Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
12. Income Taxes The components of income before income taxes are as follows (in millions):
Income taxes are as follows (in millions):
The Company recognizes excess tax benefits associated with share-based compensation to shareholders’ (deficit) equity only when realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company follows the with-and-without approach. Under this approach, excess tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to the Company, which are also subject to applicable limitations. As of December 31, 2015 and 2014, the Company had $25.4 million and $23.6 million, respectively, of unrealized excess tax benefits. The $25.4 million of excess tax benefits at December 31, 2015 relates to foreign tax credits generated and carried forward on U.S. federal income tax returns. If unused, tax credit carryforwards will expire between 2021 and 2025. The significant categories of temporary differences that gave rise to deferred tax assets and liabilities are as follows (tax effected in millions):
Tax loss and credit carryforwards of certain foreign subsidiaries for 2015 and 2014 were $121.4 million and $88.7 million, respectively. If unused, tax loss and credit carryforwards of certain foreign subsidiaries of $100.2 million will expire between 2016 and 2025 and $21.2 million can be carried forward indefinitely. Domestic foreign tax credit carryforwards for 2015 and 2014 were $76.7 million and $51.2 million, respectively. If unused, domestic foreign tax credit carryforwards expire in 2024 and 2025. The Company recognizes valuation allowances on deferred tax assets reported if, based on the weight of the evidence it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2015 and 2014 the Company held valuation allowances against net deferred tax assets of certain subsidiaries, primarily related to tax loss carryforwards in the amount of $121.3 million and deferred interest expense and tax loss carryforwards of $330.0 million, respectively. The change in the Company’s valuation allowance during 2015 of $208.7 million was primarily due to $205.6 million of net reductions charged to income tax expense, primarily related to the utilization of our deferred tax asset balance related to intercompany deferred interest expense, partially offset by increases in Venezuelan tax loss carryforwards, and $3.1 million of currency translation adjustments recognized within other comprehensive income. The change in the Company’s valuation allowance during 2014 of $82.4 million was related to $85.7 million of net additions charged to income tax expense, primarily relating to increases in Venezuelan tax loss carryforwards and deferred interest expense carryforwards, reduced by $3.3 million of currency translation adjustments recognized within other comprehensive income. The change in the Company’s valuation allowance during 2013 of $38.3 million was related to $36.7 million of net additions charged to income tax expense, primarily relating to increases in deferred interest expense carryforwards, and $1.6 million of currency translation adjustments recognized within other comprehensive income. At December 31, 2015, the Company’s U.S. consolidated group had approximately $120.6 million of unremitted earnings that were permanently reinvested relating to certain foreign subsidiaries. In addition, at December 31, 2015, Herbalife Ltd. had approximately $2.3 billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. Since these unremitted earnings have been permanently reinvested, deferred taxes were not provided on these unremitted earnings. Further, it is not practicable to determine the amount of unrecognized deferred taxes with respect to these unremitted earnings. If the Company were to remit these unremitted earnings then it would be subject to income tax on these remittances. Deferred taxes have been accrued for earnings that are not considered indefinitely reinvested. The deferred tax on the unremitted foreign earnings as of December 31, 2015 and 2014 was a deferred tax asset of $6.4 million and $1.0 million, respectively. The applicable statutory income tax rate in the Cayman Islands was zero for Herbalife Ltd. for the years being reported. For purposes of the reconciliation between the provision for income taxes at the statutory rate and the provision for income taxes at the effective tax rate, a notional 35% tax rate is applied as follows:
As of December 31, 2015, the total amount of unrecognized tax benefits, including related interest and penalties was $58.0 million. If the total amount of unrecognized tax benefits was recognized, $44.1 million of unrecognized tax benefits, $7.1 million of interest and $1.5 million of penalties would impact the effective tax rate. As of December 31, 2014, the total amount of unrecognized tax benefits, including related interest and penalties was $47.2 million. If the total amount of unrecognized tax benefits was recognized, $38.0 million of unrecognized tax benefits, $5.5 million of interest and $1.1 million of penalties would impact the effective tax rate. The Company accounts for the interest and penalties generated by tax contingencies as a component of income tax expense. During the year ended December 31, 2015, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $2.0 million and $0.6 million, respectively. During the year ended December 31, 2014, the Company recorded an increase in interest and penalty expense related to uncertain tax positions of $1.9 million and $0.3 million, respectively. During the year ended December 31, 2013, the Company recorded a reversal in interest and penalty expense related to uncertain tax positions of $1.6 million and $0.7 million, respectively. As of December 31, 2015, total amount of interest and penalties related to unrecognized tax benefits recognized in the statement of financial position were $7.1 million and $1.5 million, respectively. As of December 31, 2014, total amount of interest and penalties related to unrecognized tax benefits recognized in the statement of financial position were $5.5 million and $1.1 million, respectively. The following changes occurred in the amount of unrecognized tax benefits during the years ended December 31, 2015, 2014, and 2013 (in millions):
The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are resolved, which may impact the Company’s effective tax rate. As of December 31, 2015, the Company’s tax filings are generally subject to examination in major tax jurisdictions for years ending on or after December 31, 2010. The Company believes that it is reasonably possible that the amount of unrecognized tax benefits could decrease by up to approximately $13.1 million within the next twelve months. Of this possible decrease, $5.4 million would be due to the settlement of audits or resolution of administrative or judicial proceedings. The remaining possible decrease of $7.7 million would be due to the expiration of statute of limitations in various jurisdictions.
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