Equifax Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2017

The provision for income taxes consisted of the following:



	Twelve Months Ended December 31,
	2017			2016			2015
	(In millions)
Current:
Federal	$	107.8		$	154.8		$	159.0
State	13.2			24.3			14.7
Foreign	71.7			67.0			56.8
	192.7			246.1			230.5
Deferred:
Federal	(19.2		)	16.5			(7.5		)
State	1.3			2.8			(9.3		)
Foreign	(26.2		)	(32.3		)	(11.9		)
	(44.1		)	(13.0		)	(28.7		)
Provision for income taxes	$	148.6		$	233.1		$	201.8

Domestic and foreign income before income taxes was as follows:



	Twelve Months Ended December 31,
	2017		2016			2015
	(In millions)
U.S.	$	711.1	$	739.6		$	607.6
Foreign	35.5		(11.4		)	29.0
	$	746.6	$	728.2		$	636.6

The provision for income taxes reconciles with the U.S. federal statutory rate, as follows:



	Twelve Months Ended December 31,
	2017			2016			2015
	(In millions)
Federal statutory rate	35.0		%	35.0		%	35.0		%

Provision computed at federal statutory rate	$	261.3		$	254.9		$	222.8
State and local taxes, net of federal tax benefit	13.3			17.2			5.2
Foreign	(41.9		)	(40.3		)	(21.8		)
Tax Cuts and Jobs Act of 2017	(48.3		)	—			—
Equity compensation	(26.7		)	—			—
Tax reserves	2.5			11.9			0.9
Other	(11.6		)	(10.6		)	(5.3		)
Provision for income taxes	$	148.6		$	233.1		$	201.8

Effective income tax rate	19.9		%	32.0		%	31.7		%

We record deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid. Deferred income tax assets and liabilities are recorded based on the differences between the financial reporting and income tax bases of assets and liabilities. For additional information about our income tax policy, see Note 1 of the Notes to Consolidated Financial Statements.

Components of the deferred income tax assets and liabilities at December 31, 2017 and 2016, were as follows:



	December 31,
	2017			2016
	(In millions)
Deferred income tax assets:
Net operating and capital loss carryforwards	$	279.9		$	213.2
Goodwill and intangible assets	129.3			113.8
Employee compensation programs	33.1			51.6
Foreign tax credits	17.6			56.9
Employee pension benefits	40.8			70.6
Reserves and accrued expenses	23.8			18.5
Research and development costs	26.7			13.7
Other	8.7			21.0
Gross deferred income tax assets	559.9			559.3
Valuation allowance	(401.8		)	(307.3		)
Total deferred income tax assets, net	158.1			252.0

Deferred income tax liabilities:
Goodwill and intangible assets	(387.6		)	(507.0		)
Undistributed earnings of foreign subsidiaries	(7.6		)	(30.1		)
Depreciation	(41.5		)	(22.1		)
Other	(20.6		)	(13.5		)
Total deferred income tax liability	(457.3		)	(572.7		)
Net deferred income tax liability	$	(299.2	)	$	(320.7	)

Our deferred income tax assets and deferred income tax liabilities at December 31, 2017 and 2016, are included in the accompanying Consolidated Balance Sheets as follows:



	December 31,
	2017			2016
	(In millions)
Long-term deferred income tax assets, included in other assets	$	5.9		$	4.7
Long-term deferred income tax liabilities	(305.1		)	(325.4		)
Net deferred income tax liability	$	(299.2	)	$	(320.7	)

We record deferred income taxes on the temporary differences of our foreign subsidiaries and branches, except for the temporary differences related to undistributed earnings of subsidiaries which we consider indefinitely invested. As of December 31, 2017, we have indefinitely invested $85.7 million attributable to pre-2004 undistributed earnings of our Canadian and Chilean subsidiaries. If the pre-2004 earnings were not considered indefinitely invested, $6.4 million of deferred withholding tax liability would have been provided. Further we are permanently invested with respect to the original investment in foreign subsidiaries. Therefore, we have not provided the deferred tax assets on the outside basis of these subsidiaries as we have no intent to sell or divest of these subsidiaries. Cumulative undistributed earnings were subject to a transition tax as a result of the Tax Act which we estimated to be zero. However, the Company has provided for local country withholding taxes related to these earnings.

