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Note 9 - Income Taxes | 9 Months Ended
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Sep. 27, 2025
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
9. | Income Taxes
On July 4, 2025, the United States enacted tax legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”), which introduced several significant amendments to the Internal Revenue Code. Key provisions affecting us include immediate expensing of domestic research and experimentation costs under IRC §174, restoration of 100 percent bonus depreciation for qualified property placed in service after 2024, modifications to the §163(j) interest expense limitation, and updates to the GILTI and FDII regimes. In accordance with ASC 740, we recognized the effects of the law in the current interim period ended September 27, 2025, including re-measurement of deferred tax assets and liabilities based on the provisions expected to apply when the underlying temporary differences reverse. We did not record a material tax provision impact attributable to the enactment of OBBBA due to our U.S. net operating loss position and the full valuation allowance we maintain against our U.S. deferred tax assets. We continue to evaluate interpretive guidance as it becomes available and to assess potential state income tax conformity. Any adjustments resulting from this ongoing evaluation will be recognized in the period they become reasonably estimable. We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). The provision or benefit for income taxes is attributable to U.S. federal, state, and foreign income taxes. Our effective tax rate (“ETR”) used for interim periods is based on an estimated annual effective tax rate adjusted for the tax effect of items required to be recorded discretely in the interim periods in which those items occur. Our ETR is different than the statutory rate in the U.S. due to foreign income taxed at different rates than in the U.S., changes in uncertain tax benefit positions, and the accrual of taxes on unremitted income of our foreign subsidiaries. In addition, we have numerous tax holidays related to our manufacturing operations in Malaysia and the Philippines. The tax holiday periods expire at various times in the future; however, we actively seek to obtain new tax holidays. We conduct business globally and, as a result, Cohu or one or more of its subsidiaries files income tax returns in the U.S. and various state and foreign jurisdictions. In the normal course of business, we are subject to examinations by taxing authorities throughout the world and are currently under examination in Germany, the Philippines, Malaysia, Switzerland and California. We believe our financial statement accruals for income taxes are appropriate. Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, (1) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards. In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs at each reporting period, including an assessment of our cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance was required. Based on the evidence available, including a lack of sustainable earnings and history of expiring unused NOLs, and tax credits, we continue to maintain our judgment that a previously recorded valuation allowance against substantially all net deferred tax assets in the United States is required. If a change in judgment regarding this valuation allowance were to occur in the future, we would record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period. In accordance with the disclosure requirements in ASC 740, we have classified unrecognized tax benefits as non-current income tax liabilities, or a reduction in non-current deferred tax assets, unless they are expected to be paid within one year. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

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