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Income Taxes | 9 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 22. Income Taxes Effective Income Tax Rate – Three and Nine Months Ended September 30, 2020 The Company’s effective income tax rate during the three months ended September 30, 2020 of 123.7% resulted in income tax expense of $1,408. The tax rate differs from the federal statutory tax rate of 21% primarily due to a non-deductible loss on revaluation of deferred consideration. This loss was partly offset by a lower tax rate on foreign earnings. The Company’s effective income tax rate for the nine months ended September 30, 2020 of 7.4% resulted in an income tax benefit of $1,767. The tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on capital losses, a non-deductible loss on revaluation of deferred consideration and tax shortfalls associated with the vesting and exercise of stock-based compensation awards. These items were partly offset by a $5,981 reduction in unrecognized tax benefits, a $2,877 non-taxable gain recognized upon sale of the Canadian ETF business in the first quarter, a tax benefit of $ 2,842 recognized in connection with the release of a deferred tax asset valuation allowance on interest carryforwards arising from our debt previously held in the United Kingdom and a lower tax rate on foreign earnings. Effective Income Tax Rate – Three and Nine Months Ended September 30, 2019 The Company’s effective income tax rate during the three months ended September 30, 2019 of 51.9% resulted in income tax expense of $4,483. The tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses, a non-deductible loss on revaluation of deferred consideration, non-deductible executive compensation and state and local income taxes, partly offset by a lower tax rate on foreign earnings. The Company’s effective income tax rate during the nine months ended September 30, 2019 of 31.2% resulted in income tax expense of $7,021. The tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses, a non-deductible loss on revaluation of deferred consideration, state and local income taxes and tax shortfalls associated with the vesting and exercise of stock-based compensation awards, partly offset by a $4,309 reduction in unrecognized tax benefits and a lower tax rate on foreign earnings. Deferred Tax Assets A summary of the components of the Company’s deferred tax assets at September 30, 2020 and December 31, 2019 are as follows:
|  | September 30, 2020 |  |  | December 31, 2019 |
Deferred tax assets: |  |  |  |  |
Capital losses |  | $ | 16,734 |  |  | $ | 8,226 |
Operating lease liabilities |  |  | 5,096 |  |  |  | 5,529 |
Interest carryforwards |  |  | 2,582 |  |  |  | 2,615 |
NOLs – International |  |  | 2,069 |  |  |  | 6,721 |
Accrued expenses |  |  | 1,992 |  |  |  | 4,054 |
Stock-based compensation |  |  | 1,793 |  |  |  | 1,754 |
Goodwill and intangible assets |  |  | 1,526 |  |  |  | 1,671 |
NOLs – U.S. |  |  | 514 |  |  |  | 642 |
Outside basis differences |  |  | 123 |  |  |  | 123 |
Other |  |  | 110 |  |  |  | 218 |
Deferred tax assets |  |  | 32,539 |  |  |  | 31,553 |
Deferred tax liabilities: |  |  |  |  |
Right of use assets – operating leases |  |  | 4,038 |  |  |  | 4,400 |
Fixed assets and prepaid assets |  |  | 1,328 |  |  |  | 1,326 |
Allocated equity component of convertible note |  |  | 1,132 |  |  |  | — |
Unrealized gains |  |  | — |  |  |  | 744 |
Deferred tax liabilities |  |  | 6,498 |  |  |  | 6,470 |
Total deferred tax assets less deferred tax liabilities |  |  | 26,041 |  |  |  | 25,083 |
Less: valuation allowance |  |  | (18,926 | ) |  |  | (17,685 | )
Deferred tax assets, net |  | $ | 7,115 |  |  | $ | 7,398 |
Net Operating and Capital Losses – U.S . The Company’s tax effected net operating losses (“NOLs”) at September 30, 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 September 30, 2020 and December 31, 2019 were $16,734 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 and Interest Carryforwards – International Certain of the Company’s European subsidiaries generated NOLs and interest carryforwards outside the U.S. These tax effected NOLs and interest carryforwards were $4,651 and $9,336 at September 30, 2020 and December 31, 2019, respectively. All of these amounts 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 25). Valuation Allowance During the nine months ended September 30, 2020, the Company reduced the valuation allowance on its deferred tax assets by $2,842 associated with interest carryforwards in the United Kingdom. The Company has determined that it is more likely than not that these interest carryforwards will be utilized as the Company extinguished its term loan on June 16, 2020 and is therefore no longer accumulating non-deductible interest carryforwards in the United Kingdom. T he Company also generates profits in that jurisdiction and unused amounts are carried forward indefinitely. The Company’s remaining valuation allowance has been established on its 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 and nine months ended September 30, 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 |
Increases |  |  | 76 |  |  |  | — |  |  |  | 76 |
Foreign currency translation (2) |  |  | (141 | ) |  |  | (115 | ) |  |  | (26 | )
Balance at June 30, 2020 |  | $ | 24,364 |  |  | $ | 19,831 |  |  | $ | 4,533 |
Increases |  |  | 81 |  |  |  | — |  |  |  | 81 |
Foreign currency translation (2) |  |  | 1,057 |  |  |  | 860 |  |  |  | 197 |
Balance at September 30, 2020 |  | $ | 25,502 |  |  | $ | 20,691 |  |  | $ | 4,811 |
(1) | Recorded as an income tax benefit of $5,981 during the nine months ended September 30, 2020, along with an equal and offsetting amount recorded in other gains and losses, net, to recognize a reduction in the indemnification asset. During the nine months ended September 30, 2019, an income tax benefit of $4,309 was recorded along with an equal and offsetting amount in other gains and losses, net.
(2) | The gross unrecognized tax benefits were accrued in British pounds.
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 $25,502 and $32,101 at September 30, 2020 and December 31, 2019, respectively, are included in other non-current liabilities on the Consolidated Balance Sheets. It is reasonably possible that the total amount of unrecognized tax benefits will decrease by $4,756 (including interest and penalties of $1,427) in the next 12 months upon lapsing of the statute of limitations. At September 30, 2020, there were $25,502 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 is 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 September 30, 2020, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for years before 2016. 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 September 30, 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://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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