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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Taxes |
9. | Income Taxes
The components of income before income taxes are as follows:
|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | (Amounts in thousands) |
Domestic |  | $ | 27,545 |  |  | $ | (5,432 | ) |  | $ | (73 | )
Foreign |  |  | 31,672 |  |  |  | 31,583 |  |  |  | 21,509 |
Income before income taxes |  | $ | 59,217 |  |  | $ | 26,151 |  |  | $ | 21,436 |
The components of the income tax provision are as follows:
|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | (Amounts in thousands) |
Components of the income tax (benefit) provision: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 5,193 |  |  | $ | 8,290 |  |  | $ | 4,354 |
Deferred |  |  | (5,902 | ) |  |  | (5,287 | ) |  |  | 465 |
Equity |  |  | — |  |  |  | 1,737 |  |  |  | — |
Total |  | $ | (709 | ) |  | $ | 4,740 |  |  | $ | 4,819 |
Jurisdictional components of the income tax (benefit) provision: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (4,741 | ) |  | $ | (965 | ) |  | $ | (393 | )
State |  |  | (3,011 | ) |  |  | (1,764 | ) |  |  | 718 |
Foreign |  |  | 7,043 |  |  |  | 7,469 |  |  |  | 4,494 |
Total |  | $ | (709 | ) |  | $ | 4,740 |  |  | $ | 4,819 |
During 2020, the Company generated $4.0 million in federal net operating losses and $1.1 million in state net operating losses. At December 31, 2020, the Company had federal net operating loss carryforwards of $2.9 million and state net operating loss carryforwards of $3.5 million. The federal net operating loss carryforwards do not expire while the state net operating loss carryforwards will expire at various dates through December 2040. At December 31, 2020, the Company had federal business tax credits carryforwards of $6.2 million and state business tax credits carryforwards of $3.2 million available to reduce future domestic income taxes. The business tax credit carryforwards will expire at various dates through December 2040. The net operating loss and business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders. The components of deferred income taxes are as follows:
|  | December 31, |
|  | 2020 |  |  | 2019 |
|  | (Amounts in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Temporary timing differences: |  |  |  |  |  |  |  |
Stock-based compensation expense |  | $ | 3,320 |  |  | $ | 2,922 |
Operating leases |  |  | 7,257 |  |  |  | 7,295 |
Accrued bonus |  |  | 25 |  |  |  | 1,379 |
Other |  |  | 5,749 |  |  |  | 4,994 |
Total temporary timing differences |  |  | 16,351 |  |  |  | 16,590 |
Net operating loss carryforwards |  |  | 1,539 |  |  |  | 221 |
Tax business credits carryforwards |  |  | 5,553 |  |  |  | 924 |
Total deferred tax assets |  |  | 23,443 |  |  |  | 17,735 |
Less: valuation allowance |  |  | (727 | ) |  |  | (6 | )
Net deferred tax assets |  |  | 22,716 |  |  |  | 17,729 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill |  |  | (1,487 | ) |  |  | (1,288 | )
Fixed assets |  |  | (4,233 | ) |  |  | (1,650 | )
Acquired intangible assets |  |  | (27,152 | ) |  |  | (24,605 | )
Operating lease right of use assets |  |  | (5,744 | ) |  |  | (6,144 | )
Conversion option on convertible notes |  |  | (8,651 | ) |  |  | (11,066 | )
Total deferred tax liabilities |  |  | (47,267 | ) |  |  | (44,753 | )
Total net deferred tax liabilities |  | $ | (24,551 | ) |  | $ | (27,024 | )
The net change in the total valuation allowance for the year ended December 31, 20 20 and 201 9 was an increase of $0.7 million and a decrease of $0.1 million, respectively. The reconciliation of the federal statutory rate to the effective income tax rate for the years ended December 31, 2020, 2019 and 2018 is as follows:
|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | Amount |  |  | % |  |  | Amount |  |  | % |  |  | Amount |  |  | % |
|  | (Amounts in thousands, except percentages) |
Income before income taxes |  | $ | 59,217 |  |  |  |  |  |  | $ | 26,151 |  |  |  |  |  |  | $ | 21,436 |  |  |  |  |
Expected tax at statutory rate |  |  | 12,436 |  |  |  | 21.0 | % |  |  | 5,492 |  |  |  | 21.0 | % |  |  | 4,502 |  |  |  | 21.0 | %
Adjustments due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Difference between U.S. and foreign tax |  |  | 618 |  |  |  | 1.0 | % |  |  | 436 |  |  |  | 1.7 | % |  |  | 345 |  |  |  | 1.6 | %
State income and franchise tax |  |  | 133 |  |  |  | 0.2 | % |  |  | (179 | ) |  |  | (0.7 | %) |  |  | 91 |  |  |  | 0.4 | %
Business tax credits |  |  | (4,660 | ) |  |  | (7.9 | %) |  |  | (2,746 | ) |  |  | (10.5 | %) |  |  | (1,760 | ) |  |  | (8.2 | %)
Permanent differences: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock-based compensation expense |  |  | (9,243 | ) |  |  | (15.6 | %) |  |  | (1,877 | ) |  |  | (7.2 | %) |  |  | (1,213 | ) |  |  | (5.7 | %)
U.S. taxation of foreign earnings |  |  | 51 |  |  |  | 0.1 | % |  |  | 2,227 |  |  |  | 8.5 | % |  |  | 2,190 |  |  |  | 10.2 | %
Executive compensation |  |  | 1,401 |  |  |  | 2.4 | % |  |  | 841 |  |  |  | 3.2 | % |  |  | 367 |  |  |  | 1.7 | %
Other |  |  | 896 |  |  |  | 1.5 | % |  |  | 92 |  |  |  | 0.4 | % |  |  | 97 |  |  |  | 0.5 | %
Change in U.S. federal tax rates |  |  | (2,192 | ) |  |  | (3.7 | %) |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | %
Change in U.S. state tax rates |  |  | (708 | ) |  |  | (1.2 | %) |  |  | — |  |  |  | 0.0 | % |  |  | 748 |  |  |  | 3.5 | %
Change in Netherlands tax rate |  |  | 250 |  |  |  | 0.4 | % |  |  | (193 | ) |  |  | (0.7 | %) |  |  | (388 | ) |  |  | (1.8 | %)
Transition tax |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | % |  |  | (1,338 | ) |  |  | (6.2 | %)
Uncertain tax provisions |  |  | (168 | ) |  |  | (0.3 | %) |  |  | 1,069 |  |  |  | 4.1 | % |  |  | 1,021 |  |  |  | 4.8 | %
Change in valuation allowance |  |  | (12 | ) |  |  | (0.0 | %) |  |  | (125 | ) |  |  | (0.5 | %) |  |  | 125 |  |  |  | 0.6 | %
Return to provision adjustments |  |  | (89 | ) |  |  | (0.2 | %) |  |  | (79 | ) |  |  | (0.3 | %) |  |  | 33 |  |  |  | 0.2 | %
Other |  |  | 578 |  |  |  | 1.0 | % |  |  | (218 | ) |  |  | (0.8 | %) |  |  | (1 | ) |  |  | (0.1 | %)
Income tax provision |  | $ | (709 | ) |  |  | (1.2 | %) |  | $ | 4,740 |  |  |  | 18.1 | % |  | $ | 4,819 |  |  |  | 22.5 | %
The Company’s tax returns are subject to examination by federal, state and foreign tax authorities. The Company’s two major tax jurisdictions are subject to examination for the following periods:
Jurisdiction |  | Fiscal Years Subject to Examination |
United States - federal and state |  |  | 2017-2020 |
Sweden |  |  | 2013-2020 |
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |
|  | (Amounts in thousands) |
Balance of gross unrecognized tax benefits, beginning of period |  | $ | 3,422 |  |  | $ | 2,852 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period |  |  | 154 |  |  |  | 602 |
Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken in the prior period |  |  | (337 | ) |  |  | (16 | )
Gross amounts of decrease due to release |  |  | (39 | ) |  |  | (16 | )
Balance of gross unrecognized tax benefits, end of period |  | $ | 3,200 |  |  | $ | 3,422 |
Included in the balance of unrecognized tax benefits as of December 31, 2020 are $3.1 million of tax benefits that, if recognized, would affect the effective tax rate. The Company classifies interest and penalties related to income taxes as components of its income tax provision. The amount of interest and penalties recorded in the accompanying consolidated statements of comprehensive income was approximately $17,000, $5,000 and $1,000 for the years ended December 31, 2020, 2019 and 2018, respectively. The amount of interest and penalties recorded in the accompanying consolidated balance sheets was approximately $58,000 and $41,000 as of December 31, 2020 and 2019, respectively. The Company does not anticipate the amount of unrecognized tax benefits to change over the next twelve months. On March 27, 2020, President Trump signed the $2.2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act, the third congressional bill to address COVID-19, provides for loans and other benefits to businesses, expanded unemployment insurance, direct payments to those with middle-income and below wages, new appropriations funding for healthcare and other priorities, and tax changes, including deferrals of employer payroll tax liabilities, coupled with an employee retention tax credit and rollbacks of TCJA limitations on net operating losses (“NOLs”) and the Section 163(j) business interest limitation and a TCJA technical correction on qualified improvement property. The Company evaluated the provisions of the CARES Act and no provision had a material effect on the Company’s financial position or results of operations at December 31, 2020 and for the year then ended. The Company is subject to a territorial tax system under the Tax Cuts and Jobs Act (“TCJA”) enacted in December 2017 (the “2017 Tax Act”), in which the Company is required to provide for tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company has adopted an accounting policy to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. The Company also considered the impact of the newly issued tax regulations in recording its income tax accounts for the year ending December 31, 2020 which reduced the foreign earnings subject to taxation under the GILTI provisions for the year ended December 31, 2018 and prospectively. As of December 31, 2020, the Company has accumulated undistributed earnings generated by its foreign subsidiaries of approximately $113.1 million. Because $58.0 million of such earnings have previously been subject to the one-time transition tax on foreign earnings required by the 2017 Tax Act, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company’s foreign investments would generally be limited to foreign and state taxes. At December 31, 2020, the Company has not provided for taxes on outside basis differences of its foreign subsidiaries, as the Company has the ability and intent to indefinitely reinvest the undistributed earnings of its foreign subsidiaries, and there are no needs for such earnings in the United States that would contradict its plan to indefinitely reinvest. ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” requires the income tax consequences of intra-entity transfers of assets other than inventory to be recognized when the intra-entity transfer occurs rather than deferring recognition of income tax consequences until the transfer was made with an outside party. The Company adopted the provisions of this ASU in the first quarter of 2018. The adoption resulted in a decrease of $5.7 million to other assets, a decrease of $5.0 million to deferred tax liabilities and a decrease of $0.7 million to accumulated deficit at January 1, 2018.

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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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