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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
INCOME TAXES [Abstract] |
INCOME TAXES | 9. INCOME TAXES The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2014 and for state examinations before 2011. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2007 in Asia and generally 2010 in Europe. At December 31, 2015, the Company was under examination by the taxing authorities in Germany for the tax years 2011 through 2013. This audit concluded in April 2016 and resulted in an immaterial amount of incremental tax expense. At December 31, 2017 and 2016, the Company has approximately $30.4 million and $27.8 million, respectively, of liabilities for uncertain tax positions ($2.5 million and $0.4 million, respectively, is included in other current liabilities on the consolidated balance sheets and $27.9 million and $27.4 million, respectively, is included in liability for uncertain tax positions on the consolidated balance sheets). These amounts, if recognized, would reduce the Company's effective tax rate. As of December 31, 2017, approximately $2.5 million of the Company's liabilities for uncertain tax positions are expected to be resolved during the next twelve months by way of expiration of the related statute of limitations. In connection with the acquisition of the Power Solutions business in 2014, the Company acquired a liability for additional uncertain tax positions related to various tax matters for the years 2007 through 2013. During the year ended December 31, 2016, a portion of these tax matters was resolved with the taxing authorities which resulted in a reduction of $13.9 million in the liability for uncertain tax positions, of which $11.1 million related to interest and penalties. The Company is actively pursuing resolution of the remaining tax matters. From the date of acquisition through December 31, 2017, the Company has recorded $5.3 million of interest and penalties pertaining to this issue, of which $2.6 million was reversed during 2016 in relation to the settlement of the exposure. The Company will continue to accrue interest and penalties until the issues are resolved. As part of the acquisition of Power Solutions, the Company acquired a $12.0 million liability for uncertain tax positions relating to an ongoing claim by the Arezzo Revenue Agency in Italy concerning certain tax matters related to what was then Power-One Asia Pacific Electronics Shenzhen Co. Ltd. (now Bel Power Solutions Asia Pacific Electronics Shenzhen Co. Ltd.) for the years 2004 through 2006, as further described in Note 16, "Commitments and Contingencies." As a result of the expiration of the statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized benefits for tax positions taken regarding previously filed tax returns may change materially from those recorded as liabilities for uncertain tax positions in the Company's consolidated financial statements at December 31, 2017. A total of $2.5 million of the liability for uncertain tax positions is expected to expire in 2018. Of this amount, $1.4 million relates to the 2014 tax year and is scheduled to expire on October 15, 2018 and $1.1 million relates to the 2006 tax year and is scheduled to expire on December 31, 2018. A total of $0.4 million of the acquired liability for uncertain tax positions relating to the 2006 tax year was reversed during the year ended December 31, 2017. Additionally, a total of $0.2 million of previously recorded liabilities for uncertain tax positions relating to the 2010 tax year were reversed during the year ended December 31, 2015. This was offset by an increase to the liability for uncertain tax positions in the amount of $3.2 million, of which $2.1 million relates to interest and penalties on the uncertain tax positions acquired from Power Solutions, which is included in the consolidated statement of operations during the year ended December 31, 2015. A reconciliation of the beginning and ending amount of the liability for uncertain tax positions, including the portion included in income taxes payable, is as follows:
|  | 2017 |  |  | 2016 |  |  | 2015 |
Liability for uncertain tax positions - January 1 |  | $ | 27,828 |  |  | $ | 42,158 |  |  | $ | 39,970 |
Additions based on tax positions |  |  |  |  |  |  |  |  |  |  |  |
related to the current year |  |  | 2,168 |  |  |  | 2,483 |  |  |  | 3,241 |
Translation adjustment |  |  | 804 |  |  |  | (881 | ) |  |  | (844 | )
Settlement/expiration of statutes of limitations |  |  | (370 | ) |  |  | (15,932 | ) |  |  | (209 | )
Liability for uncertain tax positions - December 31 |  | $ | 30,430 |  |  | $ | 27,828 |  |  | $ | 42,158 |
