Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Income taxes

v3.19.3.a.u2
Income taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
Our subsidiaries are subject to taxation in a number of tax jurisdictions, principally Ireland, the United States, and the Netherlands.
The following table presents our provision for income taxes by tax jurisdiction for the years ended December 31, 2019, 2018 and 2017:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Deferred tax expense (benefit)
 
 
 
 
 
Ireland
$
154,134

 
$
140,621

 
$
144,532

United States
11,327

 
6,510

 
56,650

The Netherlands
7,316

 
4,136

 
(7,470
)
Other
7,658

 
8,881

 
(14,188
)
 
180,435

 
160,148

 
179,524

Deferred tax (benefit) expense related to a (decrease) increase in changes in valuation allowance of deferred tax assets
 
 
 
 
 
Ireland
2,358

 
368

 
1,366

United States
(18,425
)
 
(2,838
)
 
(29,147
)
The Netherlands
87

 
(2,302
)
 
(8,518
)
Other
(1,957
)
 
(7,788
)
 
13,796

 
(17,937
)
 
(12,560
)
 
(22,503
)
Current tax (benefit) expense
 
 
 
 
 
Ireland

 
(27
)
 
5,606

United States
789

 
(3,691
)
 
(1,659
)
The Netherlands
261

 
(307
)
 
717

Other
4,166

 
516

 
3,033

 
5,216

 
(3,509
)
 
7,697

Provision for income taxes
$
167,714

 
$
144,079

 
$
164,718


The following table provides a reconciliation of the statutory income tax expense to provision for income taxes for the years ended December 31, 2019, 2018 and 2017:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
Income tax expense at statutory income tax rate of 12.5%
$
167,580

 
$
143,866

 
$
154,484

 
 
 
 
 
 
 
 
Permanent differences
(949
)
(a)
1,016

(b)
23,737

(c)
Foreign rate differential
1,083

 
(803
)
 
(13,503
)
 
 
134

 
213

 
10,234

 
Provision for income taxes
$
167,714

 
$
144,079

 
$
164,718

 
 
(a)
The 2019 permanent differences included non-deductible interest, non-deductible share-based compensation in Ireland and in the Netherlands, and a valuation allowance change in respect of U.S., Dutch and Irish tax losses.
(b)
The 2018 permanent differences included non-deductible share-based compensation in Ireland and in the Netherlands, and a valuation allowance change in respect of U.S., Dutch and Irish tax losses.
(c)
The 2017 permanent differences included non-deductible share-based compensation in Ireland and in the Netherlands, impacts of the change in tax rate in the United States, and a valuation allowance change in respect of U.S., Dutch and Irish tax losses.
15. Income taxes (Continued)
The following tables present our foreign rate differential by tax jurisdiction for the years ended December 31, 2019, 2018 and 2017:
 
Year Ended December 31, 2019
 
Pre-tax income (loss)
 
Local statutory tax rate (a)
 
Variance to Irish statutory tax rate of 12.5%
 
Tax variance as a result of global activities (b)
Tax jurisdiction
 
 
 
 
 
 
 
Ireland
$
1,324,100

 
12.5
%
 
0.0
 %
 
$

United States
(30,041
)
 
21.0
%
 
8.5
 %
 
(2,553
)
The Netherlands
30,656

 
25.0
%
 
12.5
 %
 
3,832

Other
8,331

 
10.1
%
 
(2.4
)%
 
(196
)
Taxable income
$
1,333,046

 
 
 
 
 
$
1,083

Permanent differences (c)
7,596

 
 
 
 
 
 
Income from continuing operations before income tax
$
1,340,642

 
 
 
 
 
 
 
Year Ended December 31, 2018
 
Pre-tax income (loss)
 
Local statutory tax rate (a)
 
Variance to Irish statutory tax rate of 12.5%
 
Tax variance as a result of global activities (b)
Tax jurisdiction
 
 
 
 
 
 
 
Ireland
$
1,163,574

 
12.5
%
 
0.0
%
 
$

United States
(85
)
 
22.0
%
 
9.5
%
 
(8
)
The Netherlands
6,108

 
25.0
%
 
12.5
%
 
764

Other
(10,977
)
 
26.7
%
 
14.2
%
 
(1,559
)
Taxable income
$
1,158,620

 
 
