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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
INCOME TAXES [Abstract] |
INCOME TAXES |
NOTE 17:- | INCOME TAXES
|  | Tax rates
Ordinary taxable income in Israel is subject to a corporate tax rate of 23%. However, the effective tax rate payable by a company that derives income from a Preferred Technological Enterprise (as discussed below) may be considerably lower. Non-Israeli subsidiaries are taxed according to the tax laws in their jurisdictions.
|  | Tax benefits applicable to the Company
The Law for the Encouragement of Industry (Taxes), 1969: The Law for the Encouragement of Industry (Taxes), 1969 (the “Encouragement of Industry Law”), provides several tax benefits for “Industrial Companies”. Pursuant to the Encouragement of Industry Law, a company qualifies as an Industrial Company if it is a resident of Israel, the enterprise should be located in Israel and at least 90% of its income in any tax year (exclusive of income from government loans, capital gains, interest and dividends) is generated from an “Industrial Enterprise” that it owns. An Industrial Enterprise is defined as an enterprise whose principal activity, in a given tax year, is industrial activity. An Industrial Company is entitled to certain tax benefits, including: (i) a deduction of the cost of purchases of patents, know-how and certain other intangible property rights (other than goodwill) used for the development or promotion of the Industrial Enterprise in equal amounts over a period of eight years, beginning from the year in which such rights were first used, (ii) the right to elect to file consolidated tax returns, under certain conditions, with additional Israeli Industrial Companies controlled by it, and (iii) the right to deduct expenses related to public offerings in equal amounts over a period of three years beginning from the year of the offering. Eligibility for benefits under the Encouragement of Industry Law is not contingent upon the approval of any governmental authority. The Company believes that it currently qualifies as an industrial company within the definition of the Encouragement of Industry Law. Tax benefits under the Law for the Encouragement of Capital Investments, 1959: Pursuant to the Israeli Law for Encouragement of Capital Investments, 1959 (the “Investments Law”) and its various amendments, the Company has been granted a “Privileged Enterprise” status. The Company has utilized a tax exemption status for the years 2018 and 2019. The benefits available to a Privileged Enterprise in Israel relate only to taxable income attributable to the specific investment program and are conditioned upon terms stipulated in the Investments Law. If the Company does not fulfill these conditions, in whole or in part, the benefits can be revoked, and the Company may be required to refund the benefits, in an amount linked to the Israeli consumer price index plus interest. Tax exempt earnings are subject to claw back of the corporate tax return when they are distributed as dividend. On November 15, 2021, the Investments Law was amended in order, inter alia, to encourage companies to voluntarily elect for an immediate payment of corporate tax on previously tax-exempted earnings which were earned pursuant to Approved and Privileged Enterprises (the “Amendment”). The Amendment provides a reduced corporate tax payment on Exempt Earnings accumulated until December 30, 2020, that were not yet distributed as a dividend, all subject to certain qualifying terms and conditions. The Company had $45,244 in tax-exempt earnings attributable to the Privileged Enterprise programs. The Company elected to utilize the Amendment in December 2021 and paid the reduced corporate income tax in the amount of approximately $4,355. As a result of the election, as of December 31, 2021 the Company released all of its previously tax-exempt earnings and they are no longer subject to claw back of corporate taxes upon future dividend distribution. The Technological Enterprise Incentives Regime (Amendment 73 to the Investments Law): The Company applies various benefits allotted to it under the revised Investments Law as per Amendment 73 to the Investments Law regimes through regulations that have come into effect from January 1, 2017. Applicable benefits under the new regime include:
| ● | Introduction of a benefit regime for “Preferred Technology Enterprises” (“PTE”), granting a 12% tax rate in central Israel on income deriving from benefited intangible assets, subject to a number of conditions being fulfilled, including a minimal amount or ratio of annual research and development expenditure and research and development employees, as well as having at least 25% of annual income derived from exports to large markets. PTE is defined as an enterprise which meets the aforementioned conditions and for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A “Special Preferred Technological Enterprise” (“SPTE”) from which total consolidated revenues of the Group of which the Company is a member exceeds NIS 10 billion in the tax year will be subject to tax at a rate of 6% on preferred income from the enterprise, regardless of the enterprise’s geographical location.
| ● | A 12% capital gains tax rate on the sale of a preferred intangible asset to a foreign affiliated enterprise, provided that the asset was initially purchased from a foreign resident at an amount of NIS 200 million or more.
| ● | A withholding tax rate of 20% for dividends paid from PTE income (with an exemption from such withholding tax applying to dividends paid to an Israeli company) may be reduced to 4% on dividends paid to a foreign resident company, subject to certain conditions regarding percentage of foreign ownership of the distributing entity.
