INCOME TAXES

The domestic (Singapore) and foreign components of income before income taxes were comprised of the following:



	Fiscal Year Ended March 31,
	2018		2017			2016
	(In thousands)
Domestic	$	323,522	$	435,709		$	199,283
Foreign	197,371		(64,861		)	255,392
Total	$	520,893	$	370,848		$	454,675

The provision for income taxes consisted of the following:



	Fiscal Year Ended March 31,
	2018		2017			2016
	(In thousands)
Current:
Domestic	$	2,894	$	1,037		$	56
Foreign	50,889		71,773			74,706
	53,783		72,810			74,762
Deferred:
Domestic	422		350			3,779
Foreign	38,154		(21,876		)	(67,947		)
	38,576		(21,526		)	(64,168		)
Provision for income taxes	$	92,359	$	51,284		$	10,594

The domestic statutory income tax rate was approximately 17.0% in fiscal years 2018, 2017 and 2016. The reconciliation of the income tax expense expected based on domestic statutory income tax rates to the expense for income taxes included in the consolidated statements of operations is as follows:



	Fiscal Year Ended March 31,
	2018			2017			2016
	(In thousands)
Income taxes based on domestic statutory rates	$	88,552		$	63,044		$	77,295
Effect of tax rate differential	(244,128		)	(85,132		)	(62,072		)
Change in liability for uncertain tax positions	22,180			684			(13,724		)
Change in valuation allowance	297,330			78,728			1,049
Recognition of prior year taxes recoverable	(53,757		)	—			—
Other	(17,818		)	(6,040		)	8,046
Provision for income taxes	$	92,359		$	51,284		$	10,594

A number of countries in which the Company is located allow for tax holidays or provide other tax incentives to attract and retain business. In general, these holidays were secured based on the nature, size and location of the Company’s operations. The aggregate dollar effect on the Company’s income resulting from tax holidays and tax incentives to attract and retain business for the fiscal years ended March 31, 2018, 2017 and 2016 was $21.7 million, $15.5 million and $6.6 million, respectively. For the fiscal year ended March 31, 2018, the effect on basic and diluted earnings per share was $0.04 and $0.04 respectively, and the effect on basic and diluted earnings per share were $0.03 and $0.03 during fiscal year 2017, and $0.01 and $0.01 during fiscal year 2016, respectively. Unless extended or otherwise renegotiated, the Company's existing holidays will expire in the fiscal year ending March 31, 2019 through fiscal year 2027.

We provide a valuation allowance against deferred tax assets that in our estimation are not more likely than not to be realized. During fiscal year 2018, 2017, and 2016 we released valuation allowances totaling $1.3 million, $39.6 million and $63.3 million, respectively. For fiscal year 2018, these valuation allowance releases were primarily related to our operations in Ireland, Mexico and Taiwan as these amounts were deemed to be more likely than not to be realized due to the sustained profitability during the past three fiscal years as well as continued forecasted profitability of those subsidiaries. However, these valuation allowance releases were offset primarily by current period valuation allowance additions due to increased deferred tax assets as a result of current period losses in legal entities with existing full valuation allowance positions. For fiscal years 2018, 2017 and 2016, the offsetting amounts totaled $(65.9) million, $103.9 million and $64.3 million, respectively. Included in these offsets for fiscal year 2018, the Company released $705.3 million of valuation allowance to account for the reduced deferred tax asset as a result of the lower US corporate income tax rate which became effective January 1, 2018. In addition, due to changes with respect to the jurisdiction’s tax position during the fiscal year ended March 31, 2018, the Company established a valuation allowance of $364.5 million for a Brazilian subsidiary which did not previously have a valuation allowance recorded.

During fiscal year 2018, the Company recognized an income tax receivable of $53.7 million for prior period taxes paid by one of its Brazilian subsidiaries which was deemed recoverable during the period due to a favorable change in tax law whereby certain incentives are no longer includable in taxable income.

Under its territorial tax system, Singapore generally does not tax foreign sourced income until repatriated to Singapore. The Company has included the effects of Singapore's territorial tax system in the rate differential line above. The tax effect of foreign income not repatriated to Singapore for the fiscal years 2018, 2017 and 2016 were $65.8 million, $67.9 million and $36.6 million, respectively.

Impact of the U.S. Tax Reform

On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (the “Act”) into law. Effective January 1, 2018, among other changes, the Act reduces the U.S. federal corporate tax rate to 21 percent, provides for a deemed repatriation and taxation at reduced rates of certain non-US subsidiaries owned by U.S. companies’ historical earnings (a “transition tax”), and establishes new mechanisms to tax such earnings going forward. Similar to other large multinational companies with complex tax structures, the Act has wide ranging implications for Flex. However, the impact on Flex's financial statements for the twelve-month periods ended March 31, 2018 is immaterial, primarily because the Company has a full valuation allowance on deferred tax assets in the U.S., which results in there being no U.S. deferred tax assets or liabilities recorded on the balance sheet that need to be remeasured at the new 21% rate. Further, the Company expects that the new transition tax will be offset by foreign tax credits or net operating loss carryforwards, and thus will not result in any incremental taxes payable. The Company will continue to analyze the effects of the Act on its financial statements and operations. Any additional impacts from the enactment of the Act will be recorded as they are identified during the measurement period provided for in Staff Bulletin 118.

