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Note 13 - Income Taxes and Deferred Income Taxes
 12 Months Ended
May 31, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

13.

Income taxes and deferred income taxes

 

Loss before income taxes includes the following components:

 

  

For the year ended May 31,

 
  

2024

  

2023

  

2022

 

United States

 $(126,735) $(506,984) $(233,697)

Canada

  (106,822)  (912,717)  (81,772)

Other countries

  (15,463)  (30,480)  (125,205)
  $(249,020) $(1,450,181) $(440,674)

 

The (recoveries) expense for income taxes consists of:

 

  

For the year ended May 31,

 
  

2024

  

2023

  

2022

 

Current:

            

United States

 $497  $226  $262 

Canada

  10,819   26,290   23,268 

Other countries

  940   (62)  479 
  $12,256  $26,454  $24,009 
             

Deferred:

            

United States

 $(723) $(4,055) $520 

Canada

  (33,422)  (24,364)  (17,154)

Other countries

  (4,727)  (5,216)  (13,917)
  $(38,872) $(33,635) $(30,551)

Income tax benefits, net

 $(26,616) $(7,181) $(6,542)

 

A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:

 

  

For the year ended May 31,

 
  

2024

  

2023

  

2022

 

Loss before net income taxes:

 $(249,020) $(1,450,181) $(440,674)

Income tax benefits at statutory rate

  (51,325)  (304,538)  (92,542)

Tax impact of foreign operations

  (5,661)  (25,857)  81,316 

Foreign exchange and other

  1,959   13,434   14,941 

Non-deductible expenses

  6,147   3,982   6,404 

Non-deductible (taxable) losses

  (682)  23,150   748 

Changes in enacted rates

  2,394   (816)  — 

Change in fair value of warrant liability

  302   (2,612)  (13,359)

Stock based and other compensation

  —   —   994 

Change in valuation allowance

  20,250   285,698   17,255 

Impact on convertible debenture and other differences

  —   378   (22,299)
             

Income tax benefits, net

 $(26,616) $(7,181) $(6,542)

 

The following table summarizes the components of deferred tax:

 

  

May 31,

 
  

2024

  

2023

 

Deferred assets

        

Operating loss carryforwards - United States

 $104,377  $85,259 

Operating loss carryforwards - Canada

  366,720   145,111 

Operating loss carryforwards - Other Countries

  18,518   18,787 

Capital loss carryforwards

  34,355   34,355 

Intangible assets

  229,953   244,227 

Property and equipment

  34,578   46,400 

Currently nondeductible interest

  —   2,812 

Investments and convertible notes receivable

  45,685   66,718 

Investment tax credits and related pool balance

  23,132   22,054 

Other

  46,151   50,074 

Total Deferred tax assets

  903,469   715,797 

Less valuation allowance

  (789,839)  (625,368)

Net deferred tax assets

  113,630   90,429 

Deferred tax liabilities

        

Property and equipment

  (18,814)  (18,129)

Intangible assets

  (218,020)  (225,460)

Convertible Senior Notes Due 2023

  (2,229)  (14,204)

Other Deferred Items

  (5,437)  — 

Total deferred tax liabilities

  (244,500)  (257,793)

Net deferred tax liability

 $(130,870) $(167,364)

 

The Tax Cuts and Jobs Act (2017 Tax Act) was enacted on December 22, 2017 and reduced the U.S. statutory federal corporate tax rate from 35% to 21%. The Tax Act also contains additional provisions that are effective for the company in 2018, including a new tax on Global Intangible Low-Taxed Income (“GILTI”). Under GAAP, there is an accounting policy choice to either (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method"); or (ii) factor in such amounts into the measurement of our deferred taxes (the "deferred method"). The Company has made a policy decision to record GILTI tax as a current-period expense when incurred.

 

Deferred income taxes have not been recorded on the basis differences for investments in consolidated subsidiaries as these basis differences are indefinitely reinvested or will reverse in a non-taxable manner. Quantification of the deferred income tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.  Deferred income taxes have been recorded on the basis differences for investments in nonconsolidated entities.  

 

At May 31, 2024, the Company had United States net operating loss carry-forwards of approximately $497,033 that can be carried forward indefinitely and generally limited in annual use to 80% of the current year taxable income starting 2021. The Company has Canadian net operating loss carry-forwards of approximately $662,839 that can be carried forward 20 years and begin to expire in 2028. Management believes that it is more-likely-than-not that the benefit from certain United States and foreign net operating loss carry-forwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance on the deferred tax assets relating to these carry-forwards. The net change in the total valuation allowance was an increase of $164,471 and $271,297 for the years ended May 31, 2024 and 2023, respectively. The net change in the total valuation allowance was primarily a result of finalization of the purchase accounting related to the reverse acquisition transaction with Aphria Inc. during the prior year and certain current year losses.

 

The Company recognizes the financial statement impact of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest impact that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

The total amount of gross unrecognized tax benefits (“GUTB”) was $nil, $nil, and $nil as of May 31, 2024, 2023 and 2022 respectively. There is a reasonable possibility that the Company’s unrecognized tax benefits will change within twelve months due to audit settlements or the expiration of statute of limitations, but the Company does not expect the change to be material to the financial statements.

 

The Company recognizes interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are recorded as a component of income tax expenses. In the years ended May 31, 2024, 2023 and 2022, the Company recorded approximately $nil, $nil and $nil, respectively, of interest and penalty expenses related to uncertain tax positions. As of May 31, 2024, and 2023, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $nil and $nil, respectively.

 

The Company and its subsidiaries are subject to United States federal income tax as well as the income tax of multiple state and foreign jurisdictions. Major jurisdictions where there are wholly owned subsidiaries of Tilray Brands, Inc. which require income tax filings include the Canada, Portugal, Germany, and Australia. The earliest periods open for review by local taxing authorities are fiscal years 2018 for Canada, 2019 for Portugal, 2018 for Germany, 2019 for Australia, and 2020 for United States.