Entity information:

NOTE 11 — PROVISION (BENEFIT) FOR INCOME TAXES

 

A.

Basis of Taxation

 

The Company’s Israeli subsidiaries are governed by the tax laws of the state of Israel which had a general tax rate of 25% in 2016 and 26.5% in 2015. The Company is entitled to various tax benefits in Israel by virtue of being granted the status of an “Approved Enterprise Industrial Company” as defined by the tax regulations. The benefits include, among other things, a reduced tax rate.

 

In December 2010, new legislation amending the Law for Encouragement of Capital Investments of 1959 (the “Investment Law”), was adopted. This new legislation became effective as of January 1, 2011 and applies to preferred income produced or generated by a preferred company from the effective date. Under this new legislation, a uniform corporate tax rate applies to all qualifying income of certain Industrial Companies, or Preferred Enterprise (as defined under the Investment Law), as opposed to the previous law’s incentives, which were limited to income from Approved Enterprises and Privileged Enterprises during their benefits period. Under the new legislation, the uniform tax rates are as follows: 2011 and 2012 - 15% (10% in preferred area), 2013 and 2014 - 12.5% (7% in preferred area) and in 2015 and thereafter - 12% (6% in preferred area).

 

Effective beginning in 2014, the regular Israeli tax rate was 26.5% for Regular Entities and 16% or 9% for  Preferred Enterprises (depending on the location of industry). Both Micronet and Enertec are eligible for the tax rate for Preferred Enterprises. In 2015 and 2016, Micronet was taxed at the 16% rate and Enertec was taxed at the 9% rate.

 

In December 2016, the Israeli government published the Economic Efficiency Law (2016) (legislative amendments to accomplish budget goals for the years 2017 and 2018). According to such law, in 2017 the general tax rate will decrease by 1% and starting 2018 by 2%; so that the tax rate will be 24% in 2017 and 23% in 2018 and onwards. In addition, the tax rate that applies to Preferred Enterprises in preferred area will be decreased by 1.5% to 7.5% starting January 1, 2017.

 

B. Provision for Taxes

 

 

    Year ended 
December 31,		  
    2016     2015  
Current:            
Domestic   $ -     $ -  
Foreign (Israel)     -       181  
      -       181  
                 
Taxes related to prior years     (25 )     (43 )
                 
Deferred:                
Deferred taxes, net     (104 )     (219 )
   Total provision for income taxes   $ (129 )   $ (81 )

 

C. The reconciliation of income tax at the U.S. statutory rate to the Company’s effective tax rate as follows:

 

    2016     2015  
U.S. federal statutory rate     35 %     35 %
Tax rate difference between U.S. and Israel     (10 )%     (8.5 )%
Effect of Israeli tax rate benefit     (17.5 )%     (14 )%
Effect of previous years     - %     (5 )%
Change in valuation allowance     - %     (4.9 )%
Others     (5.9 )%     - %
Effective Tax Rate     1.6 %     2.6 %

 

D.  Deferred Tax Assets and Liabilities

 

Deferred tax reflects the net tax effects of temporary differences between the carrying amounts of assets or liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2016 and 2015, the Company’s deferred taxes were in respect of the following:

 

    December 31,  
    2016     2015  
Net operating loss carry forward   $ 3,343     $ 1,668  
Provisions for employee rights and other temporary differences     209       91  
Deferred tax assets before valuation allowance     3,552       1,759  
Valuation allowance     (2,887 )     (1,188 )
Deferred tax assets     665       571  
Deferred tax liability     7       17  
Deferred tax assets, net   $ 658     $ 554  

 

E.

Tax losses

 

As of December 31, 2016, the Company has a net operating loss carry forward of approximately $4,921, which may be utilized to offset future taxable income for United States federal tax purposes. This net operating loss carry forward begins to expire in 2022.  Since it is more likely than not that the Company will not realize a benefit from this net operating loss carry forward, a 100% valuation allowance has been recorded to reduce the deferred tax asset to its net realizable value.

 

F.

Tax Assessments

 

 The Company received final tax assessments in the United States through tax year 2012, and with regard to the Israeli subsidiaries received final tax assessments up until tax year 2012.

  

G.

Uncertain Tax Position

 

The Company did not record any liability for income taxes associated with unrecognized tax benefits during 2016 and 2015.