The Company's policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes. During the years ended December 31, 2017, 2016 and 2015, the Company recognized $0.9 million, $1.3 million and $2.5 million, respectively, in interest and penalties in the consolidated statements of operations. During the years ended December 31, 2017, 2016 and 2015, the Company recognized zero, a benefit of $3.1 million, and less than $0.1 million, respectively, for the reversal of such interest and penalties, relating to the expiration of statues of limitations and settlement of the acquired liability for uncertain tax positions, respectively. The Company has approximately $3.2 million and $2.2 million accrued for the payment of interest and penalties at December 31, 2017 and 2016, respectively, which is included in both income taxes payable and liability for uncertain tax positions in the consolidated balance sheets. The Company's total (loss) earnings before (benefit) provision for income taxes included (loss) earnings from domestic operations of ($2.0) million, ($43.3) million and $6.1 million for 2017, 2016 and 2015, respectively, and earnings (loss) before provision (benefit) for income taxes from foreign operations of $11.7 million, ($39.2) million and $19.6 million for 2017, 2016 and 2015, respectively. The provision (benefit) for income taxes consists of the following:
|  | Years Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 16,055 |  |  | $ | (1,163 | ) |  | $ | 1,494 |
State |  |  | 115 |  |  |  | 18 |  |  |  | 70 |
Foreign |  |  | 5,685 |  |  |  | (10,172 | ) |  |  | 5,327 |
|  |  | 21,855 |  |  |  | (11,317 | ) |  |  | 6,891 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (1,312 | ) |  |  | (6,272 | ) |  |  | 1,019 |
State |  |  | (329 | ) |  |  | (464 | ) |  |  | (64 | )
Foreign |  |  | 1,326 |  |  |  | 335 |  |  |  | (1,311 | )
|  |  | (315 | ) |  |  | (6,401 | ) |  |  | (356 | )
|  | $ | 21,540 |  |  | $ | (17,718 | ) |  | $ | 6,535 |
A reconciliation of taxes on income computed at the U.S. federal statutory rate to amounts provided is as follows:
|  | Years Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | $ |  |  |  | % |  |  | $ |  |  |  | % |  |  | $ |  |  |  | % |
Tax (benefit) provision computed at the |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
federal statutory rate |  | $ | 3,375 |  |  |  | 35 | % |  | $ | (28,893 | ) |  |  | 35 | % |  | $ | 9,006 |  |  |  | 35 | %
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Different tax rates applicable to foreign operations |  |  | (2,531 | ) |  |  | (26 | %) |  |  | (4,427 | ) |  |  | 5 | % |  |  | (5,353 | ) |  |  | (21 | %)
Impairment of goodwill & intangibles |  |  | - |  |  |  | 0 | % |  |  | 30,445 |  |  |  | (37 | %) |  |  | - |  |  |  | 0 | %
Increase in (reversal of) liability for uncertain |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax positions - net |  |  | 1,082 |  |  |  | 11 | % |  |  | (13,974 | ) |  |  | 17 | % |  |  | 3,032 |  |  |  | 12 | %
Impact of U.S. Tax Reform |  |  | 19,171 |  |  |  | 199 | % |  |  | - |  |  |  | 0 | % |  |  | - |  |  |  | 0 | %
Utilization of research and experimentation, solar and foreign |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax credits |  |  | (272 | ) |  |  | (3 | %) |  |  | (349 | ) |  |  | 0 | % |  |  | (349 | ) |  |  | (1 | %)
State taxes, net of federal benefit |  |  | (261 | ) |  |  | (3 | %) |  |  | (420 | ) |  |  | 1 | % |  |  | 56 |  |  |  | 0 | %
Foreign tax on gain, net of federal benefit |  |  | 1,223 |  |  |  | 13 | % |  |  | - |  |  |  | 0 | % |  |  | - |  |  |  | 0 | %
Current year (reversal) increase in U.S. valuation allowances |  |  | - |  |  |  | 0 | % |  |  | - |  |  |  | 0 | % |  |  | (343 | ) |  |  | (1 | %)
Federal tax on profit of foreign disregarded entities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
net of deferred tax |  |  | - |  |  |  | 0 | % |  |  | - |  |  |  | 0 | % |  |  | 872 |  |  |  | 3 | %
Other, including qualified production activity credits, SERP/COLI |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
income, under/(over) accruals, unrealized foreign exchange gains |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
and amortization of purchase accounting intangibles |  |  | (247 | ) |  |  | (3 | %) |  |  | (100 | ) |  |  | 0 | % |  |  | (386 | ) |  |  | (2 | %)
Tax (benefit) provision computed at the Company's |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
effective tax rate |  | $ | 21,540 |  |  |  | 223 | % |  | $ | (17,718 | ) |  |  | 21 | % |  | $ | 6,535 |  |  |  | 25 | %
The Company holds an offshore business license from the government of Macao. With this license, a Macao offshore company named Bel Fuse (Macao Commercial Offshore) Limited has been established to handle the Company's sales to third-party customers in Asia. Sales by this company consist of products manufactured in the PRC. This company is not subject to Macao corporate profit taxes which are imposed at a tax rate of 12%. Additionally, the Company established TRP International, a China Business Trust ("CBT"), when it acquired the TRP group, as previously discussed. Sales by the CBT consists of products manufactured in the PRC and sold to third-party customers inside and outside Asia. The CBT is not subject to PRC income taxes, which are generally imposed at a tax rate of 25%. As of December 31, 2017, the Company has gross foreign income tax net operating losses ("NOL") of $32.2 million, foreign tax credits of $0.3 million and capital loss carryforwards of $0.2 million