INCOME TAXES
Income (loss) before income taxes attributable to U.S. (including its foreign branches) and foreign operations are as follows:
|
| | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 |
U.S. | $ | (33,327 | ) | | $ | (29,867 | ) |
Foreign | (1,144 | ) | | 13,914 |
|
Total | $ | (34,471 | ) | | $ | (15,953 | ) |
No income taxes are attributable to the noncontrolling interest.
The provision for income taxes shown in the consolidated statements of operations and comprehensive loss consists of current and deferred expense (benefit) as shown in the following table:
|
| | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 |
Current income tax expense: | |
| | |
|
U.S. – federal and state | $ | — |
| | $ | 102 |
|
Foreign | 3,783 |
| | 7,276 |
|
Total current income tax expense | $ | 3,783 |
| | $ | 7,378 |
|
Deferred income tax expense/(benefit): | |
| | |
|
U.S. – federal and state | $ | — |
| | $ | — |
|
Foreign | 530 |
| | (1,322 | ) |
Total deferred income tax expense/(benefit) | 530 |
| | (1,322 | ) |
Total provision for income taxes | $ | 4,313 |
| | $ | 6,056 |
|
A reconciliation of the provision for income tax expense (benefit) expected at the U.S. federal statutory income tax rate to the effective income tax rate is as follows:
|
| | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 |
Expected income tax expense (benefit) at 35% | $ | (12,065 | ) | | $ | (5,583 | ) |
Effects of expenses not deductible for tax purposes | 1,398 |
| | 1,312 |
|
Tax effect of valuation allowance on deferred tax assets | 5,299 |
| | 7,115 |
|
Effects of differences between U.S. and foreign tax rates, net of federal benefit | 1,865 |
| | 6,020 |
|
Net income attributable to noncontrolling interest | (717 | ) | | (1,057 | ) |
Branch tax\Foreign withholding and AMT | (182 | ) | | (1,466 | ) |
Rate changes | 8,272 |
| | (285 | ) |
Other adjustments | 443 |
| | — |
|
Provision for income taxes | $ | 4,313 |
| | $ | 6,056 |
|
The net deferred tax assets consist of the following:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Noncurrent deferred tax assets, net | $ | 4,592 |
| | $ | 5,122 |
|
Noncurrent deferred tax liability, net | — |
| | — |
|
Net deferred tax assets | $ | 4,592 |
| | $ | 5,122 |
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax assets: | |
| | |
|
Deferred charges | $ | 363 |
| | $ | 1,553 |
|
Stock compensation expense | 142 |
| | 237 |
|
Other accruals | 2,226 |
| | 4,421 |
|
Research and development credits | 160 |
| | 160 |
|
Capital lease obligation | 134 |
| | 134 |
|
Foreign tax credit and AMT credit carry forwards | 2,087 |
| | 2,087 |
|
Financing costs | 75 |
| | 453 |
|
Unrealized loss on foreign currency transactions | 663 |
| | 700 |
|
Net operating loss carry forwards | 22,404 |
| | 15,668 |
|
Total deferred tax assets | 28,254 |
| | 25,413 |
|
Less: valuation allowance | (22,651 | ) | | (16,890 | ) |
Total deferred tax assets, net | $ | 5,603 |
| | $ | 8,523 |
|
Deferred tax liabilities: | |
| | |
|
Property and equipment | $ | (671 | ) | | $ | (3,061 | ) |
Intangible assets | (340 | ) | | (340 | ) |
Total deferred tax liabilities | (1,011 | ) | | (3,401 | ) |
Net deferred tax assets | $ | 4,592 |
| | $ | 5,122 |
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Corporation has evaluated the available evidence and the likelihood of realizing the benefit of its net deferred tax assets. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. From its evaluation, the Corporation has concluded that based on the weight of available evidence, it is not more likely than not to realize the benefit of its deferred tax assets recorded in the United States, Malaysia, Brazil, Canada and Peru at December 31, 2017. Accordingly, the Corporation had a valuation allowance totaling $22,651 and $16,890 at December 31, 2017 and 2016, respectively. Should the factors underlying management’s analysis change, future valuation adjustments to the Corporation’s net deferred tax assets may be necessary. The valuation allowance was increased by $5,761 and decreased by $9,247 during the years ended December 31, 2017 and 2016, respectively.
