XML 28 R12.htm IDEA: XBRL DOCUMENT
v3.3.1.900

Taxes | 12 Months Ended
--- | ---
Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] |
5. | Taxes
The significant components of the provision for income taxes for each of the three years in the period ended December 31, 2015 are as follows (in thousands):
|  | 2015 |  | 2014 |  | 2013 |
Current income tax expense: |  |  |  |  |  |  |  |  |  |
Foreign |  | $ | 1,331 |  | $ | 778 |  | $ | 946 |
Federal |  |  | 4 |  |  | - |  |  | (24) |
State and local |  |  | 1 |  |  | 22 |  |  | 13 |
|  |  | 1,336 |  |  | 800 |  |  | 935 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |  |  |
Foreign |  |  | (133) |  |  | (413) |  |  | (493) |
Federal |  |  | - |  |  | 19 |  |  | 4,530 |
State and local |  |  | - |  |  | - |  |  | 479 |
|  |  | (133) |  |  | (394) |  |  | 4,516 |
Provision for income taxes |  | $ | 1,203 |  | $ | 406 |  | $ | 5,451 |
The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for each of the three years in the period ended December 31, 2015 is summarized as follows:
|  | 2015 |  |  | 2014 |  |  | 2013 |
Federal statutory rate |  | (34.0) | % |  | (34.0) | % |  | (34.0) | %
Effect of: |  |  |  |  |  |  |  |  |
State income taxes (net of federal tax benefit) |  | (2.7) |  |  | (2.1) |  |  | (2.1) |
Taxes on foreign income at rates that differ from U.S. statutory rate |  | (8.8) |  |  | (50.4) |  |  | (0.6) |
Change in valuation allowance on deferred tax assets |  | 41.1 |  |  | 94.1 |  |  | 106.3 |
Deemed dividend under section 956 of the Internal Revenue Code |  | 60.9 |  |  | - |  |  | - |
Increase (decrease) in unrecognized tax benefits |  | (25.7) |  |  | (21.7) |  |  | 1.6 |
Incremental accrual for Innodata India transfer pricing |  | 19.6 |  |  | 38.7 |  |  | - |
Other |  | 4.8 |  |  | 2.1 |  |  | 2.6 |
Effective tax rate |  | 55.2 | % |  | 26.7 | % |  | 73.8 | %
No tax benefits related to stock option exercises were recorded for each of the three years in the period ended December 31, 2015, due to net operating loss carryforwards. Deferred tax assets and liabilities are classified as current or non-current according to the classification of the related asset or liability. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows (in thousands):
|  | December 31, |
|  | 2015 |  | 2014 |
Deferred income tax assets: |  |  |  |  |  |  |
Allowances not currently deductible |  | $ | 312 |  | $ | 341 |
Depreciation and amortization |  |  | 1,762 |  |  | 2,066 |
Equity compensation not currently deductible |  |  | 1,547 |  |  | 1,228 |
Net operating loss carryforwards |  |  | 6,257 |  |  | 6,164 |
Expenses not deductible until paid |  |  | 1,093 |  |  | 915 |
Tax credit carryforwards |  |  | 176 |  |  | 176 |
Derivatives |  |  | 61 |  |  | 125 |
Other |  |  | 275 |  |  | 263 |
Total gross deferred income tax assets before valuation allowance |  |  | 11,483 |  |  | 11,278 |
Valuation allowance |  |  | (9,887) |  |  | (9,627) |
Net deferred income tax assets |  |  | 1,596 |  |  | 1,651 |
Deferred income tax liabilities: |  |  |  |  |  |  |
Acquisition of MediaMiser |  |  | (507) |  |  | (670) |
Other |  |  | (217) |  |  | (284) |
Totals |  |  | (724) |  |  | (954) |
Net deferred tax assets |  | $ | 872 |  | $ | 697 |
Net deferred income tax asset-current |  |  | 282 |  |  | 254 |
Net deferred income tax asset-long term |  |  | 1,382 |  |  | 1,397 |
Net deferred income tax liability-current |  |  | (76) |  |  | (75) |
Net deferred income tax liability-long term |  |  | (716) |  |  | (879) |
Net deferred income tax assets |  | $ | 872 |  | $ | 697 |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realizable. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are available. The Company’s U.S. entity has incurred losses primarily on account of Synodex’s losses. In assessing the realization of deferred tax assets in 2013, management considered whether it was more likely than not that all or some of the U.S. deferred tax assets would not be realizable. As the expectation of future taxable income resulting from Synodex could not be predicted with certainty, the Company recorded a $7.1 million valuation allowance against all U.S. deferred tax assets. In addition, in the third quarter of 2013, the Company recorded a valuation allowance of $0.7 million on all deferred tax assets arising from unrealized losses on foreign currency forward contracts. As of December 31, 2015, the Company continues to maintain a valuation allowance on all U.S. deferred tax assets. The Company indefinitely reinvests the foreign earnings in its foreign subsidiaries. Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable on distribution to the United States, because such earnings are not anticipated to be remitted to the United States. Undistributed earnings of foreign subsidiaries amount to approximately $35.4 million at December 31, 2015. These earnings are considered to be indefinitely reinvested, except for the amount described below, and accordingly, no provision for U.S. federal or state income taxes has been made. When such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company will accrue the applicable amount of taxes associated with such earnings, net of foreign tax credits. In order to preserve cash in the United States, in the fourth quarter of 2015 the U.S. entity deferred $4.0 million in payments due to its Asian operating subsidiaries, which resulted in a deemed dividend of approximately $1.0 million that is taxable income for U.S. tax purposes under Section 956 of the Internal Revenue Code. The taxable income was set off against the net operating loss carryforwards of the U.S. entity. The Company adjusted the 2015 tax provision, deferred tax assets and the corresponding valuation allowance as of December 31, 2015 to reflect this transaction. The Company projects that during the period from 2016 through 2018 the U.S. entity may not have sufficient cash to pay in full amounts that will be payable by it to the Company’s Asian operating subsidiaries and that the cash deficit will amount to approximately $3.0 million. The resulting deferral in payments would result in a deemed dividend that would be taxable income to the U.S. entity and would be set off against its net operating loss carryforwards. The Company adjusted its deferred tax assets and the corresponding valuation allowance as of December 31, 2015 to reflect the projected deferral in payments. United States and foreign components of loss before provision for income taxes for each of the three years ended December 31, (in thousands) are as follows:
|  | 2015 |  | 2014 |  | 2013 |
United States |  | $ | (4,992) |  | $ | (4,218) |  | $ | (8,482) |
Foreign |  |  | 2,811 |  |  | 2,698 |  |  | 1,098 |
Total |  | $ | (2,181) |  | $ | (1,520) |  | $ | (7,384) |
Certain of the Company’s foreign subsidiaries are subject to preferential tax rates. In addition, one of the foreign subsidiaries enjoys a tax holiday. Due to the tax holiday and the preferential tax rates, the income tax rate for the Company was substantially reduced, the tax benefit from which was approximately $0.1 million, $0.2 million and $0.1 million for each of the three years in the period ended December 31, 2015, respectively. MediaMiser claims deductions of eligible research and development expenses within the Scientific Research and Experimental Development (SR&ED) Program, a federal tax incentive program, administered by the Canada Revenue Agency. Amounts recorded for the federal and provincial research and development tax credits aggregated $0.3 million and $0.2 million for the year ended December 31, 2015 and from the date of acquisition to December 31, 2014, respectively. Such amounts have been recorded as a reduction in the selling and administrative expenses. At December 31, 2015, the Company has available U.S. federal and New Jersey state net operating loss carryforwards of approximately $24.6 million and $26.1 million, respectively. These net operating loss carryforwards expire at various times through the year 2035. Stock option exercises resulted in tax deductions in excess of previously recorded benefits based on the option value at the time of grant (a “windfall”). Although these benefits were reflected in the net operating losses, the additional tax benefit associated with the windfall is not recognized until the deduction reduces taxes payable. Accordingly, since the tax benefit did not reduce the current taxes payable due to net operating losses, these windfall tax benefits were not reflected in the deferred tax assets for 2015 and 2014. Windfalls included in net operating losses but not reflected in deferred tax assets as of December 31, 2015 were approximately $5.2 million. At December 31, 2015, MediaMiser has available net operating loss carryforwards of approximately $2 million in Canada which begin to expire in 2028. In addition, MediaMiser also has research and development expenditures of approximately $1.3 million available to reduce taxable income in future years which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes. The Company had unrecognized tax benefits of $1.2 million and $1.8 million at December 31, 2015 and 2014, respectively. The portion of unrecognized tax benefits relating to interest and penalties was $0.5 million and $0.6 million at December 31, 2015 and 2014, respectively. The unrecognized tax benefits as of December 31, 2015 and 2014, if recognized, would have an impact on the Company’s effective tax rate. The Company had established a valuation allowance of approximately $9.9 million and $9.6 million at December 31, 2015 and 2014, respectively. The valuation allowance relates to U.S. deferred tax assets and the Company’s Canadian subsidiary. The net change in the total valuation for each of the three years ended December 31, 2015, 2014 and 2013 was an increase of $0.3 million, $1.5 million and $8.1 million, respectively. The following table represents a roll forward of the Company’s unrecognized tax benefits and associated interest for the years ended (amounts in thousands):
|  | December 31 |
|  | 2015 |  | 2014 |
Balance at January 1 |  | $ | 1,760 |  | $ | 2,245 |
Increase for tax position |  |  | 27 |  |  | 206 |
Decrease for tax position on account of settlement |  |  | (588) |  |  | (722) |
Interest accrual |  |  | - |  |  | 53 |
Foreign currency revaluation |  |  | 8 |  |  | (22) |
Balance at December 31 |  | $ | 1,207 |  | $ | 1,760 |
