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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Taxes |
Income Taxes | 4. Income Taxes The significant components of the provision for income taxes for the years ended December 31, 2020 and 2019 were as follows (in thousands):
|  | 2020 |  | 2019
Current income tax expense (benefit): |  |  |  |  |  |
Foreign |  | $ | 1,065 |  | $ | 1,333
Federal |  |  | 15 |  |  | 71
State and local |  |  | (61) |  |  | —
|  |  | 1,019 |  |  | 1,404
Deferred income tax expense (benefit): |  |  |  |  |  |
Foreign |  |  | (628) |  |  | (323)
Federal |  |  | 10 |  |  | 10
State and local |  |  | — |  |  | —
|  |  | (618) |  |  | (313)
Provision for income taxes |  | $ | 401 |  | $ | 1,091
The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended December 31, 2020 and 2019 is summarized as follows:
|  | 2020 |  | 2019 |
Federal income tax expense (benefit) at statutory rate |  | 21.0 | % | (21.0) | %
Effect of: |  |  |  |  |
Change in valuation allowance |  | 137.7 |  | 22.4 |
Increase in unrecognized tax benefits (ASC 740) |  | 31.5 |  | 55.1 |
Tax effects of foreign operations |  | 57.7 |  | 59.7 |
Foreign operations permanent differences - foreign exchange gains and losses |  | (1.3) |  | (12.2) |
Deemed interest |  | (2.1) |  | — |
State income tax net of federal benefit |  | (4.3) |  | 1.3 |
Foreign rate differential |  | (8.6) |  | 0.8 |
Effect of share based compensation |  | (10.9) |  | — |
Return to provision true up |  | (10.8) |  | (2.6) |
Change in rates |  | (172.7) |  | — |
Withholding tax |  | 1.5 |  | 6.0 |
Other |  | (0.3) |  | (7.3) |
Effective tax rate |  | 38.4 | % | 102.2 | %
Deferred tax assets and liabilities are classified as non-current. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 were as follows (in thousands):
|  | December 31,
|  | 2020 |  | 2019
Deferred income tax assets: |  |  |  |  |  |
Allowances not currently deductible |  | $ | 192 |  | $ | 223
Depreciation and amortization |  |  | 334 |  |  | 297
Equity compensation not currently deductible |  |  | 778 |  |  | 966
Net operating loss carryforwards |  |  | 6,751 |  |  | 5,317
Expenses not deductible until paid |  |  | 1,691 |  |  | 1,245
Other |  |  | 358 |  |  | 379
Total gross deferred income tax assets before valuation allowance |  |  | 10,104 |  |  | 8,427
Valuation allowance |  |  | (7,917) |  |  | (6,521)
Deferred income tax assets, net |  |  | 2,187 |  |  | 1,906
Deferred income tax liabilities: |  |  |  |  |  |
Intangibles from acquisition of MediaMiser |  |  | — |  |  | (316)
Other |  |  | (44) |  |  | (47)
Total deferred income tax liabilities |  |  | (44) |  |  | (363)
Net deferred income tax assets |  | $ | 2,143 |  | $ | 1,543
Net deferred income tax assets |  | $ | 2,187 |  | $ | 1,906
Net deferred income tax liability |  |  | (44) |  |  | (363)
Net deferred income tax assets |  | $ | 2,143 |  | $ | 1,543
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. As of December 31, 2020, the Company continues to maintain a valuation allowance on all U.S. and Canadian net deferred tax assets. The Company maintained a valuation allowance of approximately $7.9 million and $6.5 million as of December 31, 2020 and 2019, respectively. The valuation allowance relates to U.S. and the Company’s Canadian subsidiaries deferred tax assets. The net change in the total valuation allowance was an increase of $1.4 million and $1.8 million for the years ended December 31, 2020 and December 31, 2019, respectively. Despite the access to the overseas earnings and the resulting toll charge, we intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries on account of the foreign jurisdiction withholding tax that the Company has to incur on the actual remittances. Unremitted earnings of foreign subsidiaries amounted to approximately $47.0 million at December 31, 2020. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances. United States and foreign components of income (loss) before provision for income taxes for each of the two years ended December 31, were as follows (in thousands):
|  | 2020 |  | 2019
United States |  | $ | 930 |  | $ | (537)
Foreign |  |  | 115 |  |  | (531)
Totals |  | $ | 1,045 |  | $ | (1,068)
At December 31, 2020, the Company had available U.S. federal net operating loss carryforwards of approximately $15.5 million. These net operating loss carryforwards expire at various times through the year 2035. On March 27, 2020, the CARES Act was signed into law in response to the economic challenges facing US businesses. Under the CARES Act, the Internal Revenue Code was amended to allow for federal NOL carrybacks for five years to offset previous years income or can be carryforward indefinitely to offset 100% of taxable income for the tax year 2020 and 80% of taxable income for tax years 2021 and thereafter. As of the date the financial statements were available to be issued, the state NOL carryforwards, if not utilized, will expire beginning in 2022. At December 31, 2020, the Company’s Canadian subsidiaries had available net operating loss carryforwards of approximately $16.1 million in Canada which begin to expire in 2028. The potential benefits from these balances have not been recognized for financial statement purposes. The Company had unrecognized tax benefits of $3.2 million and $3.0 million as of December 31, 2020 and 2019, respectively. The Company expects that unrecognized tax benefits as of December 31, 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 tax years for U.S. Federal and state taxes from 2016 through 2020. Various foreign subsidiaries have open tax years from 2003 through 2019, some of which are under audit by local tax authorities. The Company believes that its accruals for uncertain tax positions as of December 31, 2020 under ASC 740, Income Taxes are adequate to cover the Company’s income tax exposures. 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,
|  | 2020 |  | 2019
Balance at January 1 |  | $ | 2,957 |  | $ | 2,424
Increase for current year tax position |  |  | 308 |  |  | 355
Decrease for prior year tax position |  |  | (161) |  |  | —
Interest accrual |  |  | 199 |  |  | 234
Foreign currency revaluation |  |  | (72) |  |  | (56)
Balance at December 31 |  | $ | 3,231 |  | $ | 2,957
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 $64.0 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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