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Note 10 - Income Tax 1
 9 Months Ended 12 Months Ended
Sep. 30, 2023
Dec. 31, 2022
Notes to Financial Statements    
Income Tax Disclosure [Text Block]

10. Income Tax

 

The Company is incorporated in the BVI. The BVI does not impose corporate income taxes. Our operations are conducted through various subsidiaries in a number of countries throughout the world with significant operations in Uruguay, where we operate in a free trade zone. Consequently, income tax has been provided based on the laws and rates in effect in the countries in which operations are conducted or in which our subsidiaries are considered resident for corporate income tax purposes, including Argentina, China, Israel, the Netherlands, Spain, Uruguay, and the United States.

 

The components of income tax expense were as follows:

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Loss before income tax

 $(13,550) $(11,840) $(41,277) $(17,818)

Provision for income tax

  4,069   2,983  $6,193  $5,126 

Effective tax rate

  (30.0%)  (25.2%)  (15.0%)  (28.8%)

 

Our effective tax rate for the nine months ended September 30, 2023 differs from the BVI statutory rate of 0%. We maintain the exception under ASC 740-270-30-36(b), Accounting for Income Taxes, for jurisdictions that do not have reliable estimates of income. We have used a year-to-date methodology to determine the effective tax rate for the nine months ended September 30, 2023 and 2022.

 

The Company recognizes uncertain income tax positions when it is not more-likely-than-not a tax position will be sustained upon examination. As of September 30, 2023, the Company has recognized uncertain tax positions related to positions taken in Argentina and Spain. If necessary, the Company accrues interest and penalties related to uncertain tax positions as a component of the income tax provision.

 

A reconciliation of the beginning and ending amounts of our gross unrecognized tax benefits is as follows:

 

  

Nine Months Ended September 30,

 
  

2023

 

Balance at January 1, 2023

 $3,889 

Increases (decreases) in tax positions related to prior periods

  (1,974)

Balance at September 30, 2023

 $1,915 

 

The Company believes that it is reasonably possible that a decrease of up to $0.2 million in unrecognized tax benefits related to foreign exposures may be necessary within the coming year.

10. Income Tax

 

We are incorporated in the BVI. See Item 10.E, “BVI Taxation,” for a description of considerations applicable to BVI taxation. Our operations are conducted through various subsidiaries in a number of countries throughout the world with significant operations in Uruguay, where we operate in a free trade zone. Consequently, income tax has been provided based on the laws and tax rates in effect in the countries in which operations are conducted or in which our subsidiaries are considered resident for corporate income tax purposes, including Argentina, China, Israel, the Netherlands, Spain, Uruguay, and the United States. Our provision for (benefit from) income tax for the years ended December 31, 2022, 2021 and 2020 is as follows:

 

  

Year Ended December 31,

 
  

2022

  

2021

  

2020

 

Current

 $2,972  $1,387  $186 

Deferred

  1,601   (1,619)  (38)

Total provision for (benefit from) income tax

 $4,573  $(232) $148 

 

We maintain the exception under ASC 740-270-30-36(b), Accounting for Income Taxes, for jurisdictions that do not have reliable estimates of income.

 

As of December 31, 2022, we have gross unrecognized tax benefits of $3.9 million, exclusive of interest and penalties. If recognized, $2.0 million would reduce our effective tax rate. If applicable, we accrue interest and penalties related to uncertain tax positions as a component of the income tax provision.

 

A reconciliation of the beginning and ending amounts of our gross unrecognized tax benefits is as follows.

 

  

Year Ended December 31,

 
  

2022

 

Balance at January 1

 $— 

Increases (decreases) in tax positions related to the current period

  — 

Increases (decreases) in tax positions related to prior periods

  3,889 

Increases (decreases) related to prior year tax positions as a result of lapse of statute

  — 

Balance at December 31

 $3,889 

 

We did not have any unrecognized tax benefits in 2021 or 2020.

 

The BVI does not impose an income tax. Our provision for (benefit from) income tax differed from the 0% tax rate imposed in the BVI due to the following items for the years ended December 31, 2022, 2021 and 2020:

 

  

Year Ended December 31,

 
  

2022

  

2021

  

2020

 

Loss before income tax

 $(32,068) $(96,537) $(21,381)
             

Provision for (benefit from) income tax at weighted-average statutory rates

  —   —   — 

U.S. state and local income tax, net of federal benefit

  (3)  5   (4)

U.S. foreign-derived intangible income deduction

  (141)  (200)  — 

Argentina Tax Inflation Adjustment

  239   (381)  (198)

Change in valuation allowances

  4,283   3,648   1,198 

Uncertain tax positions

  2,293   —   — 

Change in carryforward attributes

  (1,740)  —   — 

Effect of rates different than statutory

  (423)  (3,300)  (828)

Tax credits

  (112)  —   — 

Other

  177   (4)  (20)

Total

 $4,573  $(232) $148 

 

The change in the effective tax rate from December 31, 2021 to December 31, 2022 is primarily related to management’s decision to record a full valuation allowance on deferred tax assets on a worldwide basis due to the consolidated three-year cumulative loss position.

 

Deferred tax assets and liabilities as of December 31, 2022 and 2021 consisted of the following:

 

  

December 31,

 
  

2022

  

2021

 

Deferred income tax assets:

        

Stock-based compensation

 $3,023  $2,053 

Bad debt expense

  415   407 

Deferred financing costs

  806   — 

Other

  193   419 

Net operating loss carryforwards

  1,365   6,245 

Total deferred income tax assets

  5,802   9,124 

Valuation allowance

  (5,802)  (7,484)

Total deferred income tax assets (liabilities), net

 $—  $1,640 

 

The assessment of the realizability of the deferred income tax assets is based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent cumulative earnings or losses at the worldwide consolidated level, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred income tax assets. The assessment of the recoverability of deferred income tax assets will not change until there is sufficient evidence to support their realizability.

 

Below is a summary of our estimated loss and tax credit carryforwards at December 31, 2022. Our tax attributes are subject to limitations on utilization due to historic ownership changes and may be subject to future limitations upon subsequent change of control, as defined by the Internal Revenue Code Sections 382 and 383.

 

Net Operating Loss

 

Expiration

 

Gross Amount Carried Forward

  

Net Amount Recognized as of December 31, 2022

 

Argentina

 

December 31, 2023 - December 31, 2027

 $7,864  $— 

Netherlands

 

Indefinite

  2,856   — 

China

 

December 31, 2026 - December 31, 2027

  2,258   — 

United States

 

Indefinite

  280   — 

Uruguay

 

December 31, 2026 - December 31, 2027

  19   — 

 

As of December 31, 2022 and 2021, we had $13.3 million and $20.9 million of net operating loss (“NOL”) carryforwards, respectively.

 

In the normal course of business, we are subject to examination by taxing authorities. Tax years vary by jurisdiction, ranging from 2017 to 2022 remaining open for examination.