 
 
 
$
(803
)
Permanent differences (d)
(7,687
)
 
 
 
 
 
 

Income from continuing operations before income tax
$
1,150,933

 
 
 
 
 
 
15. Income taxes (Continued)
 
Year Ended December 31, 2017
 
Pre-tax income (loss)
 
Local statutory tax rate (a)
 
Variance to Irish statutory tax rate of 12.5%
 
Tax variance as a result of global activities (b)
Tax jurisdiction
 
 
 
 
 
 
 
Ireland
$
1,212,029

 
12.5
%
 
0.0
 %
 
$

United States
72,390

 
35.7
%
 
23.2
 %
 
16,744

The Netherlands
(61,086
)
 
25.0
%
 
12.5
 %
 
(7,636
)
Isle of Man
185,882

 
0.0
%
 
(12.5
)%
 
(23,235
)
Other
9,138

 
19.3
%
 
6.8
 %
 
624

Taxable income
$
1,418,353

 
 
 
 
 
$
(13,503
)
Permanent differences (e)
(182,481
)
 
 
 
 
 
 
Income from continuing operations before income tax
$
1,235,872

 
 
 
 
 
 
 
(a)
The local statutory income tax expense for our significant tax jurisdictions (Ireland, the United States and the Netherlands) does not differ from the actual income tax expense.
(b)
The tax variance as a result of global activities is primarily caused by our operations in countries with a higher or lower statutory tax rate than the statutory tax rate in Ireland.
(c)
The 2019 permanent differences included non-deductible interest, non-deductible share-based compensation in Ireland and in the Netherlands, and a valuation allowance change in respect of U.S., Dutch and Irish tax losses.
(d)
The 2018 permanent differences included non-deductible share-based compensation in Ireland and in the Netherlands, and a valuation allowance change in respect of U.S., Dutch and Irish tax losses.
(e)
The 2017 permanent differences included non-deductible share-based compensation in Ireland and in the Netherlands, impacts of the change in tax rate in the United States, and a valuation allowance change in respect of U.S., Dutch and Irish tax losses.
The calculation of income for tax purposes differs significantly from book income. Deferred income tax is provided to reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured under tax law in the various jurisdictions. Tax loss carry forwards and accelerated tax depreciation on flight equipment held for operating leases give rise to the most significant timing differences.
The following tables provide details regarding the principal components of our deferred income tax liabilities and assets by jurisdiction as of December 31, 2019 and 2018:
 
As of December 31, 2019
 
Ireland
 
United States
 
The
Netherlands
 
Other
 
Total
Depreciation/Impairment
$
(1,924,492
)
 
$
(606
)
 
$
6,873

 
$
(1,253
)
 
$
(1,919,478
)
Intangibles
(4,594
)
 
(5,222
)
 

 

 
(9,816
)
Accrued maintenance liability
(3,456
)
 
1,666

 

 

 
(1,790
)
Obligations under capital leases and debt obligations
(3,806
)
 

 

 

 
(3,806
)
Investments

 
(7,996
)
 

 

 
(7,996
)
Deferred losses on sale of assets

 
24,178

 

 

 
24,178

Valuation allowance
(5,654
)
 
(38,720
)
 
(16,025
)
 
(13,962
)
 
(74,361
)
Losses and credits forward
1,146,434

 
58,099

 
20,568

 
19,090

 
1,244,191

Other
(58,691
)
 
(99
)
 
(1,773
)
 
(5,818
)
 
(66,381
)
Net deferred income tax (liabilities) assets
$
(854,259
)
 
$
31,300

 
$
9,643

 
$
(1,943
)
 
$
(815,259
)
15. Income taxes (Continued)
 
As of December 31, 2018
 
Ireland
 
United States
 
The
Netherlands
 
Other
 
Total
Depreciation/Impairment
$
(1,612,534
)
 
$
254

 
$
5,974

 
$
(887
)
 
$
(1,607,193
)
Intangibles
(7,011
)
 
(6,108
)
 

 

 
(13,119
)
Accrued maintenance liability
(3,242
)
 
4,509

 

 

 
1,267

Obligations under capital leases and debt obligations
(4,255
)
 

 

 

