Taxes

6 Months Ended

Jun. 30, 2019

Taxes

A reconciliation of the United States federal statutory corporate tax rate to the Company’s income tax expense, or effective tax rate, was as follows:


	Three-months Ended						Six-months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Income tax expense (benefit) at U.S. federal statutory corporate tax rate	(21)	%	21	%	21	%	21	%
State income taxes, net of federal benefit	(1)	%	1	%	1	%	1	%
Foreign tax rate differential	5	%	(7)	%	(5)	%	(7)	%
Tax credit	2	%	(1)	%	(2)	%	(1)	%

Discrete tax benefit related to stock options	(191)	%	(2)	%	(29)	%	(4)	%
Discrete tax expense related to tax return filings	141	%	—	%	17	%	—	%
Tax rate adjustment	18	%	—	%	—	%	—	%
Other	(4)	%	2	%	4	%	2	%
Income tax expense	(51)	%	14	%	7	%	12	%

The Company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the United States, Ireland, and China. The statutory tax rate is 12.5% in Ireland and 25% in China, compared to the U.S. federal statutory corporate tax rate of 21%. These differences resulted in a favorable impact to the effective tax rate of 5 percentage points for both the three-month and six-month periods ended June 28, 2020, and 7 percentage points for the same periods in 2019. Management has determined that earnings from its legal entity in China will be indefinitely reinvested to provide local funding for growth, and that earnings from all other jurisdictions will not be indefinitely reinvested.

The Company recorded discrete tax benefits arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock exercises that resulted in a favorable impact to the effective tax rate of 191 and 29 percentage points for the three-month and six-month periods ended June 28, 2020, respectively, and 2 and 4 percentage points for the same periods in 2019. In addition, the Company recorded discrete tax expenses related to the final true-up of the prior year tax accrual upon filing the related tax return that resulted in an unfavorable impact to the effective tax rate of 141 and 17 percentage points for the three-month and six-month periods ended June 28, 2020, respectively.

Excluding the impact of these discrete items, the Company’s effective tax rate was a benefit of 1% of pre-tax loss and an expense of 19% of pre-tax income for the three-month and six-month periods in 2020, respectively, compared to an expense of 17% and 16% of pre-tax income for the same periods in 2019. The increase in the effective tax rate, excluding the impact of discrete items, for the six-month period from 16% in 2019 to 19% in 2020 was due to more of the Company's profits being earned and taxed in higher tax jurisdictions. This adjustment to the effective tax rate resulted in an 18 percentage-point impact on the effective tax rate for the three-month period ended June 28, 2020.

During the six-month period ended June 28, 2020, the Company recorded a $710,000 increase in reserves for income taxes, net of deferred tax benefit. Estimated interest and penalties included in these amounts totaled $283,000 for the six-month period ended June 28, 2020.

The Company’s reserve for income taxes, including gross interest and penalties, was $13,330,000 as of June 28, 2020, which included $12,302,000 classified as a non-current liability and $1,028,000 recorded as an increase to a non-current deferred tax liability. The amount of gross interest and penalties included in these balances was $1,301,000. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period.

The Company has defined its major tax jurisdictions as the United States, Ireland, and China, and within the United States, Massachusetts. Within the United States, the tax years 2016 through 2019 remain open to examination by the Internal Revenue Service ("IRS") and various state tax authorities. The tax years 2015 through 2019 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates. The Company has recently been notified that it is under audit by the IRS for the tax year 2017. Management believes the Company is adequately reserved for this audit.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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