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Note 7 - Income Taxes
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
7.Income taxes

 

The components of income tax expense for the years ended  December 31, 2024, 2023 and 2022 were as follows (in thousands):

 

  

Year Ended December 31,

 
  

2024

  

2023

  

2022

 

Current tax:

            

Netherlands

 $2,141  $518  $283 

Foreign

  48,584   54,267   42,308 

Total current tax

  50,725   54,785   42,591 

Deferred tax:

            

Netherlands

  -   -   - 

Foreign

  (4,677)  (10,478)  (1,344)

Total deferred tax

  (4,677)  (10,478)  (1,344)

Income tax expense

 $46,048  $44,307  $41,247 

 

 

The Netherlands and foreign components of income from continuing operations before income taxes and equity in income of joint ventures for the years ended  December 31, 2024, 2023 and 2022 were as follows (in thousands):

 

  

Year Ended December 31,

 
  

2024

  

2023

  

2022

 

Netherlands

 $(13,544) $(5,232) $(13,984)

Foreign

  95,088   13,326   19,355 

Total

 $81,544  $8,094  $5,371 

 

The provision for income taxes differs from the amount computed by applying Netherlands statutory income tax rate of 25.8% in effect as of December 31, 2024, (2023: 25.8%) to income from continuing operations before taxes and equity in joint ventures for the reasons below (in thousands):

 

  

Year Ended December 31,

 
  

2024

  

2023

  

2022

 

Statutory tax rate

  25.8%  25.8%  25.8%
             

Income tax expense at statutory rate

 $21,041  $2,089  $1,387 

Permanent differences

  6,616   9,332   12,187 

Effect of overseas tax rates

  7,158   30,572   (4,024)

Net tax charge related to attributes with full valuation allowance

  (9,247)  (7,408)  28,267 

Exempt dividends from joint ventures

  (276)  -   (2,649)

Return to provision adjustments

  (4,719)  (884)  (5,966)

Withholding taxes

  12,545   3,479   3,029 

Foreign exchange movements on tax balances

  3,766   2,908   694 

Movement in uncertain tax positions

  6,101   2,958   8,322 

Others

  3,063   1,261    

Income tax expense

 $46,048  $44,307  $41,247 
             

Effective tax rate

  56.5%  547.4%  768.0%

 

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, 2024 and 2023 were as follows (in thousands):

 

  

December 31,

 
  

2024

  

2023

 

Deferred tax assets:

        

Net operating loss carry forwards

 $769,518  $760,720 

Employee compensation and benefits

  8,817   10,224 

Depreciation

  82,188   77,174 

Other

  60,698   53,202 

Investment in partnership

  12,443   - 

Intangibles

  13,114   13,485 

Valuation allowance

  (872,365)  (862,201)

Total deferred tax assets

  74,413   52,604 

Deferred tax liabilities:

        

Depreciation

  (46,004)  (26,172)

Goodwill and other intangibles

  (52,773)  (32,955)

Investment in partnership

  (289)  (1,274)

Other

  (19,657)  (14,909)

Total deferred tax liabilities

  (118,723)  (75,310)

Net deferred tax liabilities

 $(44,310) $(22,706)

 

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

 
  

2024

  

2023

  

2022

 

Balance at the beginning of the period

 $862,200  $881,286  $829,087 

Additions

  168,732   88,497   146,451 

Reductions

  (158,567)  (107,582)  (94,252)

Balance at end of period

 $872,365  $862,201  $881,286 

 

As of December 31, 2024, the Company had U.S. federal net operating loss carryforwards (“NOLs”) excluding interest limitations of approximately $608.6 million, net of existing Section 382 (as defined below) limitations. $144.7 million of these NOLs were incurred prior to January 1, 2018 and will begin to expire, if unused, in 2036. $463.9 million of these NOLs 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.

 

As of December 31, 2024, we did not recognize deferred taxes on the accumulated unremitted earnings of our foreign subsidiaries, which we consider indefinitely reinvested. Any additional taxes due with respect to the reversal of the outside basis difference in our foreign subsidiaries as a result of a repatriation would generally be limited to the tax effect of currency gains or losses, capital gains, foreign withholding, and state taxes. It is not practical to estimate the amount of tax that could ultimately be due if such earnings were remitted. However, if our expectations were to change regarding future tax consequences, we may be required to record additional deferred taxes that could have a material effect on our consolidated financial statements.

 

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, 2024 and 2023 (in thousands):

 

  

Year ended December 31

 
  

2024

  

2023

 

Balance at the beginning of the period

 $89,644  $88,137 

Additions based on tax positions related to current period

  4,292   3,042 

Additions for tax positions of prior year period

  2,108   2,125 

Additions in relation to the Coretrax Acquisition

  9,848   - 

Settlements with tax authorities

  (71)  (1,945)

Reductions for tax positions of prior years

  (30,357)  (714)

Reductions due to the lapse of statute of limitations

  (42)  (976)

Effect of changes in foreign exchange rates

  (896)  (25)

Balance at the end of the period

 $74,526  $89,644 

 

The amounts above include penalties and interest of $12.7 million and $11.6 million for the years ended December 31, 2024 and 2023, respectively. We classify penalties and interest relating to uncertain tax positions within income tax expense in the consolidated statements of operations.

 

Approximately $74.5 million and $59.5 million of unrecognized tax benefits as of December 31, 2024 and 2023 respectively, included in “Other non-current liabilities” on the consolidated balance sheets, would positively impact our future rate and be recognized as additional tax benefit in our statement of operations if resolved in our favor. 

 

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.

 

In 2021 the Organization for Economic Co-operation and Development (“OECD”) announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. We have evaluated the impact of the OECD’s Pillar 2 rules and determined they do not have a material impact on our consolidated financial statements.