Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.22.1
Income Taxes
3 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

17. INCOME TAXES

The tax expense and the effective tax rate resulting from operations were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Income (loss) before income taxes

 

$

(12,481

)

 

$

(10,324

)

Income tax expense

 

 

691

 

 

 

34

 

Effective tax rate

 

 

(5.54

%)

 

 

(0.33

%)

The increase in the effective tax rate for the three months ended March 31, 2022, as compared to three months ended March 31, 2021, is driven by domestic permanent differences, primarily related to the Global Intangible Low-Tax Income provision (GILTI) inclusion, and amount and mix of income (loss) from certain tax jurisdictions.

The Company’s recorded effective tax rate is less than the U.S. statutory rate primarily due to changes in the valuation allowance caused by a reduction in deferred tax liabilities, current tax expense in tax jurisdictions that provide for a valuation allowance, and foreign tax rate differentials from the U.S. domestic statutory tax rate.

The Company currently has valuation allowances recorded against its deductible temporary differences and net operating loss carryforwards in certain jurisdictions where the non-realizability of such deferred tax assets is concluded to be more likely than not. Each quarter, the Company evaluates all available evidence to assess the recoverability of its deferred tax assets in each jurisdiction, including significant events and transactions, both positive and negative, and the reversal of taxable temporary differences and forecasted earnings. As a result of the Company’s analysis, management concluded that it is more likely than not that a portion of its deferred tax assets will not be realized. Therefore, the Company continues to provide a valuation allowance against its deferred tax assets in certain jurisdictions. The Company continues to monitor available evidence and may reverse some or all of its remaining valuation allowance in future periods, if appropriate.  The Company has a recorded valuation allowance against its deferred tax assets approximating $37.9 million as of March 31, 2022, and $15.6 million as of March 31, 2021.

Under the acquisition method of accounting for business combinations, if changes are identified to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they are related to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement-period adjustment, and offsets to goodwill are recorded. Kaleyra US, Inc.’s acquired deferred tax asset valuation measurement period remains open primarily related to pre-acquisition income tax return filings, that are due in the three-month period ending June 30, 2022.