Entity information:

  Note 11. Income Taxes

 

The Company files income tax returns for TG and ES in the Republic of Colombia. On December 28, 2016, the Colombian congress enacted a structural tax reform that took effect on January 1, 2017 which reduces corporate income tax from 42% to 40% for fiscal year 2017, 37% in 2018 and 33% in 2019 and thereafter. As a result of the Colombian tax reform from December 28, 2016, the Company’s net deferred tax liability decreased $586 as of December 31, 2016.

 

GM&P, Componenti and ESW LLC are U.S. entities based in Florida subject to U.S. federal and state income taxes. The estimated comined state and federal income tax rate ranges between 34% and 39.5%. Tecnoglass Inc. as well as all the other subsidiaries in the Cayman Islands and Panama do not currently have any tax obligations. On December 20, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was signed into law. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 act. Registrants must report provisional amounts for those specific income tax effects of the 2017 Act for which the accounting is incomplete but a reasonable estimate can be determined. Provisional amounts or adjustments to provisional amounts identified in the measurement period, as defined, should be included as an adjustment to tax expense or benefit from continuing operations in the period the amounts are determined. We analyzed the impact of the 2017 Act on our accounting for income taxes, including the remeasurement of our deferred tax assets and liabilities, and expect to see a reduction in U.S. tax expense as the new reform reduces the federal corporate tax rate from 35% to 21%.

 

ESW is an LLC that was not subject to income taxes during the year 2015 and the eleven months period ending December 2, 2016, since it was a pass-through entity for tax purposes. ESW was converted to a C-Corporation and will be subject to income taxes starting on December 3, 2016.

 

The components of income tax expense (benefit) are as follows:

 

    December 31,  
    2017     2016     2015  
Current income tax                        
United States   $ 4,558     $ -     $ -  
Colombia     7,372       16,318       20,809  
      11,930       16,318       20,809  
Deferred income Tax                        
United States     (2,328 )     -       -  
Colombia     (3,809 )     (246 )     (118 )
      (6,137 )     (246 )     (118 )
Total Provision for Income Tax   $ 5,793     $ 16,072     $ 20,691  

 

A reconciliation of the statutory tax rate in Colombia to the Company’s effective tax rate is as follows:

 

    December 31,  
    2017     2016     2015  
Income tax expense at statutory rates     37.0 %     40.0 %     39.0 %
Change in fair value of warrant liability     - %     -0.8 %     122.5 %
Change in fair value of Earnout shares     - %     -4.8 %     53.4 %
Other non-deductible expenses     14,7 %     -4.2 %     48.4 %
Withholding tax on debt payments     9.3 %     - %     - %
Other non-taxable income     -9.5 %     10.7 %     -2.2 %
Effective tax rate     51.5 %     40.9 %     261.1 %

 

The Company has the following deferred tax assets and liabilities:

 

    December 31,  
    2017     2016  
Deferred tax assets:                
Accounts Receivable Clients - not delivered FOB   $ -     $ 930  
Property, plant and equipment adjustments     483       564  
Financial Liabilities     -       24  
Deferred profit on other assets     108       107  
Foreign currency transactions     1,551          
Provision Inventory obsolescence     35       36  
Total deferred tax assets   $ 2,178     $ 1,661  
                 
Deferred tax liabilities:                
Inventory - not delivered FOB   $ 1,134     $ 1,507  
Unbilled receivables uncompleted contracts     726       2,649  
Depreciation and Amortization     2,532       1,028  
Total deferred tax liabilities   $ 2,124     $ 5,184  
                 
Net deferred tax   $ 2,214     $ 3,523  

 

Net deferred tax is presented on the balance sheet as follows:

 

    December 31,  
    2017     2016  
Long term deferred income tax asset   $ 103     $ -  
Less: long term deferred income tax liability   $ 2,317     $ 3,523  

 

As of December 31, 2017, the Company has an uncertain tax position amounting to $2,041 related to $8,351 gross unrecognized tax benefit associated with a conversion of GM&P’s cash basis accounting for tax purposed to accrual basis for Fiscal years 2016 and 2015. Before 2015, GM&P was using the cash method of accounting and due to IRS regulations it needed to convert to accrual method and pay the IRS taxes over the gross unrecognized tax benefit associated with the conversion. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business and may be subject to inspection by the Colombian tax authorities for a period of up to two years until the statute of limitations period elapses and US tax authorities for a period of up to six years until the statute of limitations period elapses.