 2018 and an overall tax benefit recorded on pre-tax income in the nine months ended September 30, 2018. The tax expense recorded in the three months ended September 30, 2018 includes a lower U.S. corporate tax and U.S. tax on foreign earnings, as a result of the Tax Cuts and Jobs Act (“Tax Act”), and the tax effects of business acquisitions, including integration. For the nine months ended September 30, 2018, the rate also includes a federal and state tax discrete benefit on a $405.0 million charge related to our legal settlement with Cisco recorded in the three months ended June 30, 2018. In all periods, excess tax benefits attributable to equity compensation also significantly benefit the effective tax rate.

Integrating intellectual property from acquisitions into our business generally involves intercompany transactions and legal entity restructurings that have the impact of increasing our provision for income taxes. Consequently, our provision for income taxes and our effective tax rate may initially increase in the period of and shortly after an acquisition and integration. The magnitude of this impact will depend upon the specific type, size, and taxing jurisdictions of the intellectual property as well as the relative contribution to income in subsequent periods.

We operate in a number of tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; and (5) creating the base erosion anti-abuse tax (“BEAT”), a new minimum tax.

The Tax Act includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. This income will effectively be taxed at a 10.5% tax rate in general. Our deferred tax assets and liabilities are still being evaluated to determine if they should be recognized for the basis differences expected to reverse as a result of GILTI provisions that are effective for us after the calendar year ending December 31, 2017. Because of the complexity of the new provisions, we are continuing to evaluate how the provisions will be accounted for under U.S. GAAP wherein companies are allowed to make an accounting policy election of either (i) account for GILTI as a component of tax expense in the period in which we are subject to the rules (the “period cost method”), or (ii) account for GILTI in our measurement of deferred taxes (the “deferred method”). Currently, we have not elected a method but we have included an estimate of the impact to our effective tax rate for the year ended December 31, 2018. A formal election will only be made after our completion of the analysis of the GILTI provisions and the release of new regulations providing further insight into the new rules. Our election method will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in our taxable income related to GILTI and, if so, the impact that is expected.

As of September 30, 2018, we have not yet completed our accounting for the tax effects of the enactment of the Tax Act. We recognized a provisional tax amount of $51.8 million in the fourth quarter of 2017 for the transition tax liability and the revaluation of our deferred income taxes as a result of the rate change. In the nine months ended September 30, 2018, we did not revise this estimate. In addition, we recorded a reasonable estimate for the effect of the new legislation as discussed above, which impacts our US income tax liabilities for the year ending December 31, 2018. Our estimates may also be affected as we gain a more thorough understanding of the tax law. These changes could be material to income tax expense. We will continue to refine our estimates related to the impact of the Tax Act during the one-year measurement period allowed under Staff Accounting Bulletin 118 (“SAB 118”).