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Note 9 - Income Taxes | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
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 2016 and for state examinations before 2013. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2009 in Asia and generally 2011 in Europe. The Company is currently under examination by the taxing authorities in Slovakia for the tax year 2014 and has accrued tax based on preliminary findings. At December 31, 2019 and 2018, the Company has approximately $29.1 million and $28.9 million, respectively, of liabilities for uncertain tax positions ( $2.2 million and $1.4 million, respectively, is included in other current liabilities on the consolidated balance sheets and $26.9 million and $27.5 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, 2019, approximately $2.2 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. 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, 2019. A total of $2.2 million of the liability for uncertain tax positions, of which $0.9 million related to the 2009 tax year is scheduled to expire on June 1, 2020. The remaining $1.3 million relates to the 2016 tax year and is scheduled to expire on September 15, 2020. Of the $1.4 million of liability for uncertain tax positions that expired in 2019, $1.0 million of liability relates to the 2008 tax year, $0.1 million relates to the 2015 tax year and the remaining $0.3 million relates to the interest on the 2017 transition tax that was settled during the tax year ended December 31, 2019. 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:
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |
Liability for uncertain tax positions - January 1 |  | $ | 28,951 |  |  | $ | 30,430 |
Additions based on tax positions related to the current year |  |  | 1,738 |  |  |  | 1,703 |
Translation adjustment |  |  | (211 | ) |  |  | (657 | )
Settlement/expiration of statutes of limitations |  |  | (1,417 | ) |  |  | (2,525 | )
Liability for uncertain tax positions - December 31 |  | $ | 29,061 |  |  | $ | 28,951 |
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, 2019 and 2018, the Company recognized $0.7 million and $1.3 million, respectively, in interest and penalties in the consolidated statements of operations. During the years ended December 31, 2019 and 2018, the Company recognized a benefit of $0.7 million and $0.3 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 $4.9 million and $3.8 million accrued for the payment of interest and penalties at December 31, 2019 and 2018, 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 provision for income taxes included (loss) earnings from domestic operations of ( $17.1 ) million and $0.3 million for 2019 and 2018, respectively, and earnings before provision for income taxes from foreign operations of $9.8 million and $23.3 million for 2019 and 2018, respectively. The provision (benefit) for income taxes consists of the following:
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | (215 | ) |  | $ | (3,517 | )
State |  |  | 141 |  |  |  | 152 |
Foreign |  |  | 3,687 |  |  |  | 3,782 |
|  |  | 3,613 |  |  |  | 417 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (2,222 | ) |  |  | 2,895 |
State |  |  | (135 | ) |  |  | 196 |
Foreign |  |  | 185 |  |  |  | (601 | )
|  |  | (2,172 | ) |  |  | 2,490 |
|  | $ | 1,441 |  |  | $ | 2,907 |
A reconciliation of taxes on income computed at the U.S. federal statutory rate to amounts provided is as follows:
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |
|  | $ |  |  | % |  |  | $ |  |  | % |
Tax (benefit) provision computed at the federal statutory rate |  | $ | (1,534 | ) |  |  | 21 | % |  | $ | 4,959 |  |  |  | 21 | %
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Different tax rates applicable to foreign operations |  |  | 2,978 |  |  |  | (41 | %) |  |  | 1,231 |  |  |  | 5 | %
Increase in (reversal of) liability for uncertain tax positions - net |  |  | 320 |  |  |  | (4 | %) |  |  | (822 | ) |  |  | (3 | %)
Impact of U.S. Tax Reform |  |  | - |  |  |  | 0 | % |  |  | (2,628 | ) |  |  | (11 | %)
Research and experimentation and foreign tax credits |  |  | (907 | ) |  |  | 12 | % |  |  | (300 | ) |  |  | (1 | %)
State taxes, net of federal benefit |  |  | (54 | ) |  |  | 1 | % |  |  | 322 |  |  |  | 1 | %
SERP/COLI and restricted stock income |  |  | (547 | ) |  |  | 7 | % |  |  | 195 |  |  |  | 1 | %
Impairment of goodwill |  |  | 1,522 |  |  |  | (21 | %) |  |  | - |  |  |  | 0 | %
Other, including under/(over) accruals, unrealized foreign exchange gains and amortization of purchase accounting intangibles |  |  | (337 | ) |  |  | 5 | % |  |  | (50 | ) |  |  | 0 | %