 
(4,255
)
Investments

 
(8,619
)
 

 

 
(8,619
)
Deferred losses on sale of assets

 
28,770

 

 

 
28,770

Valuation allowance
(3,296
)
 
(57,145
)
 
(15,938
)
 
(15,919
)
 
(92,298
)
Losses and credits forward
996,676

 
62,351

 
28,770

 
23,018

 
1,110,815

Other
(77,973
)
 
502

 
(1,760
)
 
(2,454
)
 
(81,685
)
Net deferred income tax (liabilities) assets
$
(711,635
)
 
$
24,514

 
$
17,046

 
$
3,758

 
$
(666,317
)

The net deferred income tax liabilities as of December 31, 2019 of $815.3 million were recognized in our Consolidated Balance Sheet as deferred income tax assets of $95.1 million and as deferred income tax liabilities of $910.3 million.
The net deferred income tax liabilities as of December 31, 2018 of $666.3 million were recognized in our Consolidated Balance Sheet as deferred income tax assets of $138.3 million and as deferred income tax liabilities of $804.6 million.
The following table presents the movements in the valuation allowance for deferred income tax assets during the years ended December 31, 2019 and 2018:
 
Year Ended December 31,
 
2019
 
2018
Valuation allowance at beginning of period
$
92,298

 
$
104,858

Decrease of allowance to income tax provision
(17,937
)
 
(12,560
)
Valuation allowance at end of period
$
74,361

 
$
92,298


As of December 31, 2019 and 2018, we had $30.1 million and $29.8 million, respectively, of unrecognized tax benefits. Substantially all of the unrecognized tax benefits as of December 31, 2019, if recognized, would affect our effective tax rate. Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next 12 months, based on the information currently available, we do not expect any change to be material to our consolidated financial condition.
Our primary tax jurisdictions are Ireland, the United States and the Netherlands. Our tax returns are open for examination in Ireland from 2015 forward, in the United States from 2014 forward and in the Netherlands from 2014 forward.

15. Income taxes (Continued)
Ireland
Since 2006, the enacted Irish corporate income tax rate has been 12.5%. Some of our Irish tax-resident operating subsidiaries have significant loss carry forwards as of December 31, 2019 which give rise to deferred income tax assets. The availability of these loss carry forwards does not expire with time. In addition, the vast majority of all of our Irish tax-resident subsidiaries are entitled to accelerated aircraft depreciation for tax purposes and shelter net taxable income with the surrender of losses on a current year basis within the Irish tax group. Based on projected taxable profits in our Irish subsidiaries, we expect to recover the majority of the value of our Irish tax assets and have not recognized a valuation allowance against such assets, with the exception of $5.7 million, as of December 31, 2019.
United States
Our U.S. subsidiaries are assessable to federal and state U.S. taxes. During 2019, we had two significant groups of U.S. companies that file consolidated returns. The blended federal and state tax rate applicable to our combined U.S. group was 21.0% for the year ended December 31, 2019. In late 2015, we started a restructuring of our activities in the United States and based on this restructuring we did not expect to generate sufficient sources of taxable income to realize a portion of our deferred income tax asset in the United States. As a result, we recognized a partial valuation allowance in 2015. In late 2019, we further restructured our U.S. tax groups reducing to one significant U.S. consolidated filing group and this, combined with other activities, has led to a revised forecast of sources of taxable income. Based on this revised forecast we have partially released the valuation allowance that was recognized as part of the 2015 restructuring. Additionally, certain tax attributes are subject to annual limitations as a result of changes in ownership in 2015 as defined under Internal Revenue Code Section 382. Our U.S. federal net operating losses generated for tax years beginning before December 31, 2017, expire between 2026 and 2039. Any U.S. federal net operating losses generated in tax years beginning after December 31, 2017 will have an unlimited carry forward period.
The Netherlands
The majority of our Dutch subsidiaries form one fiscal unity and are included in one consolidated tax filing. The current tax expense primarily arises due to the existence of interest bearing receivables. Deferred income tax is calculated using the Dutch corporate income tax rate, which will decrease from the current rate of 25.0% to 21.7% in 2021 and future years. In respect of the year ended December 31, 2019, tax losses in the Netherlands can generally be carried back one year and carried forward six years before expiry.