Hudson Global, Inc.

INCOME TAXES

Income Tax Provision

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Company recognized the income tax effects of the Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the Tax Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Tax Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. The Company did not identify items for which the income tax effects of the Tax Act have not been completed and a reasonable estimate could not be determined as of December 31, 2017.

As a result of the reduction in the U.S. federal tax rate from 35% to 21% under the Tax Act, the Company revalued its ending gross deferred tax assets at December 31, 2017 by $46,189 which was fully offset by a decrease in valuation allowance. Additionally, the Company recorded a provisional amount of $0 tax payable with respect to the deemed mandatory repatriation of undistributed foreign earnings of foreign subsidiaries and the Company has elected to account for the global intangible low-taxed income ("GILTI") tax, if applicable, in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017. On this basis, the net impact on tax expense provided in the Company’s consolidated financial statements for the year ended December 31, 2017 related to the Tax Act is $0. The ultimate impact may differ from the provisional amounts due to additional analysis, changes in interpretations and assumptions, and additional regulatory guidance. The provisional accounting is expected to be complete when the 2017 U.S. federal income tax return is filed in 2018.

The domestic and foreign components of income (loss) before income taxes from continuing operations were as follows:



	Year ended December 31,
	2017			2016			2015
Domestic	$	(4,945	)	$	(5,768	)	$	3,607
Foreign	4,309			(2,423		)	(1,354		)
Income (loss) from continuing operations before provision for income taxes	$	(636	)	$	(8,191	)	$	2,253

The provision for (benefit from) income taxes from continuing operations were as follows:



	Year ended December 31,
	2017		2016			2015
Current tax provision (benefit):
U.S. Federal	$	—	$	—		$	—
State and local	19		(11		)	18
Foreign	1,926		981			439
Total current provision for (benefit from) income taxes	1,945		970			457
Deferred tax provision (benefit):
U.S. Federal	—		—			—
State and local	—		—			—
Foreign	339		(228		)	189
Total deferred provision for (benefit from) income taxes	339		(228		)	189
Total provision for (benefit from) income taxes from continuing operations	$	2,284	$	742		$	646

Tax Rate Reconciliation

The effective tax rates for the years ended December 31, 2017, 2016 and 2015 were negative 359.1%, negative 9.1% and positive 28.7%, respectively. These effective tax rates differ from the U.S. Federal statutory rate of 35% due to state income taxes, changes in valuation allowances in the U.S. and certain foreign jurisdictions which reduces or eliminates the effective tax rate on current year profits or losses, variations from the U.S. Federal statutory rate in foreign jurisdictions, taxes on repatriations of foreign profits, and non-deductible expenses. The effect of U.S. federal tax rate changes in 2017 and state tax rate changes in 2015 on deferred tax assets was offset by an increase in valuation allowance and has no net impact on effective tax rate.

The following is a reconciliation of the effective tax rate from continuing operations for the years ended December 31, 2017, 2016 and 2015 to the U.S. Federal statutory rate of 35%:



	Year ended December 31,
	2017			2016			2015
Provision for (benefit from) continuing operations at Federal statutory rate of 35%	$	(222	)	$	(2,867	)	$	787
State income taxes, net of Federal income tax effect	13			(7		)	11
Change in valuation allowance	(46,183		)	(5,045		)	447
Taxes related to foreign income	956			8,901			2,140
Effect of U.S. federal and state tax rate changes on deferred tax assets	46,189			—			(6,834		)
Nondeductible expenses	1,214			399			1,375
Others	317			(639		)	2,720
Provision for (benefit from) income taxes	$	2,284		$	742		$	646

Deferred Taxes Assets (Liabilities)

Deferred income taxes are provided for the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Net deferred tax assets as of December 31, 2017 and 2016, have been classified as non-current in the accompanying Consolidated Balance Sheets. Significant temporary differences at December 31, 2017 and 2016 were as follows:



	As of December 31,
	2017			2016
Deferred tax assets (liabilities):
Allowance for doubtful accounts	$	116		$	157
Property and equipment	868			1,024
Goodwill and intangibles	1,614			3,879
Accrued compensation	4,318			3,011
Accrued liabilities and other	2,299			2,311
Tax loss carry-forwards	107,348			152,197
Deferred tax assets (liabilities) gross, total	116,563			162,579
Valuation allowance	(110,159		)	(156,343		)
Deferred tax assets (liabilities), net of valuation allowance, total	$	6,404		$	6,236

During the fourth quarter 2017, the Company reevaluated its position that all unremitted earnings of its foreign subsidiaries would be indefinitely reinvested and the Company is now required to account for U.S. tax on these earnings. Future repatriations of previously unremitted foreign earnings are expected to either be exempt from U.S. taxation or offset by NOLs, therefore as of December 31, 2017, no U.S. tax has been provided on unremitted foreign earnings. The Company has provided $30 of withholding tax with respect to unremitted foreign earnings.

