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TAXES ON INCOME | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
TAXES ON INCOME | NOTE 12: TAXES ON INCOME a. U.S. tax reform On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21%; creation of the base erosion anti-abuse tax (“BEAT”), a new minimum tax such as Global Intangible Low Taxed Income (“GILTI”); and the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system. The change to a modified territorial tax system resulted in a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”), with future distributions not subject to U.S. federal income tax when repatriated. A majority of the provisions in the Tax Act are effective January 1, 2018. In response to the Tax Act, the SEC staff issued guidance on accounting for the tax effects of the Tax Act. The guidance provides a one-year measurement period for companies to complete the accounting. The Company reflected the income tax effects of those aspects of the Tax Act for which the accounting is complete. To the extent the Company’s accounting for certain income tax effects of the Tax Act is incomplete but the Company is able to determine a reasonable estimate, the Company recorded a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. In connection with its initial analysis of the impact of the Tax Act, the Company had an estimated $5,635 of Transition Tax for the year ended December 31, 2017. After the utilization of existing tax loss carryforwards, the Company does not expect to pay additional U.S. federal cash taxes. The Company has not completed its accounting for the income tax effects of certain elements of the Tax Act. The Tax Act creates a new requirement that certain income such as GILTI earned by a controlled foreign corporation (“CFC”) must be included in the gross income of the CFC U.S. shareholder. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and whether taxes due on future U.S. inclusions related to GILTI should be recorded as a current-period expense when incurred, or factored into the Company’s measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax expense or benefit related to GILTI for the period ended December 31, 2017. The BEAT provisions in the Tax Reform Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2017. b. A number of the Company’s operating subsidiaries are taxed at rates lower than U.S. rates. 1. Irish Subsidiaries The Irish operating subsidiary qualified for a 12.5% tax rate on its trade. Interest income earned by the Irish subsidiary is taxed at a rate of 25%. As of December 31, 2017, the open tax years, subject to review by the applicable taxing authorities for the Irish subsidiary, are 2012 and subsequent years. 2. Israeli Subsidiary The Israeli subsidiary has been granted “Approved Enterprise” and “Benefited Enterprise” status under the Israeli Law for the Encouragement of Capital Investments. For such Approved Enterprises and Benefited Enterprises, the Israeli subsidiary elected to apply for alternative tax benefits—the waiver of government grants in return for tax exemptions on undistributed income. Upon distribution of such exempt income, the Israeli subsidiary will be subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise’s or Benefited Enterprise’s income. Such tax exemption on undistributed income applies for a limited period of between two to ten years, depending upon the location of the enterprise. During the remainder of the benefits period (generally until the expiration of ten years), a corporate tax rate not exceeding 24% will apply. The Israeli subsidiary is a foreign investor company, or FIC, as defined by the Investment Law. FICs are entitled to further reductions in the tax rate normally applicable to Approved Enterprises and Benefited Enterprises. Depending on the foreign ownership in each tax year, the tax rate can range between 10% (when foreign ownership exceeds 90%) to 20% (when foreign ownership exceeds 49%). There can be no assurance that the subsidiary will continue to qualify as an FIC in the future or that the benefits described herein will be granted in the future. The Company’s Israeli subsidiary’s tax-exempt profit from Approved Enterprises and Benefited Enterprises is permanently reinvested as the Company’s management has determined that the Company does not currently intend to distribute dividends. Therefore, deferred taxes have not been provided for such tax-exempt income. The Company intends to continue to reinvest these profits and does not currently foresee a need to distribute dividends out of such tax-exempt income. Income not eligible for Approved Enterprise benefits or Benefited Enterprise benefits is taxed at a regular rate, which was 24% in 2017, 25% in 2016 and 26.5% in 2015. In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective on January 1, 2017 and to 23% effective on January 1, 2018. In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016, which includes the Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73) (the “Amendment”), was published. The Amendment, among other things, prescribes special tax tracks for technological enterprises, which are subject to rules that were issued by the Minister of Finance during April 2017. The new tax track under the Amendment, which is applicable to the Company, is the “Technological Preferred Enterprise”. Technological Preferred Enterprise is an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than 10 billion New Israeli Shekel (“NIS”). A Technological Preferred Enterprise, as defined in the law, which is located in the center of Israel (where our Israeli subsidiary is currently located), will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A—a tax rate of 7.5%). Any dividends distributed to “foreign companies”, as defined in the law, deriving from income from the technological enterprises will be subject to tax at a rate of 4%. As of December 31, 2017 the Company has yet to elect to apply the aforementioned tax track. Accordingly, the above changes in the tax rates relating to Technological Preferred Enterprises were not taken into account in the computation of deferred taxes as of December 31, 2017. The Company expects to apply the Technological Preferred Enterprise tax track from tax year 2020 and onwards. The Israeli subsidiary elected to compute taxable income in accordance with Income Tax Regulations (Rules for Accounting for Foreign Investors Companies and Certain Partnerships and Setting their Taxable Income), 1986. Accordingly, the taxable income or loss is calculated in U.S. dollars. Applying these regulations reduces the effect of the foreign exchange rate (of NIS against the U.S. dollar) on the Company’s Israeli taxable income. As of December 31, 2017, the open tax years, subject to review by the applicable taxing authorities for the Israeli subsidiary, are 2014 and subsequent years. 3. French Subsidiaries The French operating subsidiaries qualified for a 33.33% tax rate on its profits. In 2017, the French government passed a series of tax reforms allowing for the phased reduction in the corporate tax rate. In 2018, a 28% rate of corporate income tax will apply for amounts of taxable profit up to €500,000 and the standard rate of corporate income tax of 33.33% will apply for amounts of taxable profit above €500,000. In 2019, the standard rate of corporate income tax will be reduced to 31%, with the first €500,000 of taxable profit being still subject to the 28% rate. In 2020, the 28% rate of corporate income tax will become the new standard rate for all taxable profits. In 2021, the standard rate of corporate income tax will be reduced to 26.5%. In 2022, the standard rate of corporate income tax will be reduced to 25%. As of December 31, 2017, the open tax years, subject to review by the applicable taxing authorities for the French subsidiaries, are 2015 and subsequent years. c. Taxes on income comprised of:
|  | Year ended December 31, |
|  | 2015 |  |  | 2016 |  |  | 2017 |
Domestic taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 115 |  |  | $ | 6 |  |  | $ | (227 | )
Deferred |  |  | — |  |  |  | — |  |  |  | — |
Foreign taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 2,212 |  |  |  | 3,932 |  |  |  | 3,473 |
Deferred |  |  | (1,213 | ) |  |  | (613 | ) |  |  | (1,375 | )
|  | $ | 1,114 |  |  | $ | 3,325 |  |  | $ | 1,871 |
Income (loss) before taxes on income: |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | (3,360 | ) |  | $ | (3,488 | ) |  | $ | (5,946 | )
Foreign |  |  | 10,741 |  |  |  | 19,913 |  |  |  | 24,845 |
|  | $ | 7,381 |  |  | $ | 16,425 |  |  | $ | 18,899 |
d. Reconciliation between the Company’s effective tax rate and the U.S. statutory rate:
|  | Year ended December 31, |
|  | 2015 |  |  | 2016 |  |  | 2017 |
Income before taxes on income |  | $ | 7,381 |  |  | $ | 16,425 |  |  | $ | 18,899 |
Theoretical tax at U.S. statutory rate |  |  | 2,510 |  |  |  | 5,585 |  |  |  | 6,426 |
Foreign income taxes at rates other than U.S. rate |  |  | (958 | ) |  |  | (1,831 | ) |  |  | (2,304 | )
Approved and benefited enterprises benefits (*) |  |  | (1,653 | ) |  |  | (2,767 | ) |  |  | (2,698 | )
Subpart F |  |  | 434 |  |  |  | 538 |  |  |  | 737 |
Non-deductible items |  |  | 349 |  |  |  | 682 |  |  |  | 294 |
Non-taxable items |  |  | (481 | ) |  |  | (505 | ) |  |  | (529 | )
Changes in uncertain tax position |  |  | — |  |  |  | 505 |  |  |  | (1,757 | )
Stock-based compensation expense |  |  | — |  |  |  | — |  |  |  | (1,503 | )
Deemed mandatory repatriation |  |  | — |  |  |  | — |  |  |  | 1,916 |
Changes in valuation allowance |  |  | 839 |  |  |  | 1,212 |  |  |  | 2,076 |
Other, net |  |  | 74 |  |  |  | (94 | ) |  |  | (787 | )
Taxes on income |  | $ | 1,114 |  |  | $ | 3,325 |  |  | $ | 1,871 |
(*) Basic and diluted earnings per share amounts of the benefit resulting from the “Approved Enterprise” and “Benefited Enterprise” status |  | $ | 0.08 |  |  | $ | 0.13 |  |  | $ | 0.12 |
e. Deferred taxes on income: Significant components of the Company’s deferred tax assets are as follows:
|  | As at December 31, |
|  | 2016 |  |  | 2017 |
Deferred tax assets |  |  |  |  |  |  |  |
Operating loss carryforward |  | $ | 9,638 |  |  | $ | 13,069 |
Accrued expenses and deferred revenues |  |  | 1,128 |  |  |  | 1,057 |
Temporary differences related to R&D expenses |  |  | 1,435 |  |  |  | 2,118 |
Equity-based compensation |  |  | 2,685 |  |  |  | 1,956 |
Tax credit carry forward |  |  | 1,237 |  |  |  | 1,866 |
Other |  |  | 562 |  |  |  | 476 |
Total gross deferred tax assets |  |  | 16,685 |  |  |  | 20,542 |
Valuation allowance |  |  | (13,780 | ) |  |  | (16,590 | )
Net deferred tax assets |  | $ | 2,905 |  |  | $ | 3,952 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Intangible assets |  | $ | 621 |  |  | $ | 275 |
Other |  |  | 32 |  |  |  | 34 |
Total deferred tax liabilities |  | $ | 653 |  |  | $ | 309 |
Net deferred tax assets (*) |  | $ | 2,252 |  |  | $ | 3,643 |
(*) | Net deferred taxes for the years ended December 31, 2016 and 2017 are all from foreign jurisdictions.
Changes in valuation allowances on deferred tax assets result from management’s assessment of the Company’s ability to utilize certain future tax deductions, operating losses and tax credit carryforwards prior to expiration. Valuation allowances were recorded to reduce deferred tax assets to an amount that will, more likely than not, be realized in the future. The net change in the valuation allowance primarily reflects an increase in deferred tax assets on operating loss carryforward. The Company is currently analyzing the potential tax liability attributable to any additional repatriation of foreign earnings, but the Company has yet to determine whether it plans to change its prior assertion that such earnings are indefinitely reinvested and repatriate any additional earnings. Accordingly, the Company has not recorded any deferred taxes attributable to other investments in its foreign subsidiaries. The Company will record the tax effects of any change in its prior assertion in the period that it completes its analysis and is able to make a reasonable estimate, and disclose any unrecognized deferred tax liability for temporary differences related to its foreign investments, if practicable. f. Uncertain tax positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits based on the provisions of FASB ASC No. 740 is as follows:
|  | Year ended December 31, |
|  | 2016 |  |  | 2017 |
Beginning of year |  | $ | 3,076 |  |  | $ | 3,784 |
Additions for current year tax positions |  |  | 232 |  |  |  | 1,188 |
Additions for prior year’s tax positions |  |  | 476 |  |  |  | 255 |
Decrease as a result of the completion of a tax audit for prior years |  |  | — |  |  |  | (3,003 | )
Balance at December 31 |  | $ | 3,784 |  |  | $ | 2,224 |
As of December 31, 2016 and 2017, there were $3,784 and $2,224, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate. As of December 31, 2016 and 2017, the Company had accrued interest related to unrecognized tax benefits of $130 and $0, respectively. The Company did not accrue penalties during the years ended December 31, 2016 and 2017. During the year ended December 31, 2017, the Company recorded a tax benefit of $1,805 as a result of the completion of a tax audit for prior years in a certain foreign tax jurisdiction. This amount included a release of $130 in accrued interest related to unrecognized tax benefits. The reduction in the unrecognized tax benefits balance for prior years as a result of the completion of the tax audit for the year ended December 31, 2017 was $3,003. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. The Company 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 are difficult to estimate. g. Tax loss carryforwards: As of December 31, 2017, CEVA and its subsidiaries had net operating loss carryforwards for federal income tax purposes of approximately $12,541, which are available to offset future federal taxable income. Such loss carryforwards begin to expire in 2030. As of December 31, 2017, CEVA and its subsidiaries had net operating loss carryforwards for California income tax purposes of approximately $8,279, which are available to offset future California taxable income. Such loss carryforwards begin to expire in 2030. As of December 31, 2017, CEVA’s Irish subsidiary had foreign operating losses of approximately $61,608, which are available to offset future taxable income indefinitely. As of December 31, 2017, CEVA’s French subsidiaries had foreign operating losses of approximately $6,807, which are available to offset future taxable income indefinitely. h. Tax returns: CEVA files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. With few exceptions, CEVA is no longer subject to U.S. federal income tax examinations by tax authorities, and state and local income tax examinations, for the years prior to 2010.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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