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INCOME TAXES | 12 Months Ended
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Aug. 31, 2021
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 10 – 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,
|  | 2021 |  | 2020 |  | 2019
United States |  | $ | 33,818 |  | $ | 24,771 |  | $ | 25,167
Foreign |  |  | 113,368 |  |  | 91,269 |  |  | 85,943
Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates |  | $ | 147,186 |  | $ | 116,040 |  | $ | 111,110
Significant components of the income tax provision are as follows (in thousands):
|  | Years Ended August 31,
|  | 2021 |  | 2020 |  | 2019
Current: |  |  |  |  |  |  |  |  |
U.S. tax expense |  | $ | 16,904 |  | $ | 10,046 |  | $ | 10,878
Foreign tax expense |  |  | 35,918 |  |  | 31,122 |  |  | 29,675
Total |  | $ | 52,822 |  | $ | 41,168 |  | $ | 40,553
Deferred: |  |  |  |  |  |  |  |  |
U.S. tax benefit |  | $ | (10,212) |  | $ | (5,945) |  | $ | (5,978)
U.S. valuation allowance change |  |  | 9,777 |  |  | 5,570 |  |  | 6,171
Foreign tax expense (benefit) |  |  | (3,125) |  |  | (3,157) |  |  | 966
Foreign valuation allowance change |  |  | (293) |  |  | 128 |  |  | (4,152)
Total |  | $ | (3,853) |  | $ | (3,404) |  | $ | (2,993)
Provision for income taxes |  | $ | 48,969 |  | $ | 37,764 |  | $ | 37,560
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,
|  | 2021 |  | 2020 |  | 2019
Federal tax provision at statutory rates |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes, net of federal benefit |  | 0.1 |  |  | 0.1 |  |  | 0.3 |
Differences in foreign tax rates |  | 6.9 |  |  | 9.7 |  |  | 10.6 |
Permanent items and other adjustments |  | (2.2) |  |  | (4.4) |  |  | (2.1) |
Increase in valuation allowance |  | 7.5 |  |  | 6.1 |  |  | 4.0 |
Provision for income taxes |  | 33.3 | % |  | 32.5 | % |  | 33.8 | %
Significant components of the Company’s deferred tax assets as of August 31, 2021 and 2020 are shown below (in thousands):
|  | August 31,
|  | 2021 |  | 2020
Deferred tax assets: |  |  |  |  |  |
U.S. net operating loss carryforward |  | $ | 2,866 |  | $ | 4,416
Foreign tax credits |  |  | 22,420 |  |  | 12,691
Deferred compensation |  |  | 2,334 |  |  | 1,357
U.S. timing differences |  |  | 3,759 |  |  | 3,742
Foreign net operating losses |  |  | 5,051 |  |  | 4,811
Foreign timing differences: |  |  |  |  |  |
Accrued expenses and other timing differences |  |  | 7,636 |  |  | 6,808
Depreciation and amortization |  |  | 10,498 |  |  | 9,043
Deferred income |  |  | 6,422 |  |  | 5,241
Gross deferred tax assets |  |  | 60,986 |  |  | 48,109
U.S. deferred tax liabilities (depreciation and other timing differences) |  |  | (4,083) |  |  | (4,679)
Foreign deferred tax liabilities netted against deferred tax assets |  |  | (5,753) |  |  | (4,311)
U.S. valuation allowance |  |  | (22,523) |  |  | (12,746)
Foreign valuation allowance |  |  | (4,402) |  |  | (4,701)
Net deferred tax assets |  | $ | 24,225 |  | $ | 21,672
For fiscal 2021, the effective tax rate was 33.3%. The increase in the effective rate versus the prior year was primarily attributable to the following factors: 1.The comparably favorable impact of 2.5% due to a greater portion of income falling into lower tax jurisdictions; 2.The comparably unfavorable impact of 1.8% resulting from nonrecurrence of changes in income tax liabilities from uncertain tax position for which the applicable statutes of limitations have expired; 3.The comparably unfavorable impact of 0.4% resulting from the effect of the change in foreign currency value and related adjustments; 4.The comparably unfavorable impact of 0.4% resulting from valuation allowances on deferred tax assets from foreign tax credits that are no longer deemed recoverable. For fiscal 2021, 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. The Company had net foreign deferred tax assets of $19.5 million and $16.9 million as of August 31, 2021 and 2020, respectively. The Company had U.S. federal and state tax NOLs at August 31, 2021 of approximately $10.3 million and $15.7 million, respectively. Substantially all of the federal and state NOLs expire during periods ranging from 2021 through 2036 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 federal U.S. NOLs by generating sufficient taxable income during the carry-forward period. Further, based on current projections and using current apportionment factors, the Company maintains a partial valuation allowance on its Florida state NOLs ($15.7 million in gross) originating from its acquisition of its Aeropost, Inc. subsidiary, as the Company expects that $11.1 million of this NOL will expire before being utilized. 