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Note 7 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

7.         Income taxes

 

The components of income tax expense (benefit) for the years ended  December 31, 2021, 2020 and 2019 were as follows (in thousands):

 

  

Year Ended December 31,

 
  

2021

  

2020

  

2019

 

Current tax:

            

Netherlands (2020 and 2019: U.K.)

 $216  $(707) $- 

Foreign

  16,777   17,883   17,160 

Total current tax

  16,993   17,176   17,160 

Deferred tax:

            

Netherlands (2020 and 2019: U.K.)

  -   -   - 

Foreign

  (726)  (20,576)  (18,297)

Total deferred tax

  (726)  (20,576)  (18,297)

Income tax expense (benefit)

 $16,267  $(3,400) $(1,137)

 

Following the closing of the Merger on October 1, 2021, the tax domicile of the Company changed from the U.K. to the Netherlands. As a result of this change in domicile due to the Merger, income tax expense (benefit) is split between the Netherlands and foreign tax jurisdictions for the year ended December 31, 2021 and between the U.K. and foreign tax jurisdictions for the year ended December 31, 2020 and 2019.

 

The Netherland, U.K. and foreign components of loss from continuing operations before income taxes and equity in income of joint ventures for the years ended  December 31, 2021, 2020 and 2019 were as follows (in thousands):

 

  

Year Ended December 31,

 
  

2021

  

2020

  

2019

 

Netherlands (2020 and 2019: U.K.)

 $(19,190) $22,819  $33,071 

Foreign

  (113,181)  (346,853)  (108,608)

Total

 $(132,371) $(324,034) $(75,537)

 

A reconciliation of the differences between the income tax provision computed at the Netherlands statutory rate of 25% for the year ended December 31, 2021 and the U.K. statutory rate of 19% for the years ended December 31, 2020 and 2019 to loss from continuing operations before taxes and equity in joint ventures for the reasons below (in thousands):

 

  

Year Ended December 31,

 
  

2021

  

2020

  

2019

 

Statutory tax rate

  25%  19%  19%
             

Income tax expense at statutory rate

 $(33,093) $(61,566) $(14,352)

Permanent differences

  14,123   122,815   10,322 

Effect of overseas tax rates

  10,583   (1,754)  (4,961)

Net tax charge related to attributes with full valuation allowance

  28,607   (71,259)  12,769 

Exempt dividends from joint ventures

  (1,014)  14   - 

Return to provision adjustments

  (5,001)  6,150   (6,446)

Withholding taxes

  1,995   984   876 

Foreign exchange movements on tax balances

  67   1,216   655 

Income tax expense (benefit)

 $16,267  $(3,400) $(1,137)
             

Effective tax rate

  -12.3%  1.0%  1.5%

 

Deferred tax assets and liabilities are recorded for the anticipated future tax effects of temporary differences between the financial statement basis and tax basis of our assets and liabilities and are measured using the tax rates and laws expected to be in effect when the differences are projected to reverse.

 

The primary components of our deferred tax assets and liabilities as of  December 31, 2021 and 2020 were as follows (in thousands):

 

  

December 31,

 
  

2021

  

2020

 

Deferred tax assets:

        

Net operating loss carry forwards

 $731,315  $484,695 

Employee compensation and benefits

  12,958   7,767 

Depreciation

  44,253   24,759 

Other

  34,734   19,987 

Investment in partnership

  51,890   - 

Intangibles

  22,980   - 

Valuation allowance

  (829,087)  (512,711)

Total deferred tax assets

  69,043   24,497 

Deferred tax liabilities:

        

Depreciation

  (1,935)  (6,565)

Goodwill and other intangibles

  (42,784)  (40,054)

Investment in partnership

  (48,856)  - 

Other

  (7,212)  (4,695)

Total deferred tax liabilities

  (100,787)  (51,314)

Net deferred tax liabilities

 $(31,744) $(26,817)

 

We recognize a valuation allowance where it is more likely than not that some or all of the deferred tax assets will not be realized. The realization of a deferred tax asset is dependent upon the ability to generate sufficient taxable income in the appropriate taxing jurisdictions where the deferred tax assets are initially recognized. At December 31, 2021, we have maintained a valuation allowance with respect to substantially all U.S. foreign tax credit carryforwards as well as certain net operating loss carryforwards for various jurisdictions.

 

The changes in valuation allowances were as follows (in thousands):

 

  

Year Ended December 31

 
             
  

2021

  

2020

  

2019

 

Balance at the beginning of the period

 $512,711  $443,398  $507,159 

Additions attributable to the Merger

  187,319   -   - 

Additions not attributable to the Merger

  160,299   72,025   312 

Reductions

  (31,242)  (2,712)  (64,073)

Balance at end of period

 $829,087  $512,711  $443,398 

 

As of December 31, 2021, the Company had approximately $664 million of U.S. operating losses of which $567 million will start to expire in 2036, and the balance does not expire. The Company also has approximately $1,840.3 million and $127.7 million of losses in the U.K. and Norway respectively which do not expire.

 

It is our intention that all cash and earnings of our subsidiaries as of December 31, 2021, are permanently reinvested and will be used to meet operating cash flow needs. Existing plans do not demonstrate a need to repatriate foreign cash to fund parent company activity, however, should we determine that parent company funding is required, we estimate that any such cash needs may be met without adverse tax consequences.

 

We have performed an analysis of uncertain tax positions in the various jurisdictions in which we operate and concluded that we are adequately provided. Our tax filings are subject to regular audits by tax authorities in the various jurisdictions in which we operate. Tax liabilities are based on estimates, however due to the uncertain and complex application of tax legislation, the ultimate resolution of audits may be materially different to our estimates.

 

The Company is subject to income taxation in many jurisdictions around the world. The following table presents the changes in our uncertain tax positions as of December 31, 2021 and 2020 (in thousands):

 

  

Year ended December 31

 
  

2021

  

2020

 

Balance at the beginning of the period

 $35,377  $32,515 

Additions attributable to the Merger

  40,144   - 

Additions based on tax positions related to current period not attributable to the Merger

  5,774   2,182 

Additions for tax positions of prior year period not attributable to the Merger

  5,094   1,787 

Settlements with tax authorities

  (2,370)  (665)

Reductions for tax positions of prior years

  (5,138)  (763)

Reductions due to the lapse of statute of limitations

  (2,094)  (188)

Effect of changes in foreign exchange rates

  (673)  509 

Balance at the end of the period

 $76,114  $35,377 

 

The amounts above include penalties and interest of $4.2 million and $1.7 million for the years ended December 31, 2021 and 2020, respectively. We classify penalties and interest relating to uncertain tax positions within income tax (expense) benefit in the consolidated statements of operations. 

 

Approximately $30.1 million of our unrecognized tax benefit relates to certain deductions and would only impact our rate if we were subsequently able to utilize operating loss carry-forwards. We do not foresee resolution of these positions in the coming 12 months. We have recognized uncertain tax positions of approximately $46.0 million and $35.4 million as of December 31, 2021 and 2020, respectively, included in “Other non-current liabilities” on the consolidated balance sheets. 

 

We file income tax returns in the Netherlands and in various other foreign jurisdictions in respect of the Company's subsidiaries. In all cases we are no longer subject to income tax examination by tax authorities for years prior to 2009. Tax filings of our subsidiaries, branches and related entities are routinely examined in the normal course of business by the relevant tax authorities. We believe that there are no jurisdictions in which the outcome of unresolved issues is likely to be material to our results of operations, financial position or cash flows.