The Corporation is subject to examination in all jurisdictions in which it operates. The Corporation is no longer subject to examination by the Internal Revenue Service or other foreign taxing authorities in which it files for years prior to 2008.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law in the United States, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. 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 U.S. Tax Reform. In accordance with SAB 118, the Corporation provisionally determined an adjustment to deferred tax assets, along with a corresponding adjustment to valuation allowance, was not necessary, which resulted in no tax expense recorded in connection with the re-measurement of certain deferred tax assets and liabilities. Additionally, as a reasonable estimate, the Corporation has provisionally recorded no tax expense in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, based upon an aggregate tax losses of its foreign subsidiaries. Additional work may be necessary for a more detailed analysis of the Corporation’s deferred tax assets and liabilities and its historical foreign earnings. Any subsequent adjustment to these amounts will be recorded in 2018 when the analysis is complete.
Foreign earnings are considered to be permanently reinvested in operations outside the United States and therefore the Corporation has not provided for U.S. income taxes on these unrepatriated foreign earnings. The Corporation is currently evaluating the impact of U.S. Tax Reform on the global structure and any associated impacts it may have on the assertion on a go forward basis and as such have not included a provisional estimate of the impact.
The details of the Corporation’s tax attributes are shown below: |
| | | | | | | |
| December 31, |
Net Operating Loss Carryforwards: | 2017 | | 2016 |
United States | $ | 59,065 |
| | $ | 22,505 |
|
Canada | 7,072 |
| | 6,117 |
|
Malaysia | 5,426 |
| | 5,726 |
|
Brazil | 6,241 |
| | 5,149 |
|
Peru | 4,713 |
| | 2,957 |
|
Others | 6,240 |
| | 4,847 |
|
Total | $ | 88,757 |
| | $ | 47,301 |
|
|
| | | | | | | |
| December 31, |
Foreign Tax Credit Carryforwards: | 2017 | | 2016 |
United States | $ | 100 |
| | $ | 100 |
|
Canada | 654 |
| | 654 |
|
United Kingdom | 727 |
| | 727 |
|
Total | $ | 1,481 |
| | $ | 1,481 |
|
|
| | | | | | | |
| December 31, |
Net Deferred Tax Assets: | 2017 | | 2016 |
Bolivia | $ | 875 |
| | $ | 1,368 |
|
Colombia | 3,392 |
| | 2,249 |
|
Malaysia | 325 |
| | 233 |
|
Peru | — |
| | 1,272 |
|
Total | $ | 4,592 |
| | $ | 5,122 |
|
As of December 31, 2017, the Corporation has approximately $192 of unrecognized tax benefits and does not expect to recognize any significant increases or decreases in unrecognized tax benefits during the next twelve-month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in tax expense. During 2017 and 2016, the aggregate changes in the Corporation's total gross amount of unrecognized tax benefits are as follows:
|
| | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 |
Unrecognized tax benefits, beginning balance | $ | — |
| | $ | — |
|
Additions for tax positions taken in prior years | 192 |
| | — |
|
Unrecognized tax benefits, ending balance | $ | 192 |
| | — |
|
There was no accrued interest and penalties included in accrued expenses as of December 31, 2017 and 2016. Interest and penalties recognized as expense amounted to $206 and $11 for the years ended December 31, 2017 and 2016, respectively.
Net Operating Losses
Due to the Restructuring, the Corporation's U.S. federal tax net operating loss ("NOL") carryforwards, foreign tax credits ("FTC") carryforwards and Research and Development Credits ("R&D") carryforwards were subject to Section 382 and Section 383 annual limitations due to the ownership changes from the Restructuring. The Corporation determined some of the carryforwards will expire unutilized and were written down from the deferred tax assets against a full valuation allowance.
As of December 31, 2017, the Corporation had U.S. federal tax NOL carryforwards of $59,065, which begin to expire in fiscal year 2034. These NOL carryforwards, subject to certain requirements and restrictions, including limitations on their use in the event of future ownership changes, may be used to offset future taxable income and thereby reduce the Corporation’s U.S. federal income taxes otherwise payable. Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), imposes an annual limit on the ability of a corporation that undergoes an ownership change to use its NOL carryforwards to reduce its tax liability.