INTERTAPE POLYMER GROUP INC | CIK:0000880224 | 3

  • Filed: 3/29/2018
  • Entity registrant name: INTERTAPE POLYMER GROUP INC (CIK: 0000880224)
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    • ifrs-full:DisclosureOfIncomeTaxExplanatory

    INCOME TAXES
    On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law in the US. The TCJA significantly changes the previously existing US tax laws and includes numerous provisions that have had an immediate effect on the Company’s business, and will affect certain aspects of the Company's business going forward. These changes include, but are not limited to, a reduction in the statutory corporate tax rate from 35% to 21%, an enhancement and extension through 2026 of bonus depreciation, limitations and eliminations of certain deductions, a one-time transition tax on deemed repatriation of deferred foreign income, and new tax regimes impacting how foreign-derived earnings and cross-border intercompany transactions may be subject to US tax. The Company recognized a net tax benefit of approximately $9.6 million in the fourth quarter of 2017 primarily due to the remeasurement of the US net deferred tax liability using the lower US corporate tax rate provided under the TCJA.
    The reconciliation of the combined Canadian federal and provincial statutory income tax rate to the Company’s effective income tax rate is detailed as follows for each of the years in the three-year period ended December 31, 2017:
     
    2017
     
    2016
     
    2015
     
    %
     
    %
     
    %
    Combined Canadian federal and provincial income tax rate
    28.8

     
    29.5

     
    29.5

    Foreign earnings/losses taxed at higher income tax rates
    6.8

     
    6.6

     
    5.8

    Foreign earnings/losses taxed at lower income tax rates
    (0.6
    )
     
    (0.7
    )
     
    (1.0
    )
    Impact of TCJA enactment
    (12.4
    )
     
    —

     
    —

    Change in statutory rates
    1.2

     
    0.4

     
    (1.6
    )
    Prior period adjustments
    —

     
    —

     
    (3.1
    )
    Nondeductible expenses
    0.4

     
    0.7

     
    0.7

    Impact of other differences
    (3.5
    )
     
    (2.7
    )
     
    (1.1
    )
    Nontaxable dividend
    (6.6
    )
     
    (6.9
    )
     
    (7.6
    )
    Change in derecognition of deferred tax assets
    2.8

     
    0.8

     
    (5.4
    )
    Effective income tax rate
    16.9

     
    27.7

     
    16.2



    The major components of income tax expense (benefit) are outlined below for each of the years in the three-year period ended December 31, 2017:
     
    2017
     
    2016
     
    2015
     
    $
     
    $
     
    $
    Current income tax expense
    6,635

     
    8,757

     
    8,185

    Deferred tax expense (benefit)
     
     
     
     
     
    TCJA reduction in US corporate statutory rate
    (10,122
    )
     
    —

     
    —

    Derecognition (recognition) of US deferred tax assets
    885

     
    175

     
    (113
    )
    US temporary differences
    15,668

     
    10,818

     
    7,794

    Derecognition (recognition) of Canadian deferred tax assets
    412

     
    330

     
    (3,847
    )
    Canadian temporary differences
    1,202

     
    (352
    )
     
    (1,095
    )
    Temporary differences in other jurisdictions
    (1,631
    )
     
    (159
    )
     
    59

    Total deferred income tax expense
    6,414

     
    10,812

     
    2,798

    Total tax expense for the year
    13,049

     
    19,569

     
    10,983


    The amount of income taxes relating to components of other comprehensive income (loss) for each of the years in the three-year period ended December 31, 2017 is outlined below:
     
    Amount before
    income tax
     
    Deferred
    income taxes
     
    Amount net of
    income taxes
     
    $
     
    $
     
    $
    For the year ended December 31, 2017
     
     
     
     
     
    Deferred tax expense on remeasurement of defined benefit liability
    302

     
    (213
    )
     
    89

    Deferred tax expense on change in fair value of interest rate swap agreements designated as cash flow hedges
    2,358

     
    (750
    )
     
    1,608

     
    2,660

     
    (963
    )
     
    1,697

     
     
     
     
     
     
    Deferred tax expense due to TCJA reduction in US statutory rate
     
     
     
     
    (598
    )
     
     
     
     
     
     
    For the year ended December 31, 2016
     
     
     
     
     