The Company is eligible for PTE status which is implemented commencing 2021 and believes it is eligible for its tax benefits. In 2023, the Company received a Tax Ruling from the Israeli Tax Authority that its activity is an industrial activity and is eligible for the status of a PTE, provided that the Company meets the requirements under the tax ruling. As of December 31, 2023, management believes that the Company meets the aforementioned conditions.
|  | U.S. Tax
On December 22, 2017, the Tax Cuts and Jobs Act (P.L. 115-97) (“TCJA”) was enacted, making significant changes to the U.S. tax law. Changes include, but are not limited to, a corporate income tax rate decrease from 35% to 21%, effective for tax years beginning January 1, 2018 and the transition of U.S. international taxation from a worldwide tax system to a modified territorial system, with a one-time mandatory transition tax on U.S. shareholder’s share of post-1986 earnings of all foreign corporations in which it owns at least 10% and created new taxes on certain foreign-sourced earnings and certain related-party payments - the Global Intangible Low Taxed Income (“GILTI”). Furthermore, changes introduced by the Tax Act to Section 174 of the Internal Revenue Code, that came into effect on January 1, 2022, require taxpayers to amortize research and development expenditures over five years (if expensed by a U.S. entity) or fifteen years (if expensed by non-U.S. entities), thereby increasing taxable income and payable tax. In addition to lowering the statutory corporate income tax rate from 35% to 21%, and among other U.S. international tax provisions, the TCJA introduced the Base Erosion Anti-abuse Tax (“BEAT”) which applies a minimum tax on multinational corporations by requiring companies subject to the BEAT to pay the greater of their regular tax liability (less certain credits, including foreign tax credits) or 10% for taxable years beginning in 2019 (12.5% after 2026) of a modified tax base which adds back certain related party payments. The BEAT comparison to the standard corporate income tax must be done each year if the taxpayer’s “base erosion” related party payments exceed 3% of total deductions on its U.S. tax return (“base erosion percentage” is generally the aggregate amount of base erosion tax benefits divided by aggregate amount of all allowable deductions). The BEAT applies to “applicable taxpayers” making “base erosion payments” (deductible payments) to foreign related parties. “Applicable taxpayers” are U.S. corporations with average annual gross receipts for the 3-taxable-year period ending with the preceding taxable year are at least $500,000. Taboola Inc. is an “applicable taxpayer” for BEAT purposes in 2023.
|  | Pillar two
In December 2021, the Organization for Economic Co-operation and Development Inclusive Framework on Base Erosion Profit Shifting released Model Global Anti-Base Erosion rules (“Model Rules”) under Pillar Two. The Model Rules set forth the “common approach” for a global minimum tax rate at 15% for multinational enterprises with a turnover of more than Euros 750 million. Rules under Pillar Two were effective from January 1, 2024. The Company is currently evaluating the impact of adopting Pillar Two rules on its consolidated financial statements. In certain jurisdictions, information required for the assessment is still being gathered and, therefore, the assessment is not complete. Based on the transitional CbCR safe harbor tests carried out so far, Taboola Group has identified potential impact to Pillar Two top-up taxes on profits earned in Australia, Korea and Thailand. The potential impact comes from the constituent entities in these jurisdictions where according to the transitional CbCR safe harbor tests, the simplified effective tax rate is below 15%. Quantitative information to indicate the impact to Pillar Two top-up taxes is currently not known or reasonably estimable. Taboola continues to progress on the assessment and expects to complete the assessment during the year 2024.
| a. | The components of the loss before taxes were as follows:
|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Israel |  | $ | (65,764 | ) |  | $ | (24,819 | ) |  | $ | (42,414 | )
Foreign |  |  | (10,777 | ) |  |  | 20,367 |  |  |  | 40,442 |
Total |  | $ | (76,541 | ) |  | $ | (4,452 | ) |  | $ | (1,972 | )
| b. | Taxes on income (tax benefit) are comprised as follows:
|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Current: |  |  |  |  |  |  |  |  |
Israel |  | $ | 1,363 |  |  | $ | 15 |  |  | $ | 4,685 |
Foreign |  |  | 19,632 |  |  |  | 23,332 |  |  |  | 18,944 |
Total current income tax expense |  |  | 20,995 |  |  |  | 23,347 |  |  |  | 23,629 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Israel |  |  | — |  |  |  | 1,388 |  |  |  | 973 |
Foreign |  |  | (15,496 | ) |  |  | (17,212 | ) |  |  | (1,626 | )
Total deferred income tax benefit |  |  | (15,496 | ) |  |  | (15,824 | ) |  |  | (653 | )
Total income taxes |  | $ | 5,499 |  |  | $ | 7,523 |  |  | $ | 22,976 |
A reconciliation of the Company’s theoretical income tax expense to actual income tax expense is as follows:
|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Loss before taxes on income, as reported in the consolidated statements of loss |  | $ | (76,541 | ) |  | $ | (4,452 | ) |  | $ | (1,972 | )
Statutory tax rate in Israel |  |  | 23 | % |  |  | 23 | % |  |  | 23 | %
Preferred Technology Enterprise |  |  | (9 | %) |  |  | (61 | %) |  |  | (244 | %)
Permanent difference - nondeductible expenses |  |  | (9 | %) |  |  | 86 | % |  |  | (557 | %)
Change in valuation allowance |  |  | (11 | %) |  |  | (109 | %) |  |  | (138 | %)
Income taxes at a rate other than the Israel statutory tax rate |  |  | (2 | %) |  |  | (164 | %) |  |  | (12 | %)
Release of tax-exempt profits under preferred enterprise tax regime |  |  | — |  |  |  | — |  |  |  | (221 | %)
Prior year taxes |  |  | 2 | % |  |  | 35 | % |  |  | 36 | %
Uncertain tax positions |  |  | (6 | %) |  |  | (10 | %) |  |  | (36 | %)
Other |  |  | 5 | % |  |  | 31 | % |  |  | (16 | %)
Effective tax rate |  |  | (7 | %) |  |  | (169 | %) |  |  | (1,165 | %)
Deferred tax assets and liabilities: Deferred 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. As of December 31, 2023 and 2022, the deferred tax assets and liabilities presented in the balance sheet are comprised as follow:
|  | December 31, |
|  | 2023 |  |  | 2022 |
Deferred tax assets |  | $ | — |  |  | $ | 3,821 |
Deferred tax liabilities |  | $ | (14,815 | ) |  | $ | (34,133 | )
As of December 31, 2023, and 2022 the Company’s deferred taxes were in respect of the following:
|  | December 31, |
|  | 2023 |  |  | 2022 |
Operating lease liabilities |  | $ | 14,225 |  |  | $ | 14,751 |
Research and development |  |  | 3,111 |  |  |  | 9,151 |
Share-based compensation expenses |  |  | 10,408 |  |  |  | 8,095 |
Tax credit carry forward |  |  | 9,657 |  |  |  | 4,356 |
Reserves and allowances |  |  | 6,146 |  |  |  | 3,888 |
Carry forward tax losses |  |  | 8,227 |  |  |  | 2,770 |
Issuance and transaction expenses |  |  | 533 |  |  |  | 2,111 |
Intangible assets, net |  |  | 1,643 |  |  |  | 1,963 |
Other |  |  | 3,082 |  |  |  | 842 |
Deferred tax assets before valuation allowance |  |  | 57,032 |  |  |  | 47,927 |
Valuation allowance |  |  | (24,781 | ) |  |  | (16,376 | )
Deferred tax assets |  |  | 32,251 |  |  |  | 31,551 |
Intangible assets, net |  |  | (31,208 | ) |  |  | (46,095 | )
Operating lease right of use assets |  |  | (12,368 | ) |  |  | (13,530 | )
Property and equipment, net |  |  | (2,031 | ) |  |  | (2,023 | )
Capitalized research and development |  |  | (966 | ) |  |  | — |
Other |  |  | (493 | ) |  |  | (215 | )
Deferred tax liabilities |  |  | (47,066 | ) |  |  | (61,863 | )
Deferred tax liabilities, net |  | $ | (14,815 | ) |  | $ | (30,312 | )
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset certain deferred tax assets on December 31, 2023 and 2022, due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. As of December 31, 2023, the Company has an accumulated tax loss carry-forward of approximately $64,062 in Israel, which does not have an expiration date, and $1,533 federal tax in the U.S. which can be offset in accordance with the limitation as desribed in Section 382 of the code due to U.S. subsidiary’s prior “change in ownership”. The annual limitation may result in the expiration of net operating losses before utilization. As of December 31, 2023, $149,887 of undistributed earnings held by the Company’s foreign subsidiaries are designated as indefinitely reinvested. If these earnings were re-patriated to Israel, they would be subject to income taxes and to an adjustment for foreign tax credits and foreign withholding taxes in the amount of $13,006. The Company did not recognize deferred taxes liabilities on undistributed earnings of its foreign subsidiaries, as the Company intends to indefinitely reinvest those earnings. A reconciliation of the beginning and ending balance of total unrecognized tax positions is as follows:
|  | Year ended December 31, |
|  | 2023 |  |  | 2022 |
Unrecognized tax position, beginning of year |  | $ | 3,537 |  |  | $ | 3,084 |
Increase (decrease) related to prior years’ tax positions (1) |  |  | 3,382 |  |  |  | (387 | )
Increase related to current year tax positions |  |  | 1,727 |  |  |  | 1,070 |
Decrease due to lapses of statutes of limitations |  |  | (430 | ) |  |  | (230 | )
Unrecognized tax position, end of year |  | $ | 8,216 |  |  | $ | 3,537 |
___________________________________________
| (1) | The 2023 prior year’s tax positions includes $2,684 from prior year tax provision.
As of December 31, 2023, the total amount of gross uncertain tax benefits was $8,216, out of which an amount of $8,129, if recognized, would affect the Company’s effective tax rate. The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign authorities. The Company currently does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which is difficult to estimate. As of December 31, 2023 and 2022, unrecognized tax benefit in the amount of $87 and $81, was presented net of deferred tax assets. Tax assessments: The Company has final tax assessments in Israel through 2018, in the UK through 2018, and in the US through 2019.

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