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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 20. Income Taxes Below are the components of loss before income taxes for the fiscal years ended December 31, 2023, January 1, 2023, and January 2, 2022 under the following tax jurisdictions:
| For the Fiscal Year Ended |
(in thousands) | December 31, 2023 |  |  | January 1, 2023 |  |  | January 2, 2022 |
Domestic | $ | (70,787 | ) |  | $ | 1,734 |  |  | $ | (45,312 | )
Foreign |  | (35,490 | ) |  |  | (216,383 | ) |  |  | (222,508 | )
| $ | (106,277 | ) |  | $ | (214,649 | ) |  | $ | (267,820 | )
The provision for income taxes is as follows:
| For the Fiscal Year Ended |
(in thousands) | December 31, 2023 |  |  | January 1, 2023 |  |  | January 2, 2022 |
Current tax expense |  |  |  |  |  |  |  |
Domestic | $ | (59 | ) |  | $ | 2,240 |  |  | $ | - |
Foreign |  | 11,477 |  |  |  | 2,654 |  |  |  | 1,167 |
Total current |  | 11,418 |  |  |  | 4,894 |  |  |  | 1,167 |
Deferred tax expense (benefit) |  |  |  |  |  |  |  |
Domestic |  | (690 | ) |  |  | 690 |  |  |  | (891 | )
Foreign |  | 83 |  |  |  | (453 | ) |  |  | 618 |
Total deferred |  | (607 | ) |  |  | 237 |  |  |  | (273 | )
Total income tax expense (benefit) | $ | 10,811 |  |  | $ | 5,131 |  |  | $ | 894 |
Effective income tax rate |  | (10 | %) |  |  | (2 | %) |  |  | (0 | %)
A reconciliation of the US statutory income tax rate to the consolidated effective income tax rate is as follows:
| For the Fiscal Year Ended |
| December 31, 2023 |  |  | January 1, 2023 |  |  | January 2, 2022 |
Benefit at US statutory income tax rate |  | 21 | % |  |  | 21 | % |  |  | 21 | %
Permanent differences |  | (3 | %) |  |  | (2 | %) |  |  | (3 | %)
Non deductible expenses |  | (4 | %) |  |  | 0 | % |  |  | (3 | %)
Change in unrecognized tax benefits |  | (25 | %) |  |  | 0 | % |  |  | 0 | %
Movement in valuation allowances |  | (3 | %) |  |  | (9 | %) |  |  | (15 | %)
Change in valuation allowance due to remeasurement of deferred taxes |  | 0 | % |  |  | 0 | % |  |  | (7 | %)
Differences in tax rates in other jurisdictions |  | 3 | % |  |  | 0 | % |  |  | 0 | %
Change in tax rates |  | 0 | % |  |  | 0 | % |  |  | 7 | %
Loss of tax attributes |  | 0 | % |  |  | (13 | %) |  |  | 0 | %
State and local |  | (1 | %) |  |  | 0 | % |  |  | 0 | %
True up |  | 1 | % |  |  | 0 | % |  |  | 0 | %
Other |  | (0 | %) |  |  | 1 | % |  |  | 0 | %
Effective income tax rate |  | (10 | %) |  |  | (2 | %) |  |  | (0 | %)
The effective income tax rate for the fiscal year ended December 31, 2023 differs from the US statutory rate primarily due to tax charges related to uncertain tax positions, current tax charges in certain jurisdictions where the Company's utilization of its tax attributes are limited, and current period losses in certain jurisdictions that require a valuation allowance. The effective income tax rate for fiscal years ended January 1, 2023 and January 2, 2022 are primarily due to current period losses in certain jurisdictions that require a valuation allowance. In the UK, non-trading losses of $29 million in 2023 and $2 million in 2022 have been extinguished due to rules which limit existence of losses subsequent to a change of control. This has resulted in a loss of tax attributes in the period. Deferred Income Taxes Deferred tax assets and liabilities consist of the following:
| As of |
(in thousands) | December 31, 2023 |  |  | January 1, 2023 |
Deferred tax assets |  |  |  |  |
Property and equipment, net | $ | 35,077 |  |  | $ | 26,858 |
Other short term differences |  | 31,059 |  |  |  | 54,497 |
Lease liability |  | 329,162 |  |  |  | 304,717 |
Interest limitation carryforward |  | 55,223 |  |  |  | 66,866 |
Tax losses |  | 104,214 |  |  |  | 110,201 |
Total gross deferred tax assets |  | 554,735 |  |  |  | 563,139 |
Valuation allowance |  | (187,743 | ) |  |  | (216,114 | )
Total deferred tax assets | $ | 366,992 |  |  | $ | 347,025 |
Deferred tax liabilities |  |  |  |  |
Property and equipment, net | $ | (29,136 | ) |  | $ | (23,357 | )
Intangible assets |  | (13,735 | ) |  |  | (13,093 | )
Right of use asset |  | (323,744 | ) |  |  | (310,956 | )
Other |  | (1,147 | ) |  |  | (990 | )
Total gross deferred tax liabilities |  | (367,762 | ) |  |  | (348,396 | )
Total net deferred tax liabilities | $ | (770 | ) |  | $ | (1,371 | )
Total net deferred taxes are classified as follows:
| As of |