    Deferred tax expense on remeasurement of defined benefit liability
    267

     
    (66
    )
     
    201

    Deferred tax expense on change in fair value of interest rate swap agreements designated as cash flow hedges
    219

     
    (83
    )
     
    136

     
    486

     
    (149
    )
     
    337

    For the year ended December 31, 2015
     
     
     
     
     
    Deferred tax expense on remeasurement of defined benefit liability
    2,550

     
    (964
    )
     
    1,586

    Deferred tax benefit on change in fair value of interest rate swap agreements designated as cash flow hedges
    (438
    )
     
    166

     
    (272
    )
     
    2,112

     
    (798
    )
     
    1,314


    The amount of recognized deferred tax assets and liabilities is outlined below:
     
    Deferred tax
    assets
     
    Deferred tax
    liabilities
     
    Net
     
    $
     
    $
     
    $
    As of December 31, 2017
     
     
     
     
     
    Tax credits, losses, carryforwards and other tax deductions
    11,387

     
    —

     
    11,387

    Property, plant and equipment
    15,661

     
    (28,208
    )
     
    (12,547
    )
    Pension and other post-retirement benefits
    7,175

     
    —

     
    7,175

    Share-based payments
    4,532

     
    —

     
    4,532

    Accounts payable and accrued liabilities
    3,894

     
    —

     
    3,894

    Goodwill and other intangibles
    7,950

     
    (9,692
    )
     
    (1,742
    )
    Trade and other receivables
    344

     
    —

     
    344

    Inventories
    1,939

     
    —

     
    1,939

    Other
    466

     
    (1,590
    )
     
    (1,124
    )
    Deferred tax assets and liabilities
    53,348

     
    (39,490
    )
     
    13,858


    Presented in the consolidated balance sheets as:
     
    December 31,
    2017
     
    $
    Deferred tax assets
    27,627

    Deferred tax liabilities
    (13,769
    )
     
    13,858

     
    Deferred tax
    assets
     
    Deferred tax
    liabilities
     
    Net
     
    $
     
    $
     
    $
    As of December 31, 2016
     
     
     
     
     
    Tax credits, losses, carryforwards and other tax deductions
    15,689

     
    —

     
    15,689

    Property, plant and equipment
    18,125

     
    (30,078
    )
     
    (11,953
    )
    Pension and other post-retirement benefits
    11,467

     
    —

     
    11,467

    Share-based payments
    8,749

     
    —

     
    8,749

    Accounts payable and accrued liabilities
    6,893

     
    —

     
    6,893

    Goodwill and other intangibles
    3,658

     
    (9,885
    )
     
    (6,227
    )
    Trade and other receivables
    353

     
    —

     
    353

    Inventories
    2,871

     
    —

     
    2,871

    Other
    539

     
    (1,102
    )
     
    (563
    )
    Deferred tax assets and liabilities
    68,344

     
    (41,065
    )
     
    27,279


    Presented in the consolidated balance sheets as:
     
    December 31,
    2016
     
    $
    Deferred tax assets
    36,611

    Deferred tax liabilities
    (9,332
    )
     
    27,279


    Nature of evidence supporting recognition of deferred tax assets
    In assessing the recoverability of deferred tax assets, management determines, at each balance sheet date, whether it is more likely than not that a portion or all of its deferred tax assets will be realized. This determination is based on quantitative and qualitative assessments by management and the weighing of all available evidence, both positive and negative. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and the implementation of tax planning strategies.
    As of December 31, 2017, management analyzed all available evidence and determined it is more likely than not that substantially all of the Company’s deferred tax assets in the US and Canadian operating entities will be realized. Accordingly, the Company continues to recognize the majority of its deferred tax assets in the US and Canadian operating entities. With respect to the deferred tax assets at the Canadian corporate holding entity (the “Entity”), management determined it is appropriate to derecognize the Entity's $0.4 million of remaining deferred tax assets as of December 31, 2017. The Canadian deferred tax assets remain available to the Company in order to reduce its taxable income in future periods.    
    As of December 31, 2016, management analyzed all available evidence and determined it is more likely than not that substantially all of the Company’s deferred tax assets in the US will be realized. Accordingly, the Company continued to recognize the majority of its deferred tax assets in the US and Canadian operating entities. With respect to the Entity, management determined it appropriate to maintain the same position for the year ended December 31, 2016 as taken for the year ended December 31, 2015 in that the majority of the Entity’s deferred tax assets should continue to be derecognized as of December 31, 2016. The Canadian deferred tax assets remain available to the Company in order to reduce its taxable income in future periods.
    The following table outlines the changes in the deferred tax assets and liabilities during the year ended December 31, 2016:
     
