On the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes broad and complex changes to the Code. The changes include, but are limited to:

 

 

The Company has completed its accounting for the income tax effects of the TCJA. Where the Company has yet been able to make reasonable estimates of the impact of certain elements, the Company has recorded any amounts related to those elements and has continued accounting for them in accordance with ASC on the basis of the tax laws in effect immediately prior to the enactment of the TCJA, pursuant to SEC Staff Accounting Bulletin  

 

The Company has calculated its best estimate of the impact of the TCJA for its year end income tax provision in accordance with its understanding of the TCJA and guidance available as of the date of this filing. As a result:

 

The TCJA reduces the U.S. federal corporate income tax rate from to for tax years beginning after In addition, the TCJA makes certain changes to the depreciation rules and implements new limits on the deductibility of certain executive compensation.

 

The Company estimates that after it utilizes its net operating losses carryforwards for Federal income tax purposes, available as of the Rate Reduction is expected to positively impact the Company’s future US after tax earnings. However, the ultimate impact is subject to the effect of other complex provisions in the TCJA, including the GILTI tax, which the Company is currently reviewing, and it is possible that any impact of GILTI tax could significantly reduce the benefit of the Rate Reduction. Due to the uncertain practical and technical application of many of these provisions, it is currently possible to reliably estimate whether GILTI will apply and if so, how it would impact the Company.

 

The Deemed Repatriation Transition Tax is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post- E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. Due to the aggregate accumulated deficits of our foreign subsidiaries, the Company will be subject to any transition tax under this provision of the TCJA.

 

 

Effective for tax years beginning after the TCJA provides a dividend received deduction, subject to a -year holding period, to a U.S. corporate shareholder for the foreign source portion of dividends received from a “specified -percent owned foreign corporation.”

 

Prior to enactment of the TCJA, the Company had asserted indefinite reinvestment of the earnings of its foreign subsidiaries. Under the TCJA, however, these earnings are longer subject to U.S. tax as a result of the transition tax. Nevertheless, a distribution of the earnings from our foreign subsidiaries still be subject to withholding taxes imposed by the local country from which the earnings would be distributed. Because the Company did have sufficient information as of year-end to evaluate how the TCJA would impact the Company’s existing position that its foreign earnings are permanently reinvested, the Company has included a provisional amount for this item in its financial statements for fiscal year The Company will record amounts as needed for this item beginning in the reporting period within the measurement period in which the Company obtains the necessary information and is able to analyze and use to prepare a reasonable estimate.

 

The TCJA creates a new requirement that certain income (., GILTI) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of () percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder, over () the amount of certain interest expense taken into account in the determination of net CFC-tested income.

 

Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the TCJA and the application of ASC Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the Company’s measurement of its deferred taxes.

 

Whether the Company is expected to have future U.S. inclusions in taxable income related to GILTI depends on only its current structure and estimated future results of global operations but also its intent and ability to modify its structure and/or business, The Company has yet completed its analysis of the GILTI tax rules and is yet able to reasonably estimate the effect of this provision of the TCJA or make an accounting policy election for the ASC treatment of the GILTI tax. Therefore, the Company has recorded any amounts related to potential GILTI tax in its financial statements and has yet made a policy decision regarding whether to record deferred taxes on GILTI.

 

 

The Company is taxed in accordance with U.S. tax laws.

 

As of the Company had net operating loss carry-forward for federal, state and foreign tax purposes of approximately  and respectively. If utilized, these carryforwards will expire starting in and indefinitely for federal, state and foreign tax purposes, respectively. In addition, as of the Company had federal research credit, retention credit and foreign tax credit carryforwards of approximately and respectively. If utilized, the federal tax carryforwards will begin to expire in and respectively. The Company also has credits in Israel totaling approximately These credits have expiration date. Utilization of U.S. net operating losses and credits be subject to substantial annual limitations due to the “change in ownership” provisions of the Code and similar state provisions. The annual limitation result in the expiration of net operating losses before utilization and, in the event the Company undergoes a change of ownership, utilization of the carryforwards could be restricted.

 

 

		Year ended December 31,
		2017				2016				2015
Domestic		$	(18,234	)		$	(16,898	)		$	(20,098	)
Foreign			6,999				319				(499	)
		$	(11,235	)		$	(16,579	)		$	(20,597	)

 

 

		Year ended December 31,
		2017				2016				2015
Current:
Domestic:
Federal		$	(92	)		$	92			$	—
State			191				109				85
Foreign			2,516				930				601
Total current income tax		$	2,615			$	1,131			$	686
Deferred:
Foreign		$	(156	)		$	—			$	—
Total deferred income tax		$	(156	)		$	—			$	—
Income tax expense		$	2,459			$	1,131			$	686

 

 

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 Company’s deferred tax assets are derived from its U.S. net operating loss carry forwards and other temporary differences.

 

In assessing the realization of deferred tax assets, the Company considers whether it is more likely than that all or some portion of the deferred tax assets will be realized. Based on the Company’s history of losses in the US and Israel, the Company established a valuation allowance on its US and Israeli deferred tax assets.

 

		December 31,
		2017				2016
Carry forward losses and credits		$	7,407			$	6,294
Deferred revenues			14,226				16,774
Accrued payroll, commissions, vacation			1,105				2,078
Allowance for doubtful accounts			633				43
Accrued severance pay			239				372
Other			2,668				2,939
Net deferred tax assets before valuation allowance			26,278				28,500
Valuation allowance			(26,122	)			(28,500	)
Net deferred tax assets		$	156			$	—

 

 

Valuation allowance decreased by during which included the impact of the Company’s adoption of ASU - Improvements to Employee Share-Based Payment Accounting, on ASU - simplifies several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statements of cash flows.  Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified retrospective transition method.  The adoption resulted in an increase to deferred tax assets of and a decrease to retained earnings of the same amount with an offsetting entry to valuation allowance which was also recorded to retained earnings. As a result, the adoption of this standard did have an impact on our consolidated balance sheet, results of operations, cash flows or statement of stockholders’ equity. Without the valuation allowance, the Company’s deferred tax assets would have increased by

 

 

 

A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense (benefit) as reported in the consolidated statements of operations is as follows:

 

		Year ended December 31,
		2017				2016				2015
Loss before taxes, as reported in the consolidated statements of operations		$	(11,235	)		$	(16,579	)		$	(20,597	)
Statutory tax rate			34	%			34	%			34	%
Theoretical tax benefits on the above amount at the US statutory tax rate		$	(3,820	)		$	(5,637	)		$	(7,003	)
Income tax at rate other than the U.S. statutory tax rate			(934	)			68				333
Tax advances and non-deductible expenses including equity based compensation expenses			3,123				4,298				1,061
Operating losses and other temporary differences for which valuation allowance was provided			(10,203	)			3,001				6,558
Research and Development Tax Credit			1,126				(1,182	)			-
State tax			(563	)			(536	)			(477	)
Impact of rate change			12,121				(360	)			(82	)
Change in tax reserve for uncertain tax positions			1,576				1,209				320
Other individually immaterial income tax items			33				270				(24	)
Actual tax expense		$	2,459			$	1,131			$	686

 

 

Gross unrecognized tax benefits as of January 1, 2016		$	897
Increase/decrease in tax position for current year			992
Increase/decrease in tax position for prior years			217
Gross unrecognized tax benefits as of December 31, 2016		$	2,106
Increase/decrease in tax position for current year			1,752
Increase/decrease in tax position for prior years			(176	)
Gross unrecognized tax benefits as of December 31, 2017		$	3,682

 

There was of unrecognized income tax benefits that, if recognized, approximately would impact the effective tax rate in the period in which each of the benefits is recognized. The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations. The total amount of penalties and interest is approximately as of

 

Israeli tax benefits under the Law for the Encouragement of Capital Investments, (the “Investment Law”):

 

Conditions for entitlement to the benefits:

 

The benefits available to a Beneficiary Enterprise relate only to taxable income attributable to the specific investment program and are conditioned upon terms stipulated in the Investment Law and the related regulations and the criteria set forth in the applicable certificate of approval (for a Beneficiary Enterprise). If VSL does fulfill these conditions, in whole or in part, the benefits can be cancelled, and VSL be required to refund the benefits, in an amount linked to the Israeli consumer price index plus interest.

 

The Office of the Chief Scientist at Israel’s Ministry of Industry, Trade and Labor approved the Israeli subsidiary as an R&D-incentive enterprise for a foreign resident company in accordance with the Encouragement of Capital Investments (Consolidated Version) Law.

 

If cash dividends are distributed out of tax exempt profits in a manner other than upon complete liquidation, VSL will then become liable for tax at the rate of - (depending on the level of foreign investments in VSL) in respect of the amount distributed.

 

Undistributed earnings of foreign subsidiaries:

 

As of approximately of undistributed earnings from non-U.S. operations held by the Company’s foreign subsidiaries and the Beneficiary Enterprise of VSL are designated as indefinitely reinvested outside the U.S. Accordingly, additional U.S. income taxes or additional foreign withholding taxes have been provided thereon. Determination of the amount of unrecognized deferred tax liability related to these earnings is practicable.

 

 

The Company has been audited by the Internal Revenue Service but are under current audit in various states for tax years through As of our federal returns for the years ended through the current period and most state returns for the years ended through the current period are still open to examination. In addition, all of the net operating losses and research and development credit carryforwards that be used in future years are still subject to adjustment.

 

In the Israeli Tax Authorities initiated a tax assessment audit on VSL for the years - The Company believes it has valid arguments to support its positions and intends to defend against any tax assessment. The Company has recorded a provision with respect to its uncertain tax positions in accordance with ASC

 

The Company has final tax assessments for VSL in Israel through VSUK in UK through and VSF in France through

 

VSG in Germany, VSC in Canada, VIRE in Ireland and VAUS in Australia do have final tax assessments since their respective inceptions.