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Income Taxes | 3 Months Ended
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Mar. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 21. Income Taxes Effective Income Tax Rate – Three Months Ended March 31, 2020 and March 31, 2019 The Company’s effective income tax rate for the three months ended March 31, 2020 of 21.5% resulted in an income tax benefit of $2,371. The Company’s effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a $5,981 reduction in unrecognized tax benefits, a $2,877 non-taxable gain recognized upon sale of the Company’s Canadian ETF business and a lower tax rate on foreign earnings, partly offset by a valuation allowance on capital losses, tax shortfalls associated with the vesting and exercise of stock-based compensation and a non-deductible loss on revaluation of deferred consideration. The Company’s effective income tax rate for the three months ended March 31, 2019 of negative 13.5% resulted in an income tax benefit of $1,049. The Company’s effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a $4,309 reduction in unrecognized tax benefits, a non-taxable gain on revaluation of deferred consideration and a lower tax rate on foreign earnings, partly offset by a valuation allowance on foreign net operating losses, tax shortfalls associated with the vesting and exercise of stock-based compensation awards and state and local income taxes. Deferred Tax Assets A summary of the components of the Company’s deferred tax assets at March 31, 2020 and December 31, 2019 are as follows:
|  | March 31, 2020 |  |  | December 31, 2019 |
Deferred tax assets: |  |  |  |
Capital losses |  | $ | 17,002 |  |  | $ | 8,226 |
Operating lease liabilities |  |  | 5,295 |  |  |  | 5,529 |
NOLs – International |  |  | 5,233 |  |  |  | 9,336 |
Goodwill and intangible assets |  |  | 1,622 |  |  |  | 1,671 |
Stock-based compensation |  |  | 1,115 |  |  |  | 1,754 |
NOLs – U.S. |  |  | 514 |  |  |  | 642 |
Accrued expenses |  |  | 373 |  |  |  | 4,054 |
Outside basis differences |  |  | 123 |  |  |  | 123 |
Other |  |  | 159 |  |  |  | 218 |
Deferred tax assets |  |  | 31,436 |  |  |  | 31,553 |
Deferred tax liabilities: |  |  |  |
Right of use assets – operating leases |  |  | 4,189 |  |  |  | 4,400 |
Fixed assets and prepaid assets |  |  | 1,309 |  |  |  | 1,326 |
Unrealized gains |  |  | 717 |  |  |  | 744 |
Deferred tax liabilities |  |  | 6,215 |  |  |  | 6,470 |
Total deferred tax assets less deferred tax liabilities |  |  | 25,221 |  |  |  | 25,083 |
Less: valuation allowance |  |  | (22,358 | ) |  |  | (17,685 | )
Deferred tax assets, net |  | $ | 2,863 |  |  | $ | 7,398 |
Net Operating and Capital Losses – U.S . The Company’s tax effected net operating losses (“NOLs”) at March 31, 2020 were $514 which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change. The Company’s tax effected capital losses at March 31, 2020 and December 31, 2019 were $17,002 and $8,226, respectively. The change in capital losses is due to the impairment recognized on the Company’s financial interests in AdvisorEngine (Note 7 ) and a capital loss recognized upon sale of the Canadian ETF business. Net Operating Losses – International Certain of the Company’s European subsidiaries generated NOLs outside the U.S. These tax effected NOLs were $5,233 and $9,336 at March 31, 2020 and December 31, 2019, respectively. All of these NOLs at March 31, 2020 are carried forward indefinitely. The reduction in NOLs was due to the sale of the Company’s Canadian ETF business, which occurred on February 19, 2020 (Note 24). Valuation Allowance The Company’s valuation allowance has been established on its net capital losses, international net operating losses and outside basis differences as it is more-likely-than-not that these deferred tax assets will not be realized. Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic which included temporary changes to income and non-income based tax laws including: (i) the elimination of the 80% of taxable income limitation by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 and 2020; (ii) allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years; (iii) increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning January 1, 2019 and 2020; and (iv) other related provisions. The CARES Act did not have a material impact on the Company’s consolidated financial statements. Uncertain Tax Positions Tax positions are evaluated utilizing a two-step process. The Company first determines whether any of its tax positions are more- likely-than-not to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. In connection with the ETFS Acquisition, the Company accrued a liability for uncertain tax positions and interest and penalties at the acquisition date. The table below sets forth the aggregate changes in the balance of these gross unrecognized tax benefits during the three months ended March 31, 2020:
|  | Total |  |  | Unrecognized Tax Benefits |  |  | Interest and Penalties |
Balance on January 1, 2020 |  | $ | 32,101 |  |  | $ | 25,998 |  |  | $ | 6,103 |
Decrease - Lapse of statute of limitations (1) |  |  | (5,981 | ) |  |  | (4,620 | ) |  |  | (1,361 | )
Increases |  |  | 76 |  |  |  | — |  |  |  | 76 |
Foreign currency translation (2) |  |  | (1,767 | ) |  |  | (1,432 | ) |  |  | (335 | )
Balance at March 31, 2020 |  | $ | 24,429 |  |  | $ | 19,946 |  |  | $ | 4,483 |
(1) | Recorded as an income tax benefit of $5,981 during the three months ended March 31, 2020, along with an equal and offsetting amount recorded in other losses, net, to recognize a reduction in the indemnification asset. During the three months ended March 31, 2019, an income tax benefit of $4,309 was recorded along with an equal and offsetting amount in other losses, net.
(2) | The gross unrecognized tax benefits were accrued in British pounds sterling.
The Company also recorded an offsetting indemnification asset provided by ETFS Capital as part of its agreement to indemnify the Company for any potential claims, for which an amount is being held in escrow. ETFS Capital has also agreed to provide additional collateral by maintaining a minimum working capital balance up to a stipulated amount. The gross unrecognized tax benefits and interest and penalties totaling $24,429 at March 31, 2020 are included in other non-current liabilities on the Consolidated Balance Sheet. It is reasonably possible that the total amount of unrecognized tax benefits will decrease by $4,525 (including interest and penalties of $1,317) in the next 12 months upon lapsing of the statute of limitations. At March 31, 2020, there were $24,429 of unrecognized tax benefits (including interest and penalties) that, if recognized, would impact the effective tax rate. The recognition of any unrecognized tax benefits would result in an equal and offsetting adjustment to the indemnification asset which would be recorded in income before taxes due to the indemnity for any potential claims. Income Tax Examinations The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. The Company’s federal tax return and ManJer’s tax return (a Jersey-based subsidiary) for the year ended December 31, 2016 and the Company’s New York state tax return for the years ended December 31, 2015 through 2018 are currently under review by the relevant tax authorities. The Company is indemnified by ETFS Capital for any potential exposure associated with ManJer’s tax return under audit. The Company is not currently under audit in any other income tax jurisdictions. As of March 31, 2020, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for years before 2015. Undistributed Earnings of Foreign Subsidiaries Due to the imposition of the Global Intangible Low-Taxed Income (“ GILTI ”) provisions, all unremitted earnings are no longer subject to U.S. federal income tax; however, there could be U.S. state and/or foreign withholding taxes upon distribution of such unremitted earnings. The Company recognizes deferred tax liabilities for withholding taxes that may become payable, where applicable, upon the distribution of earnings and profits from foreign subsidiaries unless considered permanent in duration. As of March 31, 2020, the Company considers all undistributed foreign earnings and profits to be permanent in duration.

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