Income Taxes |
6 Months Ended |
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Jun. 30, 2018 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes |
Income Taxes
In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the Tax Reform Act). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a modified territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. ASC 740: Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 which allows companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. In the first and second quarters of 2018, the Company did not recognize any adjustment to the provisional amounts recorded as of December 30, 2017. The Company considers its accounting for the impacts of the Tax Reform Act to be incomplete and the Company will continue to assess the impact of the Tax Reform Act (and expected further guidance from federal and state tax authorities as well as further guidance for the associated income tax accounting) on its business and consolidated financial statements over the next six months. Given the complexity of the Global Intangible Low-Taxed Income (GILTI) provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined its accounting policy. As of June 30, 2018, because the Company is still evaluating the GILTI provisions and its analysis of future taxable income that is subject to GILTI, the Company has considered GILTI related to current-year operations only in its estimated annualized effective tax rate and has not provided additional GILTI on deferred items.
In the second quarter of 2018, the Company recorded an income tax provision of $6 million, consisting primarily of $5 million for federal base erosion and anti-abuse tax, which is a new tax under the Tax Reform Act, and $1 million of foreign taxes in profitable locations.
For the six months ended June 30, 2018, the Company recorded an income tax provision of $14 million, consisting primarily of $10 million for federal base erosion and anti-abuse tax, and $4 million of foreign taxes in profitable locations.
In the second quarter of 2017, the Company recorded an income tax provision of $3 million, consisting of $1 million of foreign taxes in profitable locations and $3 million for withholding taxes applicable to license fee revenue from foreign locations, partially offset by $1 million of tax benefits comprising the tax effects of items credited directly to other comprehensive income, Canadian tax credits, and the monetization of certain U.S. tax credits.
For the six months ended July 1, 2017, the Company recorded an income tax provision of $8 million, consisting of $4 million of foreign taxes in profitable locations and $7 million for withholding taxes applicable to license fee revenue from foreign locations, partially offset by $3 million of tax benefits comprising the tax effects of items credited directly to other comprehensive income, Canadian tax credits, and the monetization of certain U.S. tax credits.
As of June 30, 2018, substantially all of the Company’s U.S. and Canadian deferred tax assets, net of deferred tax liabilities, continue to be subject to a valuation allowance. The realization of these assets is dependent on substantial future taxable income which, as of June 30, 2018, in management’s estimate, is not more likely than not to be achieved.
The Company’s total gross unrecognized tax benefits were $49 million as of June 30, 2018. The Company does not believe it is reasonably possible that unrecognized tax benefits will materially change in the next 12 months. However, the settlement, resolution or closure of tax audits are highly uncertain.
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