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Income Taxes
 3 Months Ended
Mar. 31, 2024
Income Taxes  
Income Taxes

5.Income Taxes

Income taxes primarily consist of a provision for foreign taxes recorded by the Company’s foreign subsidiaries in accordance with local tax regulations. The estimated annual effective tax rate applied to the three month period ended March 31, 2024, differs from the US federal statutory rate of 21% principally due to income earned outside the U.S. which is subject to the U.S. tax on global intangible low taxed income (“GILTI”), provision on uncertain tax positions, true up adjustment on prior year tax provision and other net increases, offset in part by a reduction in the valuation allowance and foreign exchange gains and losses.

​

The reconciliations of the U.S. statutory rate with the Company’s effective tax rate for the three months ended March 31, 2024 and 2023, respectively, are summarized in the table below:

​

​

​

​

​

​

​

​

​

For the Three Months

​

​

​

Ended March 31,

​

​

    

2024

    

2023

​

Federal income tax expense (benefit) at statutory rate

 

21.0

%

(21.0)

%

Effect of:

 

​

​

​

​

GILTI provisions

​

11.8

​

-

​

Increase in unrecognized tax benefits (ASC 740)

​

6.1

​

3.4

​

Return to provision true up

​

5.1

​

(0.4)

​

Tax effects of foreign operations

​

2.4

​

3.8

​

Withholding tax

​

2.0

​

-

​

State income tax net of federal benefit

​

0.7

​

0.3

​

Effect of stock - based compensation

​

0.7

​

(1.4)

​

Foreign rate differential

​

0.5

​

0.9

​

Deemed interest

​

(2.7)

​

(4.6)

​

Foreign operations permanent differences - foreign exchange gains and losses

​

(7.9)

​

3.5

​

Change in valuation allowance

​

(10.4)

​

23.8

​

Other

​

0.7

​

3.2

​

Effective tax rate

​

30.0

%

11.5

%

​

The following table presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the three months ended March 31, 2024 (in thousands):

​

​

​

​

​

​

    

Unrecognized

​

 

Tax Benefits

Balance at January 1, 2024

​

$

1,942

Increase for current period tax positions

​

 

60

Interest accrual

​

 

27

Foreign currency remeasurement

​

 

(8)

Balance at March 31, 2024

​

$

2,021

​

The Company expects that unrecognized tax benefits as of March 31, 2024, if recognized, would have a material impact on the Company’s effective tax rate.

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 contested this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal and in January 2024 the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled in the Company’s favor. In the event the Service Tax Department appeals this ruling and 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 revenues of the Company’s Indian subsidiary during this period was approximately $56.0 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 Company’s assessment in consultation with the Company’s tax 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 $120,000 previously granted to the Company’s 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 $0.8 million recorded as a receivable. Based on the Company’s assessment in consultation with the Company’s tax 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 condensed consolidated operating results of the period (and subsequent periods) in which the rulings or recovery occurs.