NOTE 9. INCOME TAXES
IDdriven, Inc. was formed in January 2014 under the name TiXFi, Inc. Prior to the Share Exchange in December 2015, the Company only had operations in the United States. In December 2015, the Company became the parent of Insight Innovators B.V., a wholly owned Netherlands subsidiary, which files tax returns in The Netherlands.
The Netherlands and U.S. components of (loss) income before income taxes were as follows:
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For The Years Ended |
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December 31, |
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2016 |
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2015 |
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The Netherlands |
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$ | (631,576 | ) |
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$ | (952,639 | ) |
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United States |
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(3,634,371 | ) |
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(235,984 | ) |
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Loss before income taxes |
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$ | (4,265,947 | ) |
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$ | (1,188,623 | ) |
The income tax provision (benefit) for the years ended December 31, 2016 and 2015 consists of the following:
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For The Years Ended |
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December 31, |
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2016 |
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2015 |
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Income tax expense (benefit) at statutory rate: |
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The Netherlands |
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$ | (147,394 | ) |
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$ | (227,660 | ) |
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United States |
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(376,876 | ) |
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(80,234 | ) |
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Total |
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(524,270 | ) |
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(307,894 | ) |
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Change in valuation allowance |
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524,270 |
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273,394 |
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Income tax expense (benefit) per books |
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$ | - |
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$ | (34,500 | ) |
Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
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December 31, |
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2016 |
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2015 |
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NOL Carryover: |
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The Netherlands |
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$ | 315,236 |
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$ | 167,842 |
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United states |
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457,111 |
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80,235 |
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Total |
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772,347 |
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|
248,077 |
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Valuation allowance |
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|
(772,347 | ) |
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|
(248,077 | ) |
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Net deferred tax asset |
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$ | - |
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$ | - |
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Federal income tax rate |
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34.0 | % |
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Increase in valuation allowance |
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(34.0 |
%) | |
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Effective income tax rate |
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0.0 | % |
The reconciliation of the effective income tax rate to the Netherlands statutory rate as follows:
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December 31, |
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2016 |
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2015 |
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Income tax rate |
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23.3 | % |
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|
23.9 | % |
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Increase in valuation allowance |
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(23.3 |
%) |
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(23.9 |
%) |
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Effective income tax rate |
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|
0.0 | % |
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|
0.0 | % |
At December 31, 2016 and 2015, the Company had approximately $1,345,000 and $713,000, respectively of foreign net operating losses (“NOLs”) that may be available to offset future taxable income, which begin to expire in 2023. At December 31, 2016 and 2015, the Company had approximately $1,344,500 and $236,000, respectively, of federal (U.S.) NOLs that may be available to offset future taxable income, which begin to expire in 2034. In accordance with Section 382 of the U.S. Internal Revenue Code, the usage of the Company’s net operating loss carry forwards are subject to annual limitations following greater than 50% ownership changes.
The Company assesses the likelihood that deferred tax assets will be realized. ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2016. As at December 31, 2014, the Company had a tax position, for which we have established a tax benefit of $34,500, for the carry back of losses incurred during the year ended December 31, 2015. For the years ended December 31, 2016 and 2015, the increase in the valuation allowance was $524,270 and $273,394, respectively.