|IHS MARKIT LTD. filed this Form 10-K on 01/18/2019|
Provision for Income Taxes
Our effective tax rate for continuing operations for the year ended November 30, 2018 was negative 27.2 percent, compared to negative 13.4 percent in 2017 and negative 3.6 percent in 2016. The reduction in our tax rate for 2018, compared to 2017, is primarily due to net tax benefits associated with U.S. tax reform of $141 million. The reduction in our tax rate for 2017, compared to 2016, is primarily due to tax benefits associated with our capital structure, the benefit from Merger-related expenses, the release of a $29.3 million valuation allowance on tax attributes in the third quarter of 2017, and excess tax benefits on stock-based compensation.
In December 2017, the TCJA was enacted in the United States. The TCJA enacted significant changes affecting our fiscal year 2018, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate to 21% and (2) imposing a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries of U.S. companies that had not been previously taxed in the U.S.
The TJCA also establishes new tax provisions affecting our fiscal year 2019, including, but not limited to, (1) creating a new provision designed to tax global intangible low-tax income (“GILTI”); (2) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (3) eliminating the corporate alternative minimum tax (“AMT”); (4) creating the base erosion anti-abuse tax (“BEAT”); (5) establishing a deduction for foreign derived intangible income ("FDII"); (6) repealing domestic production activity deduction; and (7) establishing new limitations on deductible interest expense and certain executive compensation.
The TCJA reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. Due to our fiscal year end, the lower corporate tax rate will be phased in, resulting in a U.S. statutory federal rate of 22.19 percent for our fiscal year ending November 30, 2018 and 21 percent for subsequent fiscal years.
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 No. 118 (“SAB 118”) which allowed companies to record provisional amounts during a measurement period not extending beyond one year from the TJCA enactment date. For the year ended November 30, 2018, we recognized income tax benefit related to the TCJA of $141 million which includes (1) an expense of $31 million for U.S. transition tax liability and correlative items on deemed repatriated earnings of non-U.S. subsidiaries and (2) a benefit of $172 million associated with the impact on deferred taxes resulting from the decreased U.S. federal corporate income tax rate as described below. As of November 30, 2018, we have completed the accounting for all the impacts of the TCJA.
Deemed Repatriation Transition Tax (“Transition Tax”): The Transition Tax is based on the total unrepatriated post-1986 earnings and profits (“E&P”) of our foreign subsidiaries and the amount of non-U.S. taxes paid (Tax Pools) on such earnings. Historically, we permanently reinvested a significant portion of post-1986 E&P outside the U.S. For the remaining portion, we previously accrued deferred taxes. Since the TCJA required all foreign earnings to be taxed currently, we recorded an income tax expense of $31 million for our one-time transition tax liability, which will be paid over 8 years in accordance with the election available under the TCJA. We have completed our accounting for charges related to the Transition Tax.
Reduction of U.S. Federal Corporate Tax Rate: The reduction of the U.S. federal corporate income tax rate requires that we remeasure our deferred tax assets and liabilities as of the date of enactment. The amount recorded for the year ended November 30, 2018 for the remeasurement due to tax rate change is $172 million. We have completed our accounting for the measurement of deferred taxes.
GILTI: The TCJA subjects a U.S. corporation to tax on its GILTI. U.S. GAAP allows companies to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred method”). We have elected to use the period cost method.
Indefinite Reinvestment Treatment: Prior to the enactment of the TCJA, we treated a significant portion of our undistributed earnings from legacy foreign subsidiaries of IHS as indefinitely reinvested. As a result of the enactment of the TCJA, we have reevaluated our historic assertion and no longer consider certain earnings of legacy foreign subsidiaries of IHS to be indefinitely reinvested. We have recorded a deferred tax liability of $12 million for foreign withholding taxes on repatriation of remaining undistributed earnings.