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Note 13 - Taxes on Income | 12 Months Ended
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Dec. 31, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | NOTE 13: 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”); the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system; modifications to the allowance of net business interest expense deductions; modification of net operating loss provisions; changes to 162 (m) limitation rules and bonus depreciation provisions. 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 dividend distributions not subject to U.S. federal income tax when repatriated. A majority of the provisions in the Tax Act became effective January 1, 2018. In connection with its analysis of the impact of the Tax Act, the Company had $16,053K of Transition Tax Inclusion reported on the tax return filed for the year ended December 31, 2017. After the utilization of existing tax net operating loss carryforwards, the Company did not pay additional U.S. federal cash taxes. The Tax Act added a new code section 951A, which requires a U.S. shareholder of a Controlled Foreign Corporation (“CFC”) to include in current taxable income, its “global intangible low taxed income” (“GILTI”) in a manner similar to Subpart F income. The statutory language also allows a deduction for corporate shareholders equal to 50% of the GILTI inclusion, which would be reduced to 37.5% starting in 2026. In general, GILTI is the excess of a shareholder’s CFCs’ net income over a routine or ordinary return. The Company is subject to GILTI for 2018 and future periods. The Company is electing to account for the income tax effects of GILTI as a period costs in the year the GILTI tax is incurred. The BEAT provisions in the Tax Act eliminates the U.S. deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company is not currently 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, 2018. The Tax Act amended section 163 (j) to disallow a deduction for net business interest expense of any taxpayer in excess of 30% of a business’s adjusted taxable income plus floor plan financing interest. The Company has low amounts of interest expense and therefore there is currently no material limitation. The Tax Act limits the carryover of net operating losses to 80% of taxable income and eliminates carryback (with special rules for certain insurance and farming businesses), generally effective for losses arising in tax years beginning after 2017. Losses incurred before January 1, 2018 have not changed and are not limited to the 80% of taxable income and are carried forward 20 years. The Company has fully utilized all pre- 2018 net operating losses. Any future net operating losses generated will be subject to the 80% of taxable income limitation. The Tax Act repealed the exceptions to the section 162 (m) $1 million deduction limitation for commissions and performance-based compensation. The new law clarified that the definition of “covered employee” includes the principal executive officer, principal financial officer, and the three other highest paid officers. The new law provides that once an employee is treated as a covered employee, the individual remains a covered employee for all future years, including with respect to payments made after the death of a covered employee. The Company is aware of the new regulation. However, the new regulation currently has no material impact on the Company’s U.S. taxable income calculation. The Tax Act amended 168 (k) provisions to allow 100% expensing for investments in depreciable property for property other than real property or certain utility property and certain businesses with floor plan indebtedness. This applies to investments subsequent to September 27, 2017 and before January 1, 2023. The Company has conformed to the provisions as applicable. 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, 2018, the open tax years, subject to review by the applicable taxing authorities for the Irish subsidiary, are 2013 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 23% 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 23% in 2018, 24% in 2017 and 25% in 2016. 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%. The Company expects to apply the Technological Preferred Enterprise tax track from tax year 2020 and onwards. Accordingly, the above changes in the tax rates relating to Technological Preferred Enterprises were taken into account in the computation of deferred taxes as of December 31, 2018. 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, 2018, the open tax years, subject to review by the applicable taxing authorities for the Israeli subsidiary, are 2014 and subsequent years. 3. French Subsidiar y In 2017, the French government passed a series of tax reforms allowing for the phased reduction in the corporate tax rate. In 2018, the French operating subsidiary qualified for a 28% corporate income tax rate for taxable profit up to €500,000 and the standard corporate income tax rate of 33.33% for taxable profit above €500,000. In 2019, the standard corporate income tax rate is reduced to 31%, with the first €500,000 of taxable profit still being subject to the 28% rate. In 2020, the 28% corporate income tax rate will become the new standard rate for all taxable profits. In 2021, the standard corporate income tax rate will be reduced to 26.5%. In 2022, the standard corporate income tax rate will be reduced to 25%. As of December 31, 2018, the open tax years subject to review by the applicable taxing authorities for the French subsidiary are 2017 and subsequent years. c . Taxes on income comprised of:
|  | Year ended December 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |
Domestic taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 6 |  |  | $ | (227 | ) |  | $ | 3 |
Deferred |  |  | — |  |  |  | — |  |  |  | — |
Foreign taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 3,932 |  |  |  | 3,473 |  |  |  | 2,913 |
Deferred |  |  | (613 | ) |  |  | (1,375 | ) |  |  | (2,187 | )
|  | $ | 3,325 |  |  | $ | 1,871 |  |  | $ | 729 |
Income before taxes on income: |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | (3,488 | ) |  | $ | (5,946 | ) |  | $ | (5,680 | )
Foreign |  |  | 19,913 |  |  |  | 24,845 |  |  |  | 6,983 |
|  | $ | 16,425 |  |  | $ | 18,899 |  |  | $ | 1,303 |
d . Reconciliation between the Company’s effective tax rate and the U.S. statutory rate:
|  | Year ended December 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |
Income before taxes on income |  | $ | 16,425 |  |  | $ | 18,899 |  |  | $ | 1,303 |
Theoretical tax at U.S. statutory rate |  |  | 5,585 |  |  |  | 6,426 |  |  |  | 274 |
Foreign income taxes at rates other than U.S. rate |  |  | (1,831 | ) |  |  | (2,304 | ) |  |  | 369 |
Approved and benefited enterprises benefits (*) |  |  | (2,767 | ) |  |  | (2,698 | ) |  |  | (239 | )
Subpart F |  |  | 538 |  |  |  | 737 |  |  |  | 563 |
Non-deductible items |  |  | 682 |  |  |  | 294 |  |  |  | 217 |
Non-taxable items |  |  | (505 | ) |  |  | (529 | ) |  |  | (434 | )
Changes in uncertain tax position |  |  | 505 |  |  |  | (1,757 | ) |  |  | 16 |
Stock-based compensation expense |  |  | — |  |  |  | (1,503 | ) |  |  | (62 | )
Deemed mandatory repatriation |  |  | — |  |  |  | 1,916 |  |  |  | 3,542 |
Impacts of GILTI |  |  | — |  |  |  | — |  |  |  | 880 |
Changes in valuation allowance |  |  | 1,212 |  |  |  | 2,076 |  |  |  | (5,005 | )
Other, net |  |  | (94 | ) |  |  | (787 | ) |  |  | 608 |
Taxes on income |  | $ | 3,325 |  |  | $ | 1,871 |  |  | $ | 729 |
(*)Basic and diluted earnings per share amounts of the benefit resulting from the “Approved Enterprise” and “Benefited Enterprise” status |  | $ | 0.13 |  |  | $ | 0.12 |  |  | $ | 0.01 |
e . Deferred taxes on income: Significant components of the Company’s deferred tax assets are as follows:
|  | As at December 31, |
|  | 2017 |  |  | 2018 |
Deferred tax assets |  |  |  |  |  |  |  |
Operating loss carryforward |  | $ | 13,069 |  |  | $ | 9,505 |
Accrued expenses and deferred revenues |  |  | 1,057 |  |  |  | 1,274 |
Temporary differences related to R&D expenses |  |  | 2,118 |  |  |  | 3,194 |
Equity-based compensation |  |  | 1,956 |  |  |  | 2,724 |
Tax credit carry forward |  |  | 1,866 |  |  |  | 1,381 |
Other |  |  | 476 |  |  |  | 705 |
Total gross deferred tax assets |  |  | 20,542 |  |  |  | 18,783 |
Valuation allowance |  |  | (16,590 | ) |  |  | (12,745 | )
Net deferred tax assets |  | $ | 3,952 |  |  | $ | 6,038 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Intangible assets |  | $ | 275 |  |  | $ | 114 |
Other |  |  | 34 |  |  |  | — |
Total deferred tax liabilities |  | $ | 309 |  |  | $ | 114 |
Net deferred tax assets (*) |  | $ | 3,643 |  |  | $ | 5,924 |
(*) | Net deferred taxes for the years ended December 31, 2017 and 2018 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 a decrease in deferred tax assets on operating loss carryforward. As of December 31, 2018, the Company’s undistributed earnings from non-U.S. subsidiaries are intended to be indefinitely reinvested in non-U.S. operations, and therefore no U.S. deferred taxes have been recorded. 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, |
|  | 201 7 |  |  | 201 8 |
Beginning of year |  | $ | 3,784 |  |  | $ | 2,224 |
Additions for current year tax positions |  |  | 1,188 |  |  |  | 575 |
Additions for prior year’s tax positions |  |  | 255 |  |  |  | — |
Reductions for prior year’s tax positions |  |  | — |  |  |  | (60 | )
Decrease as a result of the completion of a tax audit for prior years |  |  | (3,003 | ) |  |  | — |
Balance at December 31 |  | $ | 2,224 |  |  | $ | 2,739 |
As of December 31, 2017 and 2018, there were $2,224 and $2,739, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The Company did not accrue interest and penalties relating to unrecognized tax benefits in its provision for income taxes during the years ended December 31, 2017 and 2018 because such interest and penalties did not have a material impact on the Company’s financial statements. 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, 2018, CEVA and its subsidiaries had net operating loss carryforwards for California income tax purposes of approximately $8,249, which are available to offset future California taxable income. Such loss carryforwards begin to expire in 2030. As of December 31, 2018, CEVA’s Irish subsidiary had foreign operating losses of approximately $60,252, which are available to offset future taxable income indefinitely. As of December 31, 2018, CEVA’s French subsidiaries had foreign operating losses of approximately $4,602, 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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