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, for PriceSmart, Inc., and March 2018 for Aeropost, Inc., there will be annual limitations in the amount of U.S. taxable income that may be offset by NOLs of approximately $6.1 million, through 2022. The Company expects substantially all recoverable NOLs will be recovered by 2023. 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, 2021 and 2020, the undistributed earnings of these foreign subsidiaries are approximately $254.5 million and $177.5 million, respectively. 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. These positions are recorded as unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|  | Years Ended August 31,
|  | 2021 |  | 2020 |  |  | 2019
Balance at beginning of fiscal year |  | $ | 4,573 |  | $ | 6,490 |  |  | $ | 7,005
Gross increase - tax positions in prior period |  |  | 135 |  |  | 464 |  |  |  | 530
Gross decrease - tax positions in prior period |  |  | (306) |  |  | — |  |  |  | —
Additions based on tax positions related to the current year |  |  | 333 |  |  | 186 |  |  |  | 94
Expiration of the statute of limitations for the assessment of taxes |  |  | (824) |  |  | (2,567) |  |  |  | (1,139)
Balance at end of fiscal year |  | $ | 3,911 |  | $ | 4,573 |  |  | $ | 6,490
As of August 31, 2021, the liability for income taxes associated with unrecognized tax benefits was $3.9 million and can be reduced by $1.5 million of tax benefits recorded as deferred tax assets and liabilities. The total $3.9 million unrecognized tax benefit includes $400,000 of associated timing adjustments. The net amount of $3.5 million would, if recognized, favorably affect the Company's financial statements and favorably affect the Company's effective income tax rate. The Company recognizes interest and/or penalties related to unrecognized tax benefits in income tax expense. As of August 31, 2021 and 2020, the Company had accrued an additional $1.6 million and $2.0 million, respectively, for the payment of interest and penalties related to the above-mentioned unrecognized tax benefits. The Company expects changes 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, 2022 could result in a total income tax benefit amounting up to $900,000. 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. In two other countries where the Company operates, minimum income tax rules require 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 Company had income tax receivables of $11.0 million and $10.4 million and deferred tax assets of $3.3 million and $2.8 million as of August 31, 2021 and August 31, 2020, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, 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 ultimately succeed in its refund requests. 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 |  | 2005, 2007, 2011* to 2016*, 2017 to the present
California (U.S.) (state return) |  | 2005 and 2017 to the present
Florida (U.S.) (state return) |  | 2011* to 2017*, 2018 to the present
Aruba |  | 2016 to the present
Barbados |  | 2015 to the present
Costa Rica |  | 2011 to 2012, 2015 to the present
Colombia |  | 2016 to the present
Dominican Republic |  | 2011 to 2012 and 2016 to the present
El Salvador |  | 2018 to the present
Guatemala |  | 2012 to 2013, 2017 the present
Honduras |  | 2016 to the present
Jamaica |  | 2015 to the present
Mexico |  | 2016 to the present
Nicaragua |  | 2017 to the present
Panama |  | 2017*, 2018 to the present
Trinidad |  | 2015 to the present
U.S. Virgin Islands |  | 2001 to the present
Spain |  | 2018 to the present
Chile |  | 2018* to the present
*Aeropost only |  |
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/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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