    Balance January 1, 2016
     
    Recognized in
    earnings (with
    translation
    adjustments)
     
    Recognized in
    contributed
    surplus
     
    Recognized in
    other
    comprehensive
    income
     
    Business
    acquisitions
     
    Balance December 31, 2016
     
    $
     
    $
     
    $
     
    $
     
    $
     
    $
    Deferred tax assets    
     
     
     
     
     
     
     
     
     
     
     
    Tax credits, losses, carryforwards and other tax deductions
    20,319

     
    (4,630
    )
     
    —

     
    —

     
    —

     
    15,689

    Property, plant and equipment
    16,801

     
    1,324

     
    —

     
    —

     
    —

     
    18,125

    Pension and other post-retirement benefits
    10,838

     
    707

     
    —

     
    (78
    )
     
    —

     
    11,467

    Share-based payments
    6,409

     
    731

     
    1,609

     
    —

     
    —

     
    8,749

    Accounts payable and accrued liabilities
    4,453

     
    2,420

     
    —

     
    —

     
    20

     
    6,893

    Goodwill and other intangibles
    3,464

     
    194

     
    —

     
    —

     
    —

     
    3,658

    Trade and other receivables
    1,698

     
    (1,345
    )
     
    —

     
    —

     
    —

     
    353

    Inventories
    1,682

     
    1,189

     
    —

     
    —

     
    —

     
    2,871

    Other
    583

     
    39

     
    —

     
    (83
    )
     
    —

     
    539

     
    66,247

     
    629

     
    1,609

     
    (161
    )
     
    20

     
    68,344

    Deferred tax liabilities
     
     
     
     
     
     
     
     
     
     
     
    Property, plant and equipment
    (17,851
    )
     
    (10,791
    )
     
    —

     
    —

     
    (1,436
    )
     
    (30,078
    )
    Other
    (970
    )
     
    (132
    )
     
    —

     
    —

     
    —

     
    (1,102
    )
    Goodwill and other intangibles
    (2,118
    )
     
    551

     
    —

     
    —

     
    (8,318
    )
     
    (9,885
    )
     
    (20,939
    )
     
    (10,372
    )
     
    —

     
    —

     
    (9,754
    )
     
    (41,065
    )
    Deferred tax assets and liabilities
    45,308

     
    (9,743
    )
     
    1,609

     
    (161
    )
     
    (9,734
    )
     
    27,279

    Impact due to foreign exchange rates
     
     
    (1,069
    )
     
    —

     
    12

     
     
     
     
    Total recognized
     
     
    (10,812
    )
     
    1,609

     
    (149
    )
     
     
     
     
    The following table outlines the changes in the deferred tax assets and liabilities during the year ended December 31, 2017:
     
    Balance January 1, 2017
     
    Recognized  in
    earnings  (with
    translation
    adjustments)
     
    Recognized  in
    contributed
    surplus
     
    Recognized in
    other
    comprehensive
    income
     
    Recognized in deficit
     
    Business
    acquisitions
     
    Balance reclassified from accrued liabilities
     
    Balance December 31, 2017
     
    $
     
    $
     
    $
     
    $
     
    $
     
    $
     
    $
     
    $
    Deferred tax assets    
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Tax credits, losses, carryforwards and other tax deductions
    15,689

     
    (4,302
    )
     
    —

     
    —

     
    —

     
    —

     
    —

     
    11,387

    Property, plant and equipment
    18,125

     
    (2,464
    )
     
    —

     
    —

     
    —

     
    —

     
    —

     
    15,661

    Pension and other post-retirement benefits
    11,467

     
    (3,418
    )
     
    —

     
    (874
    )
     
    —

     
    —

     
    —

     
    7,175

    Share-based payments
    8,749

     
    (1,309
    )
     
    (3,732
    )
     