(in thousands) | December 31, 2023 |  |  | January 1, 2023 |
Non-current deferred tax assets | $ | 740 |  |  | $ | 295 |
Non-current deferred tax liabilities |  | (1,510 | ) |  |  | (1,666 | )
| $ | (770 | ) |  | $ | (1,371 | )
As of December 31, 2023, deferred tax assets related to tax losses were $104 million and interest limitation carryforwards were $55 million which can be used to offset future taxable income. This includes $68 million of net operating losses, or "NOLs", and $47 million of interest limitation carryforwards in the US; $7 million of tax losses and $8 million of interest carryforwards in the UK and $11 million tax losses in Hong Kong. As of December 31, 2023, the gross NOLs and interest limitation carryforwards generated in the US of $221 million and $176 million will not expire. US federal and state NOL carryforwards of $46 million and $250 million will expire, if not utilized, in 2032 to 2036 and in 2027 to 2038, respectively. Deferred tax assets related to the gross tax losses and interest carryforwards in the UK of $29 million and $32 million, respectively, as well as the tax losses in Hong Kong of $67 million will not expire. As of January 2, 2022, deferred tax assets related to NOLs generated in the US of $238 million will not expire. Deferred tax assets related to US federal and state NOL carryforwards of $69 million and $185 million will expire, if not utilized, in 2031 to 2038 and in 2027 to 2038, respectively. Interest limitation carryforwards in the US do no t expire. Deferred tax assets related to tax losses and interest limitation carryforwards in the UK of $35 million and $50 million will not expire. Deferred tax assets related to tax losses in Hong Kong of $10 million will not expire. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion of or all the deferred tax assets will not be realized. The Company has concluded that it is not more likely than not that the majority of the deferred tax assets can be realized and therefore a valuation allowance has been assigned to these deferred tax assets. If the Company is subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then it may be required to recognize these deferred tax assets through the reduction of the valuation allowance which could result in a material benefit to the results of operations in the period in which the benefit is determined. During the fiscal year ended December 31, 2023, the valuation allowance for deferred tax assets decreased by $28 million. This decrease mainly related to certain UK attributes which are no longer available. Of the decrease in valuation allowance of $28 million, $0.5 million was as a result of foreign exchange translation impact. As of December 31, 2023, the Company had $108 million (January 1, 2023: $102 million; January 2, 2022: $54 million), $49 million (January 1, 2023: $90 million; January 2, 2022: $104 million), $12 million (January 1, 2023: $9 million; January 2, 2022: $8 million), and $18 million (January 1, 2023: $15 million; January 2, 2022: $8 million) in valuation allowances against the net US, UK, Hong Kong, and the rest of the world deferred tax assets, respectively. A portion of the Company's US deferred tax assets relates to net operating losses, the use of which may not be available as a result of limitations under Section 382 of the US tax code. With respect to the US net operating losses, it is not practical to determine if such losses would be utilized based on Management's future projected taxable income. As of December 31, 2023, the Company had no undistributed earnings on which to provide tax. In the event the Company's subsidiaries become profitable, distributions are likely not to accrue additional taxes due to both the US and UK dividends received exemption regimes. Impact of Global Intangible Low Taxed Income Provisions (United States) The Company is subject to the US Global Intangible Low Taxed Income (GILTI) provisions which require US groups to include in taxable income certain earnings of their foreign controlled corporations. This provision did not impact the Company in the current year since these foreign controlled corporations generated an overall loss which has no impact on US taxable income. We have elected to treat any potential GILTI inclusions as a period cost. Uncertain Tax Positions The Company recognizes tax liabilities when, despite its belief that its tax return positions are supportable, management believes that certain positions may not be fully sustained upon review by tax authorities. Each period the Company assesses uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement - the more likely than not recognition threshold. Where the Company has determined that its tax return filing position does not satisfy the more-likely-than-not recognition threshold, the Company has recorded $46 million (January 1, 2023: $16 million; January 2, 2022: $16 million) of uncertain tax benefits. The ongoing assessments of the more-likely-than-not outcomes of uncertain tax positions require judgment and can increase or decrease the Company's effective tax rate, as well as impact its operating results. It is reasonably possible that the amount of uncertain tax positions could significantly change within the next 12 months. The Company has ongoing income tax audits in various jurisdictions and evaluates uncertain tax provisions that may be challenged by local tax authorities and not fully sustained. These uncertain tax positions are reviewed on an ongoing basis and adjusted in light of facts and circumstances including progression of tax audits, developments in case law and closing of statute of limitations. As of December 31, 2023, the Company is not able to estimate the range by which these potential events could impact the uncertain tax benefits recorded within the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands) | December 31, 2023 |  |  | January 1, 2023 |  |  | January 2, 2022 |
Balance at beginning of year | $ | 15,841 |  |  | $ | 15,129 |  |  | $ | 11,293 |
Additions related to the current year |  | 11,917 |  |  |  | 5,359 |  |  |  | 3,948 |
Additions related to the prior years |  | 17,899 |  |  |  | - |  |  |  | - |
Reductions related to prior year positions |  | (95 | ) |  |  | - |  |  |  | - |
Reductions due to expiry of state of limitations |  | (176 | ) |  |  | (3,014 | ) |  |  | (3,822 | )
Change in tax rate |  | - |  |  |  | - |  |  |  | 3,566 |
Foreign exchange |  | 1,503 |  |  |  | (1,633 | ) |  |  | 144 |
Balance at end of year | $ | 46,889 |  |  | $ | 15,841 |  |  | $ | 15,129 |
Unrecognized tax benefits increased by $31,048 during the fiscal year ended December 31, 2023 (fiscal year ended January 1, 2023: $712). During fiscal year ended December 31, 2023, the net increase of $31,048 was primarily driven by a rebalancing of intercompany pricing throughout the Group. In fiscal year ended January 1, 2023, the net increase of $712 was driven by the treatment of Group costs in foreign companies. During the fiscal years ended December 31, 2023, January 1, 2023, and January 2, 2022, the Company did no t recognize any interest and penalties associated with its unrecognized tax benefits in its consolidated statements of operations. As of December 31, 2023, if recognized, $6 million of its unrecognized tax benefits would impact the Company’s effective tax rate, the remaining balance is recognized against deferred tax assets and as a result of valuation allowances would not impact the Company's effective tax rate. In the UK, US and Greece, the earliest tax years that remain subject to examination by the tax authorities are 2019, 2018, and 2017, respectively. To the extent US tax attributes generated in closed years are carried forward into years that are open to examination, they may be subject to adjustment in audit. The Inflation Reduction Act (the “IRA”) was enacted in August 2022, the provisions of which include a minimum tax equal to 15% of the adjusted financial statement income of certain large corporations, as well as a 1% excise tax on certain share buybacks by public corporations that would be imposed on such corporations. The Company analyzed the impact of the IRA and the excise tax did not have a material impact on our business, financial condition, and results of operations for fiscal year ended December 31, 2023. The Company will continue to monitor this going forward. The European Union's Pillar Two Directive has been adopted by the EU member states as well as the UK, and various other territories the Company operates in, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive. The Company is continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries, including those within the European Union. The Company will continue to monitor regulatory developments to assess potential impacts to the Company.

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