Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

23. INCOME TAXES

The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.

The following table presents domestic and foreign components of income (loss) before income tax expense (benefit) for the years ended December 31, 2020 and 2019 (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Domestic

 

$

(19,536

)

 

$

(7,857

)

Foreign

 

 

(9,550

)

 

 

4,618

 

Loss before income tax expense (benefit)

 

$

(29,086

)

 

$

(3,239

)

 

The provision for federal and state income taxes consists of the following (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Current

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

US federal corporate income tax

 

$

 

 

$

 

US state corporate income tax

 

 

1

 

 

 

 

Foreign:

 

 

 

 

 

 

 

 

IRES (Italian corporate income tax)

 

 

305

 

 

 

66

 

IRAP (Italian regional tax on productive activities)

 

 

165

 

 

 

50

 

Foreign (India)

 

 

 

 

 

1,977

 

Other Italian taxes

 

 

 

 

 

194

 

Current

 

 

471

 

 

 

2,287

 

Deferred

 

 

(2,747

)

 

 

(14

)

Income tax expense (benefit)

 

$

(2,276

)

 

$

2,273

 

 

The differences between income taxes expected by applying the U.S. federal statutory tax rate of 21% and the amount of income taxes provided for are as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Loss before income tax expense (benefit)

 

$

(29,086

)

 

$

(3,239

)

Primary tax rate of the Company (1)

 

 

21.00

%

 

 

21.00

%

Tax benefit calculated according to the Company's primary tax rate

 

 

(6,097

)

 

 

(680

)

State income tax, net of Federal

 

 

(1,188

)

 

 

(483

)

Foreign tax rates differences (2)

 

 

(750

)

 

 

319

 

Change in applicable tax rates

 

 

 

 

 

(513

)

Change in valuation allowance

 

 

7,435

 

 

 

2,027

 

Non-taxable income

 

 

 

 

 

(196

)

Costs not deductible for tax purposes

 

 

 

 

 

541

 

Costs not deductible associated with investments

 

 

 

 

 

36

 

CFC (Controlled Foreign Corporation rules) (3)

 

 

 

 

 

288

 

IRAP (Italian Regional Tax on Productive Activities)

 

 

 

 

 

4

 

Taxes on undistributed profits

 

 

144

 

 

 

926

 

Stock based compensation

 

 

(1,820

)

 

 

 

Other taxes

 

 

 

 

 

4

 

Reported income tax expense (benefit)

 

$

(2,276

)

 

$

2,273

 

 

 

(1)

For the years ended December 31, 2020 and 2019, “primary tax rate of the Company” means the U.S. federal tax rate (21%).

 

(2)

For the years ended December 31, 2020 and 2019, “foreign” relates to tax jurisdictions outside the United States.

 

(3)

Recorded by the Company in relation with the Dubai subsidiary.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The following table presents the significant components of the Company’s deferred tax assets and liabilities (in thousands):

 

 

 

As of December 31,

 

 

 

2020

 

 

2019

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Startup costs

 

$

2,918

 

 

$

2,755

 

Deferred compensation liabilities

 

 

3,557

 

 

 

398

 

Property and equipment

 

 

 

 

 

70

 

Goodwill

 

 

100

 

 

 

119

 

Net operating loss carryforward

 

 

9,420

 

 

 

3,370

 

Other

 

 

578

 

 

 

422

 

Total deferred tax assets

 

 

16,573

 

 

 

7,134

 

Less: valuation allowance

 

 

(12,923

)

 

 

(5,591

)

Total deferred tax assets, net

 

 

3,650

 

 

 

1,543

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Intangible assets

 

 

1,891

 

 

 

2,351

 

Undistributed profits

 

 

1,033

 

 

 

1,093

 

Property and equipment

 

 

23

 

 

 

134

 

Other

 

 

 

 

 

10

 

Total deferred tax liabilities

 

 

2,947

 

 

 

3,588

 

Net deferred tax assets (liabilities)

 

$

703

 

 

$

(2,045

)

 

As of December 31, 2020, the Company has federal, state and foreign net operating loss carryforwards totaling $27.5 million, $27.8 million and $7.2 million, respectfully. If not utilized, federal net operating losses of $5.4 million will expire at various dates from 2026 through 2037, and $22.1 million have an indefinite life. State net operating losses of $27.8 million will expire at various dates from 2037 through 2040. Foreign net operating losses originated in Switzerland and will expire at various dates from 2023 through 2027.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. The Company does not believe that it is more likely than not that all of the deferred tax assets will be realized; accordingly, a valuation allowance has been established for the amount of the deferred tax assets on net operating loss carryforward, startup costs, and other deferred tax assets in excess of the deferred tax liabilities that will reverse prior to any net operating loss carryforward expiration date.

The following table sets forth activity in the valuation allowance for the year ended December 31, 2020 and 2019 (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Balance at the beginning of the period

 

$

5,591

 

 

$

723

 

Change in scope of consolidation

 

 

4,707

 

 

 

2,836

 

Increase during the period

 

 

2,625

 

 

 

2,027

 

Effect of exchange rate changes

 

 

 

 

 

5

 

Balance at the end of the period

 

$

12,923

 

 

$

5,591

 

 

The Company recognizes interest and penalties, if any, related to an underpayment of income taxes in income tax expense. As of December 31, 2020, the Company has accumulated $91,000 in interest expense related to unrecognized tax benefits ($91,000 as of December 31, 2019).

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2020 and 2019 is as follows (in thousands):

 

 

 

As of December 31,

 

 

 

2020

 

 

2019

 

Gross unrecognized tax benefits, beginning of the year

 

$

468

 

 

$

190

 

Additions for tax positions of prior years

 

 

 

 

 

 

Additions for tax positions related to the current year

 

 

88

 

 

 

193

 

Change in scope of consolidation

 

 

 

 

 

 

Reductions due to settlements

 

 

 

 

 

 

Effect of exchange rate

 

 

14

 

 

 

(6

)

Subtotal

 

 

570

 

 

 

377

 

Interest and penalties

 

 

60

 

 

 

91

 

Total gross unrecognized tax benefits, end of the year

 

$

630

 

 

$

468

 

As of December 31, 2020, the Company had $4.9 million of undistributed earnings and profits generated by a foreign subsidiary (Solutions Infini) for which no deferred tax liabilities have been recorded, since the Company intends to indefinitely reinvest such earnings in the subsidiary to fund the international operations and certain obligations of the subsidiary. Should the above undistributed earnings be distributed in the form of dividends or otherwise, the distributions would result in $737,000 of tax expense.

The Company files income tax returns in the United States and in foreign jurisdictions including Italy, India, and Switzerland. As of December 31, 2020, the tax years 2007 through the current period remain open to examination in each of the major jurisdictions in which the Company is subject to tax.

On March 27, 2020, the United States enacted the CARES Act in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has evaluated the CARES Act's impact and determined that none of the changes would result in a material income tax benefit to the Company.  On December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law and extends several CARES Act provisions. As of December 31, 2020, the Company has determined that neither this Act nor changes to income tax laws or regulations in other jurisdictions is expected to have a significant impact on our effective tax rate.