The components of deferred income taxes are as follows:



	As of March 31,
	2018			2017
	(In thousands)
Deferred tax liabilities:
Fixed assets	$	(33,056	)	$	(40,324	)
Intangible assets	(80,565		)	(76,432		)
Others	(12,544		)	(20,702		)
Total deferred tax liabilities	(126,165		)	(137,458		)
Deferred tax assets:
Fixed assets	65,155			57,869
Intangible assets	11,237			3,153
Deferred compensation	13,475			19,335
Inventory valuation	6,952			8,489
Provision for doubtful accounts	3,073			2,911
Net operating loss and other carryforwards	2,133,097			2,369,405
Others	236,916			266,367
Total deferred tax assets	2,469,905			2,727,529
Valuation allowances	(2,259,956		)	(2,442,105		)
Total deferred tax assets, net of valuation allowances	209,949			285,424
Net deferred tax asset	$	83,784		$	147,966
The net deferred tax asset is classified as follows:
Long-term asset	$	165,319		$	223,285
Long-term liability	(81,535		)	(75,319		)
Total	$	83,784		$	147,966

Utilization of the Company's deferred tax assets is limited by the future earnings of the Company in the tax jurisdictions in which such deferred assets arose. As a result, management is uncertain as to when or whether these operations will generate sufficient profit to realize any benefit from the deferred tax assets. The valuation allowance provides a reserve against deferred tax assets that are not more likely than not to be realized by the Company. However, management has determined that it is more likely than not that the Company will realize certain of these benefits and, accordingly, has recognized a deferred tax asset from these benefits. The change in valuation allowance is net of certain increases and decreases to prior year losses and other carryforwards that have no current impact on the tax provision.

The Company has recorded deferred tax assets of approximately $2.2 billion related to tax losses and other carryforwards against which the Company has recorded a valuation allowance for all but $81.3 million of the deferred tax assets. These tax losses and other carryforwards will expire at various dates as follows:



Expiration dates of deferred tax assets related to operating losses and other carryforwards
	(In thousands)
2019 - 2024	$	513,828
2025 - 2030	614,307
2031 and post	178,484
Indefinite	852,455
	$	2,159,074

The amount of deferred tax assets considered realizable, however, could be reduced or increased in the near-term if facts, including the amount of taxable income or the mix of taxable income between subsidiaries, differ from management’s estimates.

The Company does not provide for income taxes on approximately $1.6 billion of undistributed earnings of its subsidiaries which are considered to be indefinitely reinvested outside of Singapore as management has plans for the use of such earnings to fund certain activities outside of Singapore. Determination of the amount of the unrecognized deferred tax liability on these undistributed earnings is not practicable. As of March 31, 2018, we have provided for earnings in foreign subsidiaries that are not considered to be indefinitely reinvested and therefore subject to withholding taxes on $23.1 million of undistributed foreign earnings, recording a deferred tax liability of approximately $1.7 million thereon.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Fiscal Year Ended March 31,
	2018			2017
	(In thousands)
Balance, beginning of fiscal year	$	203,323		$	212,326
Additions based on tax position related to the current year	24,415			29,007
Additions for tax positions of prior years	5,926			9,728
Reductions for tax positions of prior years	(11,936		)	(22,065		)
Reductions related to lapse of applicable statute of limitations	(9,029		)	(13,390		)
Settlements	—			(3,684		)
Impact from foreign exchange rates fluctuation	14,891			(8,599		)
Balance, end of fiscal year	$	227,590		$	203,323

The Company’s unrecognized tax benefits are subject to change over the next twelve months primarily as a result of the expiration of certain statutes of limitations and as audits are settled. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by an estimated range of an additional $11 million to $41 million within the next twelve months primarily due to potential settlements of various audits and the expiration of certain statutes of limitations.

The Company and its subsidiaries file federal, state, and local income tax returns in multiple jurisdictions around world. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2007.

Of the $227.6 million of unrecognized tax benefits at March 31, 2018, $210.7 million will affect the annual effective tax rate if the benefits are eventually recognized. The amount that doesn’t impact the ETR relates to positions that would be settled with a tax loss carryforward previously subject to a valuation allowance.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits within the Company’s tax expense. During the fiscal years ended March 31, 2018, 2017 and 2016, the Company recognized interest and penalty of approximately ($3.3) million and ($1.6) million and $(2.4) million, respectively. The Company had approximately $16.2 million, $12.9 million and $14.6 million accrued for the payment of interest and penalties as of the fiscal years ended March 31, 2018, 2017 and 2016, respectively.