Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.22.2
Income Taxes
6 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

15. INCOME TAXES

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

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Loss before income taxes

 

$

(15,932

)

 

$

(11,895

)

 

$

(28,413

)

 

$

(22,219

)

Income tax expense (benefit)

 

 

(95

)

 

 

(7,408

)

 

 

596

 

 

 

(7,374

)

Effective tax rate

 

 

0.60

%

 

 

62.28

%

 

 

(2.10

%)

 

 

33.19

%

The decrease in the effective tax rate for the three and six months ended June 30, 2022, as compared to three and six months ended June 30, 2021, is mainly driven by the release of the valuation allowance related to previously reserved deferred tax assets following the mGage acquisition in the prior period.

The Company’s recorded effective tax rate is less than the U.S. statutory rate primarily due to 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.

As of January 1, 2022, new tax regulations are in place in the US. In order to fully comply with internal revenue requirements, research and development expenses can no longer be deducted when incurred but instead they will be capitalized only for tax purposes and they will be amortized over a five or fifteen-year period.

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 is now closed as of June 30, 2022. All pre-acquisition income tax return filings were filed.