Corporate Property Associates 17 - Global INC

Income Taxes

12 Months Ended

Dec. 31, 2016

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We believe we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our stockholders and generally will not be required to pay U.S. federal income taxes. Accordingly, the only provision of income taxes in the consolidated financial statements relates to our taxable REIT subsidiaries.

We conduct business in various states and municipalities within the United States, Europe, and Asia, and as a result, we file income tax returns in the U.S. federal jurisdiction and various states and certain foreign jurisdictions. Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle.

The components of our provision for income taxes for the periods presented are as follows (in thousands):



	Years Ended December 31,
	2016			2015		2014
Federal
Current	$	130		$	110	$	110
Deferred	4,327			954		7,078
	4,457			1,064		7,188
State and Local
Current	(26		)	840		426
Deferred	312			1,312		—
	286			2,152		426
Foreign
Current	3,677			3,787		2,600
Deferred	57			1,882		511
	3,734			5,669		3,111
Total Provision	$	8,477		$	8,885	$	10,725

We recorded a deferred tax provision of $4.0 million, $2.3 million, and $7.1 million for certain of our equity investments in 2016, 2015, and 2014, respectively.

We account for uncertain tax positions in accordance with ASC 740, Income Taxes. Our taxable subsidiaries recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.

The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits (in thousands):



	Years Ended December 31,
	2016			2015
Beginning balance	$	198		$	589
Decrease due to lapse in statute of limitations	(198		)	(362		)
Foreign currency translation adjustments	—			(29		)
Ending balance	$	—		$	198

At December 31, 2016 we had no unrecognized tax benefits due to the lapse of the statute of limitations. We recognize interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2016, we had no accrued interest related to uncertain tax positions and at December 31, 2015 less than $0.1 million of accrued interest related to uncertain tax positions.

Tax authorities in the relevant jurisdictions may select our tax returns for audit and propose adjustments before the expiration of the statute of limitations. Our tax returns filed for tax years 2012 through 2016 remain open to adjustment in the major tax jurisdictions.

Deferred Income Taxes

Our deferred tax assets before valuation allowances were $33.0 million and $33.1 million at December 31, 2016 and 2015, respectively. Our deferred tax liabilities were $32.7 million and $24.9 million at December 31, 2016 and 2015, respectively. We determined that $28.1 million and $29.0 million of our deferred tax assets did not meet the criteria for recognition under the accounting guidance for income taxes and accordingly, we established valuation allowances in those amounts at December 31, 2016 and 2015, respectively. Our deferred tax asset, net of valuation allowance, is recorded in Other assets, net on our consolidated balance sheet. Our deferred tax assets and liabilities at December 31, 2016 and 2015 are primarily the result of temporary differences related to:

•

basis differences between tax and GAAP for real estate assets and equity investments (For income tax purposes, certain acquisitions have resulted in us assuming the seller’s basis, or the carry-over basis, in assets and liabilities for tax purposes. In accordance with purchase accounting requirements under GAAP, we record all of the acquired assets and liabilities at their estimated fair values at the date of acquisition. For our subsidiaries subject to income taxes in the United States or in foreign jurisdictions, we recognize deferred income tax liabilities representing the tax effect of the difference between the tax basis and the fair value of the tangible and intangible assets recorded at the date of acquisition for GAAP.); and


•	tax net operating losses in foreign jurisdictions that may be realized in future periods if we generate sufficient taxable income.

At December 31, 2016, we had net operating losses in U.S. federal, state, and foreign jurisdictions of approximately $35.1 million, $21.3 million, and $19.9 million, respectively. At December 31, 2015, we had net operating losses in U.S. federal, state and foreign jurisdictions of approximately $30.8 million, $23.5 million, and $32.0 million, respectively. If not utilized, the U.S. federal net operating loss carryforwards will begin to expire in 2032. The state and local net operating loss carryforwards will begin to expire in 2017. Certain of our foreign net operating loss carryforwards began to expire in 2016. The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction.