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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 10 — Income Taxes  

Provision (Benefit) for Income Taxes

Income from continuing operations before provision (benefit) for income taxes was as follows (in thousands):

 

 

 

Years Ended

 

 

 

2021

 

 

2020

 

 

2019

 

Domestic

 

$

(15,565

)

 

$

(16,245

)

 

$

(5,321

)

Foreign

 

 

46,869

 

 

 

24,512

 

 

 

18,347

 

Income before income taxes

 

$

31,304

 

 

$

8,267

 

 

$

13,026

 

 

The provision (benefit) for income taxes consisted of the following (in thousands):

 

 

 

Years Ended

 

 

 

2021

 

 

2020

 

 

2019

 

Current tax provision:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

—

 

 

$

2

 

 

$

—

 

State

 

 

—

 

 

 

15

 

 

 

13

 

Foreign

 

 

5,308

 

 

 

3,186

 

 

 

2,446

 

Total current provision

 

 

5,308

 

 

 

3,203

 

 

 

2,459

 

Deferred tax provision (benefit):

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

 

739

 

 

 

(573

)

 

 

(3,003

)

State

 

 

106

 

 

 

78

 

 

 

(373

)

Foreign

 

 

650

 

 

 

(354

)

 

 

(105

)

Total deferred provision (benefit)

 

 

1,495

 

 

 

(849

)

 

 

(3,481

)

Provision (benefit) for income taxes

 

$

6,803

 

 

$

2,354

 

 

$

(1,022

)

 

A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate was as follows (dollars in thousands):

 

 

 

Years Ended

 

 

 

2021

 

 

2020

 

 

2019

 

 

 

Rate

 

 

Amount

 

 

Rate

 

 

Amount

 

 

Rate

 

 

Amount

 

Computed provision for taxes based

   on income at statutory rate

 

 

21.0

%

 

$

6,574

 

 

 

21.0

%

 

$

1,736

 

 

 

21.0

%

 

$

2,735

 

Increase (decrease) in taxes resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State tax benefit

 

 

(2.5

)%

 

 

(778

)

 

 

(16.9

)%

 

 

(1,397

)

 

 

0.7

%

 

 

93

 

Foreign tax differential

 

 

(12.4

)%

 

 

(3,890

)

 

 

(27.9

)%

 

 

(2,304

)

 

 

(11.6

)%

 

 

(1,514

)

Expiration of state net operating tax loss

   carryforwards

 

 

1.1

%

 

 

330

 

 

 

3.2

%

 

 

268

 

 

 

8.0

%

 

 

1,039

 

ASC 718 share based payment adjustment

 

 

4.6

%

 

 

1,440

 

 

 

5.8

%

 

 

476

 

 

 

—

 

 

 

—

 

Incentive stock option compensation

 

 

(7.5

)%

 

 

(2,346

)

 

 

(59.4

)%

 

 

(4,907

)

 

 

(0.4

)%

 

 

(55

)

Non-qualified stock option and restricted

  stock tax deduction in excess of

  cumulative book deduction

 

 

(45.7

)%

 

 

(14,315

)

 

 

(52.3

)%

 

 

(4,324

)

 

 

(12.9

)%

 

 

(1,679

)

Executive compensation Section 162(m) limitation

 

 

33.9

%

 

 

10,608

 

 

 

43.0

%

 

 

3,552

 

 

 

4.4

%

 

 

569

 

GILTI inclusion

 

 

0.5

%

 

 

171

 

 

 

54.0

%

 

 

4,461

 

 

 

25.9

%

 

 

3,372

 

Other

 

 

(0.9

)%

 

 

(293

)

 

 

(1.3

)%

 

 

(106

)

 

 

(0.9

)%

 

 

(110

)

Valuation allowance

 

 

29.7

%

 

 

9,302

 

 

 

59.3

%

 

 

4,899

 

 

 

(42.0

)%

 

 

(5,472

)

Effective tax provision (benefit)

 