Tax provision computed at the Company's effective tax rate |  | $ | 1,441 |  |  |  | (20 | %) |  | $ | 2,907 |  |  |  | 12 | %
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%. On September 21, 2018, the Executive Council of the Macao SAR Government has proposed to abolish the existing Offshore Law. It is proposed that the existing law and the relevant regulations related to the offshore business will be abolished, and that the operating permit to carry on offshore business will be terminated on January 1, 2021. The Company is keeping the operations in Macao and will be subject to a 12% tax on its income from this operation. As of December 31, 2019, the Company has gross foreign income tax net operating losses (“NOL”) of $29.6 million, foreign tax credits of $0.3 million and capital loss carryforwards of $0.2 million which amount to a total of $7.1 million of deferred tax assets. The Company has established valuation allowances totaling $7.1 million against these deferred tax assets. In addition, the Company has gross federal and state income tax NOLs of $1.5 million, including $0.8 million of NOLs acquired from Array, which amount to $0.2 million of deferred tax assets and tax credit carryforwards of $2.1 million. The Company has established valuation allowances of $1.1 million 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 state NOL's expire at various times during 2020 – 2033 and the tax credit carryforwards expire at various times during 2026 - 2035. Management has no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiaries as of December 31, 2019. Applicable income and dividend withholding taxes of $0.2 million have been reflected in the accompanying consolidated statements of operations for the year ended December 31, 2019. Due to the practicality of determining the deferred taxes on outside basis differences in our investments in our foreign subsidiaries, we have not provided for deferred taxes on outside basis differences and deemed that these basis differences will be indefinitely reinvested. During the fourth quarter of 2018, the Company completed the analysis of the impacts of the U.S. tax reform and recognized the tax consequences of all unremitted foreign earnings. At December 31, 2017, we had made a reasonable estimate of the effects on our existing deferred tax balances and the one -time transition tax in which we recognized a provisional amount of $18.1 million, which was included as a component of income tax expense from continuing operations. On the basis of revised earnings and profit computations that were completed during the year ended December 31, 2018, the Company recognized a measurement-period adjustment reducing the deemed repatriation tax by $2.6 million, resulting in the reduction of the Company’s provisional estimate from $18.1 million to $15.5 million. After payments made during 2018, the remaining deemed repatriation taxes payable of $10.8 million is included in other current liabilities on the Company’s consolidated balance sheet at December 31, 2018. At December 31, 2019, the majority of the deemed repatriation tax is included in other long-term liabilities on the Company’s consolidated balance sheet due to clarification on an Internal Revenue Service notice received in December 2018. Components of deferred income tax assets are as follows:
|  | December 31, |
|  | 2019 |  |  | 2018 |
|  | Tax Effect |  |  | Tax Effect |
Deferred tax assets: |  |  |  |  |  |  |  |
State tax credits |  | $ | 1,046 |  |  | $ | 1,000 |
Unfunded pension liability |  |  | 1,102 |  |  |  | 605 |
Reserves and accruals |  |  | 2,721 |  |  |  | 2,483 |
Federal, state and foreign net operating loss and credit carryforwards |  |  | 8,042 |  |  |  | 8,370 |
Depreciation |  |  | 686 |  |  |  | 850 |
Amortization |  |  | 698 |  |  |  | - |
Lease accounting |  |  | 3,961 |  |  |  | - |
Other accruals |  |  | 5,079 |  |  |  | 5,641 |
Total deferred tax assets |  |  | 23,335 |  |  |  | 18,949 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | 1,901 |  |  |  | 1,666 |
Amortization |  |  | 6,973 |  |  |  | 7,930 |
Lease accounting |  |  | 3,871 |  |  |  | - |
Other accruals |  |  | 370 |  |  |  | 893 |
Total deferred tax liabilities |  |  | 13,115 |  |  |  | 10,489 |
Valuation allowance |  |  | 8,216 |  |  |  | 9,200 |
Net deferred tax assets/(liabilities) |  | $ | 2,004 |  |  | $ | (740 | )
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://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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