The Company is subject to Federal income tax, as well as income tax in various states and foreign jurisdictions. The Company is no longer subject to examination by Federal tax authorities for years prior to 2006 and by New Jersey tax authorities for years prior to 2012. Various foreign subsidiaries currently have open tax years from 2003 through 2014. Pursuant to an income tax audit by the Indian Bureau of Taxation in March 2006, the Company’s Indian subsidiaries received a tax assessment approximating $260,000, including interest, through December 31, 2015, for the fiscal tax year ended March 31, 2003. Management disagreed with the basis of the tax assessment and filed an appeal with the Appeal Officer against the assessment. In October 2010, the matter was resolved with a judgment in the Company’s favor. Under the Indian Income Tax Act, however, the income tax assessing officer has the right to appeal against the judgment passed by the Appeal Officer. In December 2010, the income tax assessing officer exercised this right. In June 2015, the Indian Bureau of Taxation completed the audit and the ultimate outcome was favorable. There was no tax assessment imposed for the fiscal tax year ended March 31, 2003. The Company had previously recorded a tax provision amounting to $260,000 including interest through June 30, 2015. As the ultimate outcome was favorable, the Company reversed this amount in the second quarter of 2015. In 2008 and 2009, the Indian subsidiary received a final tax assessment for the fiscal years ended March 31, 2005 and 2006 from the Indian Bureau of Taxation. The tax assessment amounted to $284,000 and $300,000, including interest, through December 31, 2015, for the fiscal years ended March 31, 2005 and 2006, respectively. Management disagrees with the basis of these tax assessments, has filed an appeal against the assessments and is contesting them vigorously. In June 2015, the Indian Bureau of Taxation completed the audit for the fiscal tax year ended March 31, 2005 and the ultimate outcome was favorable. There was no tax assessment imposed for the fiscal tax year ended March 31, 2005. The Company had previously recorded a tax provision amounting to $284,000 including interest through June 30, 2015. As the ultimate outcome was favorable, the Company reversed this amount in the second quarter of 2015. In January 2012, the Indian subsidiary received a final tax assessment of approximately $1.0 million, including interest, for the fiscal year ended March 31, 2008, from the Indian Bureau of Taxation. Management disagrees with the basis of this tax assessment, and has filed an appeal against it. Due to this assessment, the Company recorded a tax provision amounting to $477,000 including interest through December 31, 2015. In April 2015, the Company received a favorable judgment whereby the Appeal Officer reduced the tax assessment to $0.3 million. Under the Indian Income Tax Act, however, the income tax assessing officer has the right to appeal against the judgment passed by the Appeal Officer. In the third quarter of 2015, the income tax assessing officer exercised this right and filed an appeal. Based on recent experience, management believes that the tax provision of $477,000 including interest is adequate. As the Company is continually subject to tax audits by the Indian Bureau of Taxation, the Company continuously assesses the likelihood of an unfavorable assessment for all fiscal years for which the Company has not been audited and, as of December 31, 2015, the Company recorded a tax provision amounting to $152,000 including interest for such year. In 2015 the Company’s Indian subsidiary was subject to an inquiry by the Service Tax Bureau in India regarding the classification of services provided by this subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services (OID Services), and not under the category of business support services (BS Services) that are exempt from service tax as historically indicated in the subsidiary’s service tax filings. In the event the Service Tax Bureau is successful in proving that the services fall under the category of OID Services the revenues earned by the Company’s Indian subsidiary would be subject to a service tax of approximately 14.5% of revenues and this would increase our operating costs by an equivalent amount. The revenues of the Company’s Indian subsidiary in 2015 were $16.5 million. The Company disagrees with the Service Tax Bureau’s position and contests these assertions vigorously. In 2016 the Company’s Indian subsidiary received notices of appeal from the Commissioner, Service Tax, seeking to reverse service tax refunds previously granted to our Indian subsidiary for certain quarters in 2014, asserting that the services provided by this subsidiary fall under the category of OID Services and not BS Services. The Company disagrees with the basis of these appeals and is contesting them vigorously. The Company expects delays in receiving service tax refunds until such time as the appeals are adjudicated with finality. The Company from time to time is also subject to various other tax proceedings and claims for its Philippines subsidiaries. The Company has recorded a tax provision amounting to $278,000 including interest through December 31, 2015, for several ongoing tax proceedings in the Philippines. Although the ultimate outcome cannot be determined at this time, the Company continues to contest these claims vigorously.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration