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INCOME TAXES | 12 Months Ended
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Aug. 31, 2017
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 9 – INCOME TAXES ﻿ Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates includes the following components (in thousands): ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | Years Ended August 31,
﻿ |  | 2017 |  | 2016 |  | 2015
﻿United States |  | $ | 24,773 |  | $ | 25,533 |  | $ | 41,694
﻿Foreign |  |  | 107,970 |  |  | 105,707 |  |  | 94,902
﻿Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates |  | $ | 132,743 |  | $ | 131,240 |  | $ | 136,596
﻿ Significant components of the income tax provision are as follows (in thousands): ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | Years Ended August 31,
﻿ |  | 2017 |  | 2016 |  | 2015
﻿Current: |  |  |  |  |  |  |  |  |
﻿U.S. |  | $ | 12,185 |  | $ | 9,269 |  | $ | 10,918
﻿Foreign |  |  | 32,680 |  |  | 30,705 |  |  | 33,676
﻿Total |  | $ | 44,865 |  | $ | 39,974 |  | $ | 44,594
﻿Deferred: |  |  |  |  |  |  |  |  |
﻿U.S. |  | $ | (2,584) |  | $ | 832 |  | $ | 3,941
﻿Foreign |  |  | (1,750) |  |  | (82) |  |  | (3,100)
﻿Valuation allowance charge |  |  | 1,487 |  |  | 2,125 |  |  | 2,131
﻿Total |  | $ | (2,847) |  | $ | 2,875 |  | $ | 2,972
﻿Provision for income taxes |  | $ | 42,018 |  | $ | 42,849 |  | $ | 47,566
﻿ The reconciliation of income tax computed at the Federal statutory tax rate to the provision for income taxes is as follows (in percentages): ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | Years Ended August 31,
﻿ |  | 2017 |  | 2016 |  | 2015
﻿Federal tax provision at statutory rates |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
﻿State taxes, net of federal benefit |  | 0.3 |  |  | 0.2 |  |  | 0.4 |
﻿Differences in foreign tax rates |  | (5.2) |  |  | (5.6) |  |  | (4.2) |
﻿Permanent items and other adjustments |  | 1.5 |  |  | 2.0 |  |  | 2.3 |
﻿Increase in foreign valuation allowance |  | 0.1 |  |  | 1.0 |  |  | 1.3 |
﻿Provision for income taxes |  | 31.7 | % |  | 32.6 | % |  | 34.8 | %
Significant components of the Company’s deferred tax assets as of August 31, 2017 and 2016 are shown below (in thousands): ﻿ ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | August 31,
﻿ |  | 2017 |  | 2016
﻿Deferred tax assets: |  |  |  |  |  |
﻿U.S. net operating loss carryforward |  | $ | 1,684 |  | $ | 3,226
﻿Foreign tax credits |  |  | 3,794 |  |  | 185
﻿Deferred compensation |  |  | 1,633 |  |  | 1,706
﻿U.S. timing differences and alternative minimum tax credits |  |  | 3,042 |  |  | 2,846
﻿Foreign net operating losses |  |  | 10,247 |  |  | 13,414
﻿Foreign timing differences: |  |  |  |  |  |
﻿Accrued expenses and other timing differences |  |  | 3,871 |  |  | 3,807
﻿Depreciation and amortization |  |  | 9,514 |  |  | 8,923
﻿Deferred income |  |  | 4,037 |  |  | 3,606
﻿Gross deferred tax assets |  |  | 37,822 |  |  | 37,713
﻿U.S. deferred tax liabilities (depreciation and other timing differences) |  |  | (3,646) |  |  | (3,944)
﻿Foreign deferred tax liabilities netted against deferred tax assets |  |  | (4,744) |  |  | (8,848)
﻿U.S. valuation allowance |  |  | (488) |  |  | (652)
﻿Foreign valuation allowance |  |  | (13,532) |  |  | (12,011)
﻿Net deferred tax assets |  | $ | 15,412 |  | $ | 12,258
﻿ As of August 31, 2017 and 2016, the Company had net deferred tax liabilities of $1.8 million at the end of each period, arising from timing differences in certain subsidiaries. ﻿ For fiscal year 2017, the effective tax rate was 31.7%. The decrease in the effective rate versus the prior year was primarily attributable to the following factors: ﻿ (i) Decrease in fiscal year 2017 in the magnitude of an intercompany transaction between PriceSmart, Inc. and our Colombian subsidiary in support of PriceSmart’s ongoing market development and growth in Colombia compared to fiscal year 2016. Reduction to this intercompany transaction, year over year, resulted in a comparatively unfavorable impact on the effective tax rate of 0.9% due to less reductions to taxable income in the U.S. and less reciprocal increase in taxable income in our Colombia subsidiary in fiscal year 2017 compared to fiscal year 2016. This income did not generate income tax expense in Colombia, because the additional taxable income in Colombia was fully offset by the reversal of valuation allowances on accumulated net losses in that subsidiary. The Company expect s the d ecrease of the favorable impact to the consolidated Company’s effective tax rate over the next several quarters t o continue; ﻿ (ii) T he comparably favorable impact of 1.4% resulting from improved financial results in the Company’s Colombia subsidiary for which no tax benefit was recognized, net of adjustment to valuation allowance and; ﻿ (iii) T he favorable impact of 1.3% due predominantly to the non-recurrence of the impact from setting up a valuation allowance against the deferred tax assets of the Company’s Barbados subsidiary in the prior year. ﻿ For fiscal year 2017, management concluded that a valuation allowance continues to be necessary for certain U.S. and foreign deferred tax assets, primarily because of the existence of negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, and the determination that certain net operating loss carryforward periods are not sufficient to realize the related deferred tax assets. The Company factored into its analysis the inherent risk of forecasting revenue and expenses over an extended period of time and also considered the potential risks associated with its business. Additionally, while the Company continues to forecast profitability for its Barbados subsidiary for the immediate and foreseeable future, in fiscal year 2016, due to the existence of negative objective evidence from recent years, the Company established a valuation allowance of approximately $2.0 million to reduce deferred tax assets to amounts expected to be realized. The Company had net foreign deferred tax assets of $9.4 million and $8.9 million as of August 31, 2017 and 2016, respectively. ﻿ The Company ha d U.S. federal and state tax NOLs at August 31, 2017 of approximately $3.4 million and $5.5 million, respectively. The federal and state NOLs generally expire during periods ranging from 2017 through 2027, unless previously utilized. In calculating the tax provision and assessing the likelihood that the Company will be able to utilize the deferred tax assets, the Company considered and weighed all of the evidence, both positive and negative, and both objective and subjective. The Company factored in the inherent risk of forecasting revenue and expenses over an extended period of time and considered the potential risks associated with its business. Using the Company's U.S. income from continuing operations and projections of future taxable income in the U.S., the Company was able to determine that there was sufficient positive evidence to support the conclusion that it was more likely than not that the Company would be able to realize substantially all of its U.S. NOLs by generating sufficient taxable income during the carry-forward period. However, the Company maintains a valuation allowance on substantially all of its state NOLs due to the adoption of single sales factor apportionment in California, which significantly reduces taxable income in that state. ﻿ The Company has determined that due to a deemed change of ownership (as defined in Section 382 of the Internal Revenue Code) in October 2004, there will be annual limitations in the amount of U.S. taxable income of approximately $3.5 million that may be offset by NOLs. The Company does not believe this will impact the recoverability of these NOLs. ﻿ The Company does not provide for income taxes which would be payable if undistributed earnings of its foreign subsidiaries were remitted to the U.S., because the Company considers these earnings to be permanently reinvested as management has no plans to repatriate undistributed earnings and profits of foreign affiliates. As of August 31, 2017 and 2016, the undistributed earnings of these foreign subsidiaries are approximately $544.6 million and $472.5 million, respectively. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes payable to the foreign countries, but would also be able to offset unrecognized foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation. ﻿ The Company accrues for the estimated additional amount of taxes for uncertain income tax positions if the likelihood of sustaining the tax position does not meet the more-likely-than-not-standard for recognition of tax benefits. ﻿ A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | Years Ended August 31,
﻿ |  | 2017 |  | 2016 |  | 2015
﻿Balance at beginning of fiscal year |  | $ | 7,754 |  | $ | 8,159 |  | $ | 8,786
﻿Additions based on tax positions related to the current year |  |  | 36 |  |  | — |  |  | —
﻿Settlements |  |  | (65) |  |  | — |  |  | —
﻿Expiration of the statute of limitations for the assessment of taxes |  |  | (31) |  |  | (405) |  |  | (627)
﻿Balance at end of fiscal year |  | $ | 7,694 |  | $ | 7,754 |  | $ | 8,159
﻿ As of August 31, 2017, the liability for income taxes associated with uncertain tax benefits was $7.7 million and can be reduced by $7.0 million of tax benefits associated with timing adjustments that are recorded as deferred tax assets and liabilities. The net amount of $700,000, if recognized, would favorably affect the Company's financial statements and favorably affect the Company's effective income tax rate. ﻿ The Company expects cha nges in the amount of unrecognized tax benefits in the next 12 months as the result of a lapse in various statutes of limitations. The lapse of statutes of limitations in the twelve-month period ending August 31, 201 8 could result in a total income tax benefit amounting up to $26,000. ﻿ The Company recognizes interest and/or penalties related to income tax matters in income tax expense. As of August 31, 2017 and 2016, the Company had accrued $214,000 and $370,000, respectively, for the payment of interest and penalties (before income tax benefit). ﻿ The Company has various appeals pending before tax courts in its subsidiaries' jurisdictions. Any possible settlement could increase or decrease earnings but is not expected to be significant. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. One of the Company’s subsidiaries received assessments claiming $2.6 million of taxes, penalties and interest related to withholding taxes on certain charges for services rendered by the Company. In addition, this subsidiary received assessments totaling $5.3 million for lack of deductibility of the underlying service charges due to the lack of withholding. Based on a review of the Company's tax advisers' interpretation of local law, rulings and jurisprudence (including Supreme Court precedents with respect to the deductibility assessment), the Company expects to prevail in both instances and has not recorded a provision for these assessments. However, the Company had to submit these amounts as advanced payments to the government while it appeals. ﻿ In another country in which the Company has warehouse clubs, beginning in fiscal year 2015, a new minimum income tax mechanism took effect, which requires the Company to pay taxes based on a percentage of sales rather than income. As a result, the Company is making income tax payments substantially in excess of those it would expect to pay based on taxable income. The current rules (which the Company has challenged in court) do not clearly allow the Company to obtain a refund or to offset this excess income tax against other taxes. As of August 31, 2017, the Company had deferred tax assets of approximately $2.0 million in this country. Also, the Company had an income tax receivable balance of $4.3 million as of August 31, 2017 related to excess payments from fiscal years 2015 and 2017. The Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will succeed in its refund request and/or court challenge on this matter. ﻿ The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in its major jurisdictions except for the fiscal years subject to audit as set forth in the table below: ﻿ ﻿
﻿ |  |
﻿ |  |
﻿Tax Jurisdiction |  | Fiscal Years Subject to Audit
﻿U.S. federal |  | 2000 to 2005, 2007, 2014 to the present
﻿California (U.S.) (state return) |  | 2005 and 2013 to the present
﻿Florida(U.S.) (state return) |  | 2014 to the present
﻿Aruba |  | 2012 to the present
﻿Barbados |  | 2011 to the present
﻿Costa Rica |  | 2011 to the present
﻿Colombia |  | 2012 and 2014 to the present
﻿Dominican Republic |  | 2011 to 2012 and 2014 to the present
﻿El Salvador |  | 2009 to 2010 and 2014 to the present
﻿Guatemala |  | 2009, 2012 to the present
﻿Honduras |  | 2012 to the present
﻿Jamaica |  | 2011 to the present
﻿Mexico |  | 2012 to the present
﻿Nicaragua |  | 2013 to the present
﻿Panama |  | 2014 to the present
﻿Trinidad |  | 2011 to the present
﻿U.S. Virgin Islands |  | 2001 to the present
﻿Spain |  | 2013 to the present
﻿ Generally for U.S. federal and U.S. Virgin Islands tax reporting purposes, the statute of limitations is three years from the date of filing of the income tax return. If and to the extent the tax year resulted in a taxable loss, the statute is extended to three years from the filing date of the income tax return in which the carryforward tax loss was used to offset taxable income in the carryforward year. Given the historical losses in these jurisdictions and the Section 382 change in control limitations on the use of the tax loss carryforwards, there is uncertainty and significant variation as to when a tax year is no longer subject to audit. ﻿

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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