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Income Taxes | 9 Months Ended
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Sep. 30, 2020
Income Taxes |
Income Taxes | 3. Income Taxes The Company recorded a tax benefit of $0.1 million and a provision for income taxes of $0.4 million for the three months ended September 30, 2020 and 2019, respectively; and a tax provision of $0.5 million for each of the nine months ended September 30, 2020 and 2019. Taxes primarily consist of a provision for foreign taxes recorded by the Company’s foreign subsidiaries in accordance with local tax regulations. Effective income tax rates are disproportionate due to the losses incurred by the Company’s U.S. entities and Canadian subsidiaries, a valuation allowance recorded on deferred taxes of these entities, a tax effect of foreign operations, including foreign exchange gains and losses and tax impact on uncertain tax position (ASC 740). The reconciliations of the U.S. statutory rate with the Company’s effective tax rate for each of the nine months ended September 30, 2020 and 2019 are summarized in the table below:
|  | For the Nine Months Ended September 30, |
|  | 2020 |  | 2019 |
Federal income tax benefit at statutory rate |  | (21.0) | % | (21.0) | %
Effect of: |  |  |  | — |
Change in valuation allowance |  | (660.0) |  | (15.1) |
Foreign rate differential |  | (295.9) |  | (1.8) |
Return to provision true up |  | (14.8) |  | (0.3) |
Withholding tax |  | — |  | 4.5 |
State income tax net of federal benefit |  | (120.1) |  | 1.8 |
Foreign operations permanent difference - foreign exchange gains and losses |  | 90.3 |  | (39.3) |
Increase in unrecognized tax benefits (ASC 740) |  | 410.5 |  | 30.8 |
Tax effects of foreign operations |  | 1,610.6 |  | 84.8 |
Effect of share based compensation |  | 263.7 |  | — |
Others |  | 29.0 |  | (4.2) |
Effective tax rate |  | 1,292.3 | % | 40.2 | %
As of September 30, 2020, the Company performed a calculation of the Global Intangible Low-Taxed Income provisions and concluded that it continues to have no impact on account of the net losses of certain foreign subsidiaries. The following table presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the nine months ended September 30, 2020 (in thousands):
|  | Unrecognized
|  | tax benefits
Balance - January 1, 2020 |  | $ | 2,957
Increase for current year tax position |  |  | 225
Decrease for prior year tax position |  |  | (161)
Interest accrual |  |  | 125
Foreign currency remeasurement |  |  | (100)
Balance - September 30, 2020 |  | $ | 3,046
The Company expects that unrecognized tax benefits as of September 30, 2020 and December 31, 2019, if recognized, would have a material impact on the Company’s effective tax rate. The Company is subject to Federal income tax, as well as income tax in various states and foreign jurisdictions. The Company has open periods for U.S. Federal and state taxes from 2016 through 2019. Various foreign subsidiaries currently have open tax years from 2003 through 2019. Tax Assessments In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax Department 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. The Company disagrees with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an order confirming the Service Tax Department's position. The Company is contesting this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal. In the event the Service Tax Department is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by the Company’s Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable for interest and penalties. The revenue of our Indian subsidiary during this period was approximately $66.0 million. In accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016 service tax is no longer applicable to OID or BS Services. Based on the assessment of the Company’s counsel, the Company has not recorded any tax liability for this case. In a separate action relating to service tax refunds, in October 2016, the Company’s Indian subsidiary received notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of approximately $160,000 previously granted to our Indian subsidiary for three quarters in 2014, asserting that the services provided by this subsidiary fall under the category of OID Services and not BS Services. The appeal was determined in favor of the Service Tax Department. The Company disagrees with the basis of this decision and is contesting it. The Company expects delays in its Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently has service tax credits of approximately $1.0 million recorded as a receivable. Based on the assessment of the Company’s counsel, the Company has not recorded any tax liability for this case. Substantial recovery against the Company in the above referenced 2015 Service Tax Department case could have a material adverse impact on the Company, and unfavorable rulings or recoveries in other tax proceedings could have a material adverse impact on the consolidated operating results of the period (and subsequent periods) in which the rulings or recovery occurs.

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- 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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