    —

     
    824

     
    —

     
    —

     
    4,532

    Accounts payable and accrued liabilities
    6,893

     
    (3,081
    )
     
    —

     
    —

     
    —

     
    82

     
    —

     
    3,894

    Goodwill and other intangibles
    3,658

     
    4,292

     
    —

     
    —

     
    —

     
    —

     
    —

     
    7,950

    Trade and other receivables
    353

     
    (64
    )
     
    —

     
    —

     
    —

     
    55

     
    —

     
    344

    Inventories
    2,871

     
    (953
    )
     
    —

     
    —

     
    —

     
    21

     
    —

     
    1,939

    Other
    539

     
    231

     
    —

     
    (304
    )
     
    —

     
    —

     
    —

     
    466

     
    68,344

     
    (11,068
    )
     
    (3,732
    )
     
    (1,178
    )
     
    824

     
    158

     
    —

     
    53,348

    Deferred tax liabilities
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Property, plant and equipment
    (30,078
    )
     
    5,050

     
    —

     
    —

     
    —

     
    (2,405
    )
     
    (775
    )
     
    (28,208
    )
    Other
    (1,102
    )
     
    (161
    )
     
    —

     
    (327
    )
     
    —

     
    —

     
    —

     
    (1,590
    )
    Goodwill and other intangibles
    (9,885
    )
     
    889

     
    —

     
    —

     
    —

     
    (696
    )
     
    —

     
    (9,692
    )
     
    (41,065
    )
     
    5,778

     
    —

     
    (327
    )
     
    —

     
    (3,101
    )
     
    (775
    )
     
    (39,490
    )
    Deferred tax assets and liabilities
    27,279

     
    (5,290
    )
     
    (3,732
    )
     
    (1,505
    )
     
    824

     
    (2,943
    )
     
    (775
    )
     
    13,858

    Impact due to foreign exchange rates
     
     
    (1,124
    )
     
    —

     
    (56
    )
     
    —

     
     
     
     
     
     
    Total recognized
     
     
    (6,414
    )
     
    (3,732
    )
     
    (1,561
    )
     
    824

     
     
     
     
     
     

    Deductible temporary differences and unused tax losses for which no deferred tax asset is recognized in the consolidated balance sheets are as follows:
     
    December 31,
    2017
     
    December 31,
    2016
     
    $
     
    $
    Tax losses, carryforwards and other tax deductions
    25,004

     
    22,015

    Share-based payments
    2,972

     
    —

     
    27,976

     
    22,015


    The following table presents the amounts and expiration dates relating to unused tax credits in Canada for which no deferred tax asset is recognized in the consolidated balance sheets as of December 31:
     
    2017
     
    2016
     
    $
     
    $
    2018
    676

     
    633

    2019
    1,271

     
    1,191

    2020
    561

     
    526

    2021
    212

     
    199

    2022
    483

     
    453

    2023
    239

     
    224

    2024
    225

     
    211

    2025
    381

     
    357

    2026
    292

     
    273

    2027
    266

     
    249

    2028
    309

     
    290

    2029
    247

     
    231

    2030
    224

     
    210

    2031
    328

     
    308

    2032
    197

     
    185

    2033
    242

     
    226

    2034
    214

     
    200

    2035
    569

     
    533

    2036
    373

     
    257

    2037
    207

     
    —

    Total tax credits derecognized
    7,516

     
    6,756


    The following table presents the year of expiration of the Company’s operating losses carried forward in Canada as of December 31, 2017:
     
     
    Deferred tax assets not recognized
     
     
    Federal
     
    Provincial
     
     
    $
     
    $
    2029
     
    947

     
    946

    2030
     
    2,586

     
    2,586

    2031
     
    1,630

     
    1,630

    2037
     
    1,213

     
    1,213

     
     
    6,376

     
    6,375


    In addition, the Company has (i) state losses of $87.9 million (with expiration dates ranging from 2018 to 2030) for which a tax benefit of $2.9 million has been recognized; (ii) state losses of $86.1 million (with expiration dates ranging from 2018 to 2028) for which a tax benefit of $3.6 million has not been recognized; (iii) US state credits of $0.2 million for which no tax benefit has been recognized; and (iv) $16.1 million of capital loss carryforwards with indefinite lives available to offset future capital gains in Canada for which no tax benefit has been recognized.