NOTE 10 - Income Taxes

The Company files income tax returns in the following jurisdictions: United States, Czech Republic, Germany and Austria. In the Czech Republic, prior to January 1, 2012, gaming income was not subject to corporate income tax.  In lieu of income taxes, gaming income was subject to other taxes in the Czech Republic, including gaming and charity taxes, which were primarily based on percentages of gaming revenues.  Foreign net operating loss carry-forwards (disclosed below) were derived from non-gaming activities and could only be applied against non-gaming activities.  Effective January 1, 2012, the Czech government instituted a corporate income tax rate of 19.0% on income.  For the year ended December 31, 2017, the Company recorded an income tax provision of $898, which includes a $240 deferred tax provision resulting from foreign book tax differences on fixed assets and other temporary items.  For the year ended December 31, 2016, the Company recorded an income tax provision of $2,668, which included $130 of deferred income tax benefit resulting from foreign book tax differences on fixed assets and other temporary items. Corporate income tax is payable by the end of June of the subsequent year. In compliance with tax regulations, the Company began making quarterly, estimated Czech corporate income tax payments beginning for the quarter ended September 30, 2013.

Domestic and foreign income taxes, included in the consolidated statements of operations, for the years ended December 31, 2017 and 2016 are summarized below:

The Company’s provision (benefit) for income taxes at December 31, 2017 and 2016 is summarized as follows:

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows:

 

The Company’s current year effective income tax rate was impacted due to losses in the United States for which no benefit has been recorded. A majority of the earnings recognized by the Company during the year ended December 31, 2017 were at our properties in the Czech Republic. Based on permanent items and the impact of foreign currency exchange rates, the earnings in the Company’s Czech properties accounted for nearly 100% of the total tax expense recorded.

On December 22, 2017, the “Tax Cuts and Jobs Act” (TCJA) was enacted which significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, repeals the corporate alternative minimum tax (AMT), imposes additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system.  As a result of this legislation, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.  However, the Company is still analyzing certain aspects of the TCJA and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.  The provisional amount recorded related to the remeasurement of the Company’s deferred tax balances was $2,810 which was offset fully by the provisional amount recorded related to the reversal of previously established valuation allowances against these deferred tax balances.  In addition, the Company recognized $5,203 of tax expense related to the deemed repatriation of foreign accumulated earnings, however this was fully offset by utilization of Federal net operating losses.

While the Company has completed its provisional analysis of the income tax effects of the TCJA and recorded a reasonable estimate of such effects, the amounts recorded related to the TCJA may differ, possibly materially, due to, among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions that the Company has made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions the Company may take as a result of the TCJA. The Company will complete its analysis over a one-year measurement period ending no later than December 22, 2018, and any adjustments during this measurement period will be included in loss from continuing operations as an adjustment to income tax expense/benefit in the reporting period when such adjustments are determined.

The Company records deferred tax assets and liabilities based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted statutory tax rate in effect for the year these differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The recorded deferred tax assets are reviewed for impairment on a quarterly basis by reviewing the Company’s internal estimates for future taxable income.

The Company assesses the continuing need for a valuation allowance that results from uncertainty regarding its ability to realize the benefits of the Company’s deferred tax assets. The Company has a valuation allowance on its U.S. and foreign deferred tax assets of $5,992 and $3,267, respectively, as of December 31, 2017 due to the uncertainty of future taxable income. The ultimate realization of deferred income tax assets depends on generation of future taxable income in the jurisdictions where the assets are located during the periods in which those temporary differences become deductible. If the Company concludes that its prospects for the realization of its deferred tax assets are more likely than not, the Company will then reduce its valuation allowance as appropriate and credit income tax.

At December 31, 2017, the Company had U.S., state and foreign net operating loss carry forwards (NOL’s), of approximately $20,637,  $12,887 and $16,973, respectively, available to offset certain future taxes payable. However, certain historical events may have triggered significant limitations on pre-existing U.S. NOL’s pursuant to Section 382 of the Internal Revenue Code. A full valuation allowance has been established for these deferred tax assets since their realization is considered uncertain. The Company’s NOLs will begin to expire in 2024.

The Company’s deferred income taxes at December 31, 2017 and 2016 are summarized as follows:

In November 2015, the FASB issued guidance on balance sheet classification of deferred taxes, requiring that all tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for annual reporting periods beginning after December 15, 2016. The Company adopted this guidance in 2017, which did not result in any changes to the Company’s classification of deferred tax assets and liabilities.

The Company has analyzed filing positions in all of the U.S. federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its U.S. federal tax return, its state tax return in New York and its foreign tax returns in Czech Republic, Germany and Austria, where it owns and operated casinos and hotels, as “major” tax jurisdictions, as defined by the Code.

The Company’s tax returns for the following periods are subject to examination:

The Company has not recognized any tax liability for uncertain income tax positions on any of its returns. The Company may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results.

Based on the Company’s capital, debt and liquidity position, there is no expected need for cash repatriation from foreign subsidiaries, and all cash held in foreign jurisdictions is considered permanently reinvested. However, due to the enactment of the TCJA, these earnings have been recognized as taxable income in 2017.   If these earnings are subsequently remitted as dividends, they will be considered previously tax income and will not be subject to US income taxes at that time.