Net Operating Losses ("NOLs") and Valuation Allowance

At December 31, 2017, the Company had net NOLs for U.S. Federal tax purposes of approximately $327,057. This total includes approximately $16,584 of tax losses that were not absorbed by Monster Worldwide, Inc. ("Monster") on its consolidated U.S. Federal tax returns through the spin off of the Company on April 1, 2003. U.S. federal NOLs expire at various dates through 2037. During 2016, the Company adopted ASU 2016-09, as a result the NOL balance was increased by the $5,222 previously unrecognized deductions related to stock options and restricted stock and the valuation allowance was increased resulting in a net tax impact of $0. The Company's utilization of NOLs is subject to an annual limitation imposed by Section 382 of the Internal Revenue Code, which may limit our ability to utilize all of the existing NOLs before the expiration dates. As of December 31, 2017, certain international subsidiaries had NOLs for local tax purposes of $85,055. With the exception of $79,355 of NOLs with an indefinite carry forward period as of December 31, 2017, these losses will expire at various dates through 2037, with $139 scheduled to expire during 2018. The deferred tax recognized for NOLs are presented net of unrecognized tax benefits, where applicable.

ASC 740-10-30-5 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making this assessment, management considers the level of historical taxable income, scheduled reversals of deferred tax liabilities, tax planning strategies, and projected future taxable income. The provision for income tax includes a net tax benefit of $0, resulting from changes in judgment regarding the realizability of deferred tax assets in future years. As of December 31, 2017, $103,884 of the valuation allowance relates to the deferred tax asset for NOLs, $86,670 of which is U.S. Federal and state, and $17,214 of which is foreign, that management has determined will more likely than not expire prior to realization. The remaining valuation allowance of $6,275 relates to deferred tax assets on U.S. and foreign temporary differences that management estimates will not be realized due to the Company's U.S. and foreign tax losses.

Uncertain Tax Positions

As of December 31, 2017 and 2016, the Company's unrecognized tax benefits, including interest and penalties, which would lower the Company’s annual effective income tax rate if recognized in the future, were as follows:



	As of December 31,
	2017		2016
Gross unrecognized tax benefits excluding interest and penalties	$	2,056	$	2,039
Less: amount presented as a reduction to a deferred tax asset	521		438
Unrecognized tax benefits, excluding interest and penalties	$	1,535	$	1,601
Accrued interest and penalties	696		610
Total unrecognized tax benefits that would impact the effective tax rate	$	2,231	$	2,211

The following table shows a reconciliation of the beginning and ending amounts of unrecognized tax benefits, exclusive of interest and penalties:



Balance at January 1, 2017	$	2,039
Additions based on tax positions related to the current year	79
Additions for tax positions of prior years	2
Lapse of statute of limitations	(150		)
Currency Translation	86
Balance at December 31, 2017	$	2,056

Estimated interest and penalties classified as part of the provision for income taxes in the Company’s Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015 were as follows:



	Year ended December 31,
	2017		2016		2015
Expense for (benefit of) estimated interest and penalties related to unrecognized tax benefits	$	55	$	77	$	50

Based on information available as of December 31, 2017, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $200 to $400 over the next 12 months as a result of projected resolutions of global tax examinations and controversies and potential lapses of the applicable statutes of limitations.

In many cases, the Company’s unrecognized tax benefits are related to tax years that remain subject to examination by the relevant tax authorities. Tax years with NOLs remain open until such losses expire or the statutes of limitations for those years when the NOLs are used or expire. As of December 31, 2017, the Company's open tax years remain subject to examination by the relevant tax authorities and currently under income tax examination were principally as follows:



		Year
Earliest tax years remain subject to examination by the relevant tax authorities:
U.S. Federal		2014
Other U.S. state and local jurisdictions		2013
U.K.		2016
Australia		2013
Majority of other foreign jurisdictions		2013

The Company believes that its tax reserves are adequate for all years subject to examination above.