At December 31, 2017, we had U.S. federal and state net operating loss carryforwards of $69.8 million which will expire at various times between 2018 and 2037. We also had foreign net operating loss carryforwards totaling $947.2 million of which $11.0 million will expire between 2018 and 2037 and the remaining $936.2 million will carryforward indefinitely. Foreign capital loss carryforwards of $16.7 million may be carried forward indefinitely, and state capital loss carryforwards of $2.5 million will expire in 2018. We had foreign tax credit carryforwards of $17.6 million which will expire in the years 2025 through 2026. Additionally, we had U.S. and foreign research and development credit carryforwards of $26.7 million. The U.S. credits expire between 2018 through 2029 and the foreign credits have an indefinite expiration period. The deferred tax asset related to the net operating loss, capital loss carryforwards, foreign tax credit carryforwards, and research and development credit is $324.2 million of which $270.9 million has been fully reserved in the deferred tax valuation allowance.

Cash paid for income taxes, net of amounts refunded, was $215.7 million, $173.4 million and $202.9 million during the twelve months ended December 31, 2017, 2016 and 2015, respectively.

We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes on our Consolidated Statements of Income.

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



	2017			2016
	(In millions)
Beginning balance (January 1)	$	32.5		$	21.6
Increases related to prior year tax positions	0.6			4.1
Decreases related to prior year tax positions	(5.6		)	(1.0		)
Increases related to current year tax positions	13.1			12.8
Decreases related to settlements	(0.3		)	(1.0		)
Expiration of the statute of limitations for the assessment of taxes	(5.8		)	(3.9		)
Currency translation adjustment	0.5			(0.1		)
Ending balance (December 31)	$	35.0		$	32.5

We recorded liabilities of $38.0 million and $36.0 million for unrecognized tax benefits as of December 31, 2017 and 2016, respectively, which included interest and penalties of $3.0 million and $3.5 million, respectively. As of December 31, 2017 and 2016, the total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $35.7 million and $33.3 million, respectively, which included interest and penalties of $2.6 million and $2.8 million, respectively. During 2017 and 2016 interest and penalties of $1.4 million and $1.1 million respectively were accrued.

Equifax and its subsidiaries are subject to U.S. federal, state and international income taxes. We are generally no longer subject to federal, state or international income tax examinations by tax authorities for years before 2013. Due to the potential for resolution of state and foreign examinations, and the expiration of various statutes of limitations, it is reasonably possible that Equifax’s gross unrecognized tax benefit balance may change within the next twelve months by a range of zero to $18.3 million.

The Tax Cuts and Jobs Act of 2017 (“Tax Act”), as signed by the President of the United States on December 22, 2017, significantly revises U.S. tax law. The legislation will positively impact the Company’s ongoing effective tax rate due to the reduction of the U.S. federal corporate tax rate from 35% to 21%. The Tax Act makes major changes to the U.S. international tax system. Under previous law, foreign earnings were subject to U.S. tax when repatriated to the U.S. Under the Tax Act, foreign earnings are generally exempt from U.S. tax. Additionally, there is a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”). The Tax Act imposes other U.S. taxes on “global intangible low taxed income” and “base erosion anti-abuse transactions.” Other significant changes include limitations on the deductibility of interest expense and executive compensation, and repeal of the deduction for domestic production activities. As a result of the current interpretation and estimated impact of the Tax Act, the Company recorded adjustments totaling a net tax benefit of $48.3 million in the fourth quarter of 2017 to provisionally account for the estimated impact.

Our preliminary estimate of the tax rate change resulted in a remeasurement of our net deferred tax liabilities of $85.1 million and a corresponding deferred income tax benefit in 2017. Our federal income tax expense for periods beginning in 2018 will be based on the new rate.

As a result of the changes the Tax Act makes to the taxation of foreign earnings, we recorded a valuation allowance related to the foreign tax credit carryover in the amount of $17.6 million. Based on our initial estimates, the Company recorded zero transition tax related to the Tax Act. However, the Company recognized additional tax expense of $16.4 million due to the inability to claim foreign tax credits in the current year.

As permitted by Staff Accounting Bulletin No. 118, provisional amounts estimated based on information available as of December 31, 2017 have been made for the adjustments to deferred tax assets and liabilities, state taxes, equity compensation, the calculation of the transition tax, the valuation allowance related to the foreign tax credit carryover and the 2017 dividends. These amounts are subject to change as we obtain information necessary to complete the calculations and clarifications to the U.S. tax code as they occur. We will recognize any changes to the provisional amounts as we refine our estimates and our interpretations of the application of the 2017 Tax Act.

The Company has not yet made a policy election with respect to its treatment of potential global intangible low-taxed income (“GILTI”). Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the Act associated with GILTI and the expected impact of GILTI on the Company in the future.