which amount to a total of $7.6 million of deferred tax assets. The Company has established valuation allowances totaling $7.3 million against these deferred tax assets. In addition, the Company has gross federal and state income tax NOLs of $14.4 million, including $3.7 million of NOLs acquired from Array and $9.0 million of NOLs acquired from Connectivity Solutions, which amount to $5.3 million of deferred tax assets and tax credit carryforwards of $1.1 million. The Company has established valuation allowances of $0.2 million and $1.0 million, respectively, against these deferred tax assets. The foreign NOL's can be carried forward indefinitely, the NOL acquired from Array expires at various times during 2026 – 2027, the NOL acquired from Connectivity Solutions expire at various times during 2022-2033, the state NOL's expire at various times during 2018 – 2031 and the tax credit carryforwards expire at various times during 2025 - 2034. It is the Company's intention to repatriate substantially all net income from its wholly owned PRC subsidiary, Dongguan Transpower Electric Products Co., Ltd, a Chinese Limited Liability Company, to its direct Hong Kong parent Transpower Technologies (Hong Kong) Ltd. Applicable income and dividend withholding taxes have been reflected in the accompanying consolidated statements of operations for the year ended December 31, 2017. However, U.S. deferred taxes need not be provided on these or the majority of the remaining earnings of foreign subsidiaries as we are currently analyzing our global working capital and cash requirements and the potential tax liabilities attributable to a repatriation, including calculating any excess of the amount for financial reporting over the tax basis in our foreign subsidiaries, and have yet to determine whether we plan to repatriate earnings and profits in the future. Due to the enactment of the Tax Act, the Company recorded a U.S. tax expense for the estimate of the one-time deemed repatriation on post 1986 untaxed accumulated foreign earnings and revalued the deferred tax assets and liabilities at the reduced corporate tax rate of 21%. Preliminary calculations of the one-time deemed repatriation estimate the post 1986 untaxed accumulated earnings at $199.9 million which is subject to U.S. income tax of 8% on illiquid assets and 15.5% on liquid assets. The estimated calculation of the transition tax is $17.5 million, of which $16.0 million is payable after tax credits, which is recorded as an incremental U.S. tax expense at December 31, 2017. The Company will elect to pay the transition tax, interest free, over 8 years, which is payable at 8% for each of the first 5 years, 15% in year 6, 20% in year 7 and 25% in year 8. The Company has also recorded a decrease related to deferred tax assets and deferred tax liabilities of $6.3 million and $4.2 million, respectively, with a corresponding net adjustment to deferred income tax expense of $2.1 million for the year ended December 31, 2017 due to the reduction of the corporate tax rate to 21%. The Company's estimates of the adjustments to deferred tax assets and deferred tax liabilities and the calculation of the transition tax are provisional amounts and were calculated using currently available information and a preliminary review of the Tax Act; however, the Company is continuing to evaluate the underlying documentation and revisions to the current calculations may occur. We will recognize any changes to the provisional amounts as we refine our estimates of our cumulative temporary differences, finalize the calculation of the total post 1986 untaxed accumulated foreign earnings and complete our interpretations of the application of the Tax Act. Components of deferred income tax assets are as follows:
|  | December 31, |
|  | 2017 |  |  | 2016 |
|  | Tax Effect |  |  | Tax Effect |
Deferred tax assets: |  |  |  |  |  |
State tax credits |  | $ | 1,033 |  |  | $ | 902 |
Unfunded pension liability |  |  | 1,139 |  |  |  | 1,398 |
Reserves and accruals |  |  | 2,828 |  |  |  | 4,335 |
Federal, state and foreign net operating loss |  |  |  |  |
and credit carryforwards |  |  | 10,524 |  |  |  | 12,891 |
Depreciation |  |  | 917 |  |  |  | 1,057 |
Amortization |  |  | - |  |  |  | - |
Other accruals |  |  | 4,915 |  |  |  | 8,278 |
Total deferred tax assets |  |  | 21,356 |  |  |  | 28,861 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Reserves and accruals |  |  | - |  |  |  | 64 |
Depreciation |  |  | 989 |  |  |  | 3,028 |
Amortization |  |  | 8,490 |  |  |  | 15,361 |
Other accruals |  |  | 946 |  |  |  | 973 |
Total deferred tax liabilities |  |  | 10,425 |  |  |  | 19,426 |
Valuation allowance |  |  | 8,343 |  |  |  | 7,485 |
Net deferred tax assets/(liabilities) |  | $ | 2,588 |  |  | $ | 1,950 |
The Company continues to monitor proposed legislation affecting the taxation of transfers of U.S. intangible property and other potential tax law changes.

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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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