 

21.7

%

 

$

6,803

 

 

 

28.5

%

 

$

2,354

 

 

 

(7.8

)%

 

$

(1,022

)

 

 

Note 10 — Income Taxes (Continued)

Provision (Benefit) for Income Taxes (Continued)

The Company recorded income tax expense during the year ended 2021 due to income tax expense generated from pre-tax profits in its foreign jurisdictions and a recapture of its U.S. valuation allowance of $845,000, as a result of increased tax deductions in the projection of taxable income used in its valuation assessment.  From time to time, the Company may adjust the projections of taxable income as a result of current conditions.  The Company recorded income tax expense during the year ended 2020 due income tax expense generated from pre-tax profits in its foreign jurisdictions and a release of $495,000 of its U.S. valuation allowance, as a result of increases in foreign income and changes in the usage and release of its deferred tax assets.  The Company recorded an income tax benefit during the year ended 2019 due to the income tax benefit from the release of the U.S. valuation allowance of $3,376,000, as a result of positive evidence in U.S. projected future profits (see Note 1 – Income Taxes), offset by income tax expense generated from pre-tax profits in its foreign operations.

All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. The Company formed STAAR Surgical UK Limited (“STAAR UK”) as a holding company in the United Kingdom (“U.K.”) for its foreign subsidiaries.  Based on the current tax treaties there is no withholding on distributions between Switzerland and the U.K. and the U.K. and the U.S., therefore, there were no withholding taxes paid to foreign jurisdictions for 2021, 2020 and 2019.  

For 2021, 2020 and 2019, in accordance with the 2017 Tax Act, the Company included GILTI of $800,000, $21,200,000 and $15,100,000, respectively, in U.S. gross income, which was fully offset with current losses and net operating loss carryforwards.  The Company utilized the high-tax exception to exclude income from foreign jurisdictions with foreign taxes at an effective rate that is higher than 90 percent of the applicable highest U.S. corporate tax rate.  The Company was not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited by the Company’s pre-GILTI U.S. tax income.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  

Significant components of the Company’s deferred tax assets (liabilities) were as follows (in thousands):

Note 10 — Income Taxes (Continued)

Deferred Tax Assets and Liabilities (Continued)

 

 

 

2021

 

 

2020

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Allowance for doubtful accounts and sales returns

 

$

195

 

 

$

357

 

Inventories

 

 

444

 

 

 

691

 

Accrued vacation

 

 

581

 

 

 

599

 

Accrued other expenses

 

 

1,869

 

 

 

786

 

Stock-based compensation

 

 

2,146

 

 

 

3,277

 

Pensions

 

 

824

 

 

 

1,679

 

Net operating loss carryforwards

 

 

48,223

 

 

 

38,642

 

Business, foreign, AMT and R&D credit carryforwards

 

 

3,100

 

 

 

3,051

 

Prepaid expenses

 

 

272

 

 

 

280

 

Capitalized R&D

 

 

880

 

 

 

1,000

 

Operating lease liability

 

 

6,894

 

 

 

1,687

 

Other

 

 

67

 

 

 

19

 

Valuation allowance

 

 

(51,794

)

 

 

(42,502

)

Total deferred tax assets

 

$

13,701

 

 

$

9,566

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Foreign tax withholding

 

$

(1,295

)

 

$

(1,295

)

Operating lease ROU assets

 

 

(6,862

)

 

 

(1,662

)

Depreciation and amortization

 

 

(888

)

 

 

(424

)

Amortization of R&D

 

 

(763

)

 

 

(846

)

Net foreign earnings not permanently reinvested

 

 

(891

)

 

 

(617

)

Total deferred tax liabilities

 

 

(10,699

)

 

 

(4,844

)

Total net deferred tax assets

 

$

3,002

 

 

$

4,722

 

 

The Company’s net deferred tax assets (liabilities) by jurisdiction were as follows (in thousands): 

 

 

 

2021

 

 

2020

 

