XML 30 R14.htm IDEA: XBRL DOCUMENT v3.22.4
Note 7 - Income Taxes
 12 Months Ended
Dec. 31, 2022
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, 2022, 2021 and 2020 were as follows (in thousands):

 

  

Year Ended December 31,

  

2022

 

2021

 

2020

Current tax:

            

Netherlands (2020: U.K.)

 $283 $216 $(707)

Foreign

 42,308 16,777 17,883

Total current tax

 42,591 16,993 17,176

Deferred tax:

            

Netherlands (2020: U.K.)

 - - -

Foreign

 (1,344) (726) (20,576)

Total deferred tax

 (1,344) (726) (20,576)

Income tax expense (benefit)

 $41,247 $16,267 $(3,400)

 

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, 2022 and 2021 and between the U.K. and foreign tax jurisdictions for the year ended December 31, 2020.

 

The Netherland, U.K. and foreign components of income (loss) from continuing operations before income taxes and equity in income of joint ventures for the years ended  December 31, 2022, 2021 and 2020 were as follows (in thousands):

 

  

Year Ended December 31,

  

2022

 

2021

 

2020

Netherlands (2020: U.K.)

 $(13,984) $(19,190) $22,819

Foreign

 19,355 (113,181) (346,853)

Total

 $5,371 $(132,371) $(324,034)

 

A reconciliation of the differences between the income tax provision computed at the Netherlands statutory rate of 25.8% and 25.0% for the year ended December 31, 2022 and 2021, respectively, and the U.K. statutory rate of 19.0% for the years ended December 31, 2020 to income (loss) from continuing operations before taxes and equity in joint ventures for the reasons below (in thousands):

 

  

Year Ended December 31,

  

2022

 

2021

 

2020

Statutory tax rate

 25.8% 25.0% 19.0%
             

Income tax expense (benefit) at statutory rate

 $1,387 $(33,093) $(61,566)

Permanent differences

 12,187 14,123 120,239

Effect of overseas tax rates

 (4,024) 9,905 (1,754)

Net tax charge related to attributes with full valuation allowance

 28,267 28,607 (71,259)

Exempt dividends from joint ventures

 (2,649) (1,014) 14

Return to provision adjustments

 (5,966) (5,001) 6,150

Withholding taxes

 3,029 1,995 984

Foreign exchange movements on tax balances

 694 67 1,216

Movement in uncertain tax positions

 8,322 678 2,576

Income tax expense (benefit)

 $41,247 $16,267 $(3,400)
             

Effective tax rate

 768.0% -12.3% 1.0%

 

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, 2022 and 2021 were as follows (in thousands):

 

  

December 31,

  

2022

 

2021

Deferred tax assets:

        

Net operating loss carry forwards

 $771,963 $731,315

Employee compensation and benefits

 9,977 12,958

Depreciation

 66,300 44,253

Other

 44,133 34,734

Investment in partnership

 - 51,890

Intangibles

 16,197 22,980

Valuation allowance

 (881,286) (829,087)

Total deferred tax assets

 27,284 69,043

Deferred tax liabilities:

        

Depreciation

 (13,630) (1,935)

Goodwill and other intangibles

 (36,968) (42,784)

Investment in partnership

 (911) (48,856)

Other

 (6,194) (7,212)

Total deferred tax liabilities

 (57,703) (100,787)

Net deferred tax liabilities

 $(30,419) $(31,744)

 

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.

 

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

 

  

Year Ended December 31

             
  

2022

 

2021

 

2020

Balance at the beginning of the period

 $829,087 $512,711 $443,398

Additions attributable to the Merger

 - 187,319 -

Additions not attributable to the Merger

 146,451 160,299 72,025

Reductions

 (94,252) (31,242) (2,712)

Balance at end of period

 $881,286 $829,087 $512,711

 

As of December 31, 2022, the Company had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $628.7 million, net of existing Section 382 (as defined below) limitations,  $160.6 million, of which were incurred prior to January 1, 2018 (and will begin to expire, if unused, in 2036) and $468.1 million of which were incurred on or after January 1, 2018 (and will not expire and will be carried forward indefinitely). 

 

Section 382 of the Code (“Section 382”) imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone an “ownership change” (as determined under Section 382). An ownership change generally occurs if one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of such corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. In the event that an ownership change occurs, utilization of the relevant corporation’s NOLs would be subject to an annual limitation under Section 382, generally determined, subject to certain adjustments, by multiplying (i) the fair market value of such corporation’s stock at the time of the ownership change by (ii) a percentage approximately equivalent to the yield on long-term tax-exempt bonds during the month in which the ownership change occurs. Any unused annual limitation may be carried over to later years.

 

The Company underwent an ownership change under Section 382 as a result of the Merger, which will trigger a limitation (calculated as described above) on the combined company’s ability to utilize any historic Frank’s NOLs and will cause some of the Frank’s NOLs incurred prior to January 1, 2018 to expire before the combined company will be able to utilize them to reduce taxable income in future periods. 

 

The exchange of ordinary shares of Legacy Expro for shares of the Company's common stock (“Company Common Stock”) in the Merger was, standing alone, insufficient to result in an ownership change with respect to Legacy Expro. However, the Company will undergo an ownership change as a result of the Merger taking into account other changes in ownership of Company stock occurring within the relevant three-year period described above. Due to the ownership change with respect to Legacy Expro as a result of the Merger, the combined company will be prevented from fully utilizing Legacy Expro’s historic NOLs incurred prior to January 1, 2018 prior to their expiration.

 

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, 2022 and 2021 (in thousands):

 

  

Year ended December 31

  

2022

 

2021

Balance at the beginning of the period

 $76,114 $35,377

Additions attributable to the Merger

 7,259 40,144

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

 8,009 5,774

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

 2,371 5,094

Settlements with tax authorities

 (2,490) (2,370)

Reductions for tax positions of prior years

 (547) (5,138)

Reductions due to the lapse of statute of limitations

 (1,525) (2,094)

Effect of changes in foreign exchange rates

 (1,054) (673)

Balance at the end of the period

 $88,137 $76,114

 

The amounts above include penalties and interest of $9.8 million and $4.2 million for the years ended December 31, 2022 and 2021, respectively. We classify penalties and interest relating to uncertain tax positions within income tax (expense) benefit in the consolidated statements of operations. 

 

Approximately $58.0 million and $46.0 million of unrecognized tax benefits as of December 31, 2022 and December 31, 2021 respectively, included in “Other non-current liabilities” on the consolidated balance sheet, would positively impact our future rate and be recognized as additional tax benefit in our statement of operations if resolved in our favor. Approximately $30.1 million of unrecognized tax benefits as of December 31, 2022 and at December 31, 2021 relate to certain deductions and should not impact our future rate. We do not foresee material resolution of these positions in the coming 12 months.

 

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 2008. 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.