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Income Taxes
9 Months Ended
Jul. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The Company accounts for income taxes under FASB ASC 740, Income Taxes ("ASC 740"). The Company calculates its quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby the Company forecasts its estimated annual effective tax rate then applies that rate to its year-to-date pre-tax book (loss) income. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective rate, including factors such as the valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, or changes in or the interpretation of tax laws in jurisdictions where the Company conducts business. The Company has recorded valuation allowances against certain Netherlands and other foreign jurisdictions due to insufficient evidence supporting the Company's ability to use these assets in the future.
For the nine months ended July 31, 2016 and 2015, the Company recorded a provision for income taxes in continuing operations of $0.3 million and $19.8 million, respectively. The income tax provision for the current period is not comparable to the same period of the prior year due to changes in pretax income over many jurisdictions and the impact of discrete items. Generally, fluctuations in the effective tax rate are primarily due to changes in our geographic pretax income resulting from our business mix and changes in the tax impact of permanent differences, repositioning, other special items and other discrete tax items, which may have unique tax implications depending on the nature of the item.
In the second quarter of fiscal 2016, Patheon UK Ltd., a company subsidiary, released a $15.0 million valuation allowance on its deferred tax assets. Patheon UK’s deferred tax assets were primarily the result of net operating losses from trading activities. The entire allowance was released on the basis of management's assessment that the deferred tax assets of Patheon UK are more likely than not to be realized.
In the third quarter of fiscal 2016, Patheon Puerto Rico, Inc., a company subsidiary, released a $4.8 million valuation allowance on its deferred tax assets. Patheon Puerto Rico’s deferred tax assets were primarily the result of net operating losses from trading activities and capital events. The released allowance excluded Patheon Puerto Rico's allowances attributable to unrealizable assets. The allowance was released on the basis of management's assessment that the deferred tax assets of Patheon Puerto Rico are more likely than not to be realized.
As of the nine months ended July 31, 2016, the Company has multiple subsidiaries that will continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given current earnings and anticipated future earnings at the Company's Canadian sites, the Company believes that within the next twelve months there is a reasonable possibility sufficient positive evidence will become available that would allow the release of all or a portion of the valuation allowance recorded at the Canadian sites.
The Company evaluates uncertain tax positions on a quarterly basis and considers various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in process audit activities and changes in facts or circumstances related to a tax position. The Company also accrues for potential interest and penalties related to unrecognized tax benefits within provision for income taxes on the consolidated statement operations. In the second quarter of fiscal 2016, the Company recorded an unrecognized tax expense of $3.5 million, including penalties and interest, related to the Italian Revenue Service examination of Patheon Italia S.p.A's 2010-2013 income tax returns.