Federal deferred tax assets

 

$

2,838

 

 

$

3,576

 

State deferred tax assets

 

 

188

 

 

 

295

 

Japan deferred tax assets

 

 

787

 

 

 

1,073

 

Switzerland deferred tax liabilities(1)

 

 

(811

)

 

 

(222

)

Total net deferred tax assets

 

$

3,002

 

 

$

4,722

 

 

(1)Includes $1,295,000 of pre-2019 withholding taxes on unremitted foreign earnings

The Company had accrued net income taxes payable of $2,221,000 and $4,650,000 at December 31, 2021 and January 1, 2021, respectively, primarily due to taxes owed in foreign jurisdictions.

Note 10 — Income Taxes (Continued)

U.S. Jurisdiction

The ultimate realization of deferred tax assets is dependent upon future generation of income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the projected future income and tax planning strategies in making this assessment.  In addition, management considers all other available positive and negative evidence in its analysis. This includes existing profits in foreign jurisdiction as well as projected future profits.

Under the incremental cash tax savings approach, the valuation allowance release (recapture) was as follows (in thousands):  

 

 

 

Years Ended

 

 

 

2021

 

 

2020

 

 

2019

 

Federal

 

$

(739

)

 

$

573

 

 

$

3,003

 

State

 

 

(106

)

 

 

(78

)

 

 

373

 

Valuation allowance release (recapture)

 

$

(845

)

 

$

495

 

 

$

3,376

 

 

Under the incremental cash tax savings approach, the valuation allowances remain as the usage of the remaining net operating losses and deferred tax assets will not result in cash tax savings and therefore provide no additional benefit were as follows (in thousands):  

 

 

 

2021

 

 

2020

 

Cumulative federal valuation allowance

 

$

43,626

 

 

$

34,681

 

Cumulative state valuation allowance

 

 

7,848

 

 

 

7,399

 

Total U.S. valuation allowance

 

$

51,474

 

 

$

42,080

 

 

As of December 31, 2021, the Company had federal net operating loss carryforwards of $194,710,000 available to reduce future income taxes of its U.S. operations. The pre-2018 federal net operating loss carryforwards expire in varying amounts between 2022 and 2037.  The post-2017 federal net operating loss carryforwards can be carried forward indefinitely based on the enacted legislation from the 2017 Tax Act.  In California, the main state from which the Company conducts its domestic operations, the Company has state net operating losses of $46,109,000 available to reduce future California income taxes. In 2020, California enacted Assembly Bill 85 which imposed limits on the usability of California state net operating losses and research and development credits in tax years beginning after 2019 and before 2023. The California net operating loss carryforwards expire in varying amounts between 2028 and 2040.

Further, pursuant to the provisions of Internal Revenue Code Section 382, significant changes in ownership may restrict the future utilization of these tax loss carry forwards.  For 2021 the Company does not have a change in ownership.

Foreign Jurisdictions

STAAR Surgical AG

Due to STAAR Surgical AG’s history of profits, its deferred tax assets are considered fully realizable.  The Swiss government has approved a tax holiday for STAAR Surgical AG providing a 10.45% income tax rate for 2020 through 2024, and a 10.90% income tax rate for 2025 through 2029.

STAAR Japan

Since 2012, STAAR Japan functions as a limited-risk distributor with a guaranteed return from STAAR Surgical AG and accordingly, STAAR Japan’s deferred tax assets are considered fully realizable.  STAAR Japan’s net deferred tax assets included a valuation allowance of $41,000 and $35,000 as of December 31, 2021 and January 1, 2021, respectively, related to non-deductible stock compensation for directors.  STAAR Japan is subject to the statutory corporate income tax rate of 25.59%.

Note 10 — Income Taxes (Continued)

The following tax years remain subject to examination:

 

Significant jurisdictions

 

Open Years

U.S. Federal

 

2018 – 2020

California

 

2017 – 2020

Switzerland

 

2020

Japan

 

2019 – 2020