XML 43 R26.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Income Taxes | 12 Months Ended
--- | ---
Jun. 30, 2018
Income Taxes [Abstract] |
Income Taxes | 19. INCOME TAXES Impact of Tax Cuts and Jobs Act On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA"), was enacted into law, significantly modifying U.S. federal tax laws. The TCJA reduces the federal statutory tax rate for corporations from 35% to 21% effective from January 1, 2018, eliminates alternative minimum tax for corporations, limits net operating loss carryforwards (and eliminates carrybacks), repeals indirect foreign tax credits carry-forward rules, limits the deductibility of interest expense and transitions the system of U.S. international taxation of corporations from a worldwide tax system to a territorial tax system. The transition to a territorial tax system is not expected to have a significant impact on the Company's future consolidated effective tax rate as it generates the majority of its taxable income in tax jurisdictions with tax rates that are higher than the new federal statutory tax rate of 21% (mainly South Africa, where its income is taxed at 28%, and Korea, where our income is taxed at 22%). The Company has a June year end and has used a blended rate of 28.10% for its tax year ending June 30, 2018, in the U.S. Certain of the Company's deferred tax assets and liabilities which it expects will be utilized/ reversed during the period ended June 30, 2018, have been re-measured at this blended rate and those deferred taxes that the Company believes will only be utilized/ reversed in subsequent tax years, have been re-measured at 21%. The net impact of the change in the tax rate on the Company's deferred taxes included in income tax expense during the year ended June 30, 2018, was $0.3 million. The Company has also provided an additional valuation allowance of approximately $0.6 million related to net operating loss carryforwards that it does not believe will be utilized as a result of the enactment of the TCJA. Deemed repatriation of foreign earnings liability The TCJA also requires a U.S. shareholder of a specified foreign corporation to include a deemed repatriation of foreign earnings ("Transition Tax") as part of the transition to a territorial tax system. However, the Company does not currently believe that it has a net Transition Tax liability because it will generate sufficient foreign tax credits to offset any potential repatriation transition tax liability. The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of certain of the Company's foreign subsidiaries. In order to determine the amount of any Transition Tax liability, the Company is required to determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company has made a reasonable estimate of its Transition Tax liability as of June 30, 2018, and recorded a provisional Transition Tax, before the application of any foreign tax credits, of $55.8 million, and has no liability after the application of generated foreign tax credits. In fact, the Company believes that it may generate excess foreign tax credits and has provided a valuation allowance of $9.5 million for these excess foreign tax credits generated of $65.3 million based on its preliminary calculations. The Company continues to gather additional information to more precisely compute the final amount of the Transition Tax to be included in its income tax return filings with the U.S. tax authorities. Global intangible low taxed income The TCJA creates a new requirement that certain income earned by controlled foreign corporations ("CFCs") must be included currently in the gross income of the CFCs' U.S. shareholder. Global intangible low taxed income ("GILTI") is the excess of the shareholder's "net CFC tested income" over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder's pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. As a result of the complexity of the new GILTI tax rules, the Company continues to evaluate this provision of the Tax Act and the application of the relevant GAAP guidance. It is the Company's current interpretation of the U.S. tax legislation that GILTI is only applicable for the tax year commencing July 1, 2018 (i.e. its June 2019 tax year). Under GAAP, the Company has the option to make an accounting policy election of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method") or (ii) factoring such amounts into a company's measurement of its deferred taxes (the "deferred method"). The Company is not yet able to reasonably estimate the effect of this provision of the TCJA on it because whether it expects to have future U.S. inclusions in taxable income related to GILTI depends on a number of different aspects of the Company's estimated future results of global operations. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements. Income tax provision The table below presents the components of income before income taxes for the years ended June 30, 2018, 2017 and 2016:
|  | 2018 |  |  | 2017 |  |  | 2016 |
South Africa | $ | 98,893 |  | $ | 129,786 |  | $ | 119,097 |
United States |  | (15,329 | ) |  | (20,902 | ) |  | (5,915 | )
Other |  | (15,671 | ) |  | 5,572 |  |  | 13,055 |
Income before income taxes | $ | 67,893 |  | $ | 114,456 |  | $ | 126,237 |
Presented below is the provision for income taxes by location of the taxing jurisdiction for the years ended June 30, 2018, 2017 and 2016:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current income tax | $ | 95,529 |  | $ | 45,857 |  | $ | 88,807 |
South Africa |  | 35,745 |  |  | 35,986 |  |  | 31,815 |
United States |  | 55,788 |  |  | 4,686 |  |  | 50,750 |
Other |  | 3,996 |  |  | 5,185 |  |  | 6,242 |
Deferred taxation (benefit) charge |  | 1,293 |  |  | (40 | ) |  | (161 | )
South Africa |  | 2,528 |  |  | (473 | ) |  | 3,044 |
United States |  | 477 |  |  | 1,123 |  |  | (274 | )
Other |  | (1,712 | ) |  | (690 | ) |  | (2,931 | )
Foreign tax credits generated – United States |  | (55,778 | ) |  | (3,345 | ) |  | (46,566 | )
Change in tax rate – United States |  | 309 |  |  | - |  |  | - |
Income tax provision | $ | 41,353 |  | $ | 42,472 |  | $ | 42,080 |
There were no changes to the enacted tax rate in the years ended June 30, 2018, 2017 and 2016. However, during the year ended June 30, 2018, there were changes to the U.S. tax code which, among other things, changed the Federal tax rate. The Company has a June year end and therefore it has used a blended rate of 28.10% for its tax year ended June 30, 2018, for U.S. Federal tax purposes. The Company's U.S. deferred tax assets and liabilities which are expected to be utilized or reversed in subsequent tax years have been re-measured at a rate of 21% as of June 30, 2018. The provisional Transition Tax of $55.8 million is included within current income tax, United States. Foreign tax credits of $65.3 million were generated and included in the computation of Transition Tax of which $55.8 million were utilized against the Transition Tax. The foreign tax credits utilized are included in Foreign tax credits generated – United States for the year ended June 30, 2018. In addition, indirect foreign tax credits of $32.6 million carried forward from prior years have been written off as a result of the TCJA rules that repeal indirect foreign tax credits carry-forward. A valuation allowance of $32.6 million had been created in prior years related to these indirect foreign tax credits. Foreign tax credits generated – United States for the year ended June 30, 2018, includes the write off of the indirect foreign tax credits of $32.6 million and the reversal of the valuation allowance related to these foreign tax credits. The movement in the valuation allowance for the year ended June 30, 2018, is primarily attributable to the creation of the valuation allowance related to excess tax credits recognized from the preliminary Transition Tax calculation and the creation of a valuation allowance related to net operating losses generated during the year ended June 30, 2018, that the Company does not believe it will be able to utilize in the foreseeable future. The movement in the valuation allowance for the year ended June 30, 2017, is primarily attributable to a decrease resulting from the utilization of foreign tax credits and an increase related to a valuation allowance created for net operating loss carryforwards for the Company's German subsidiaries. The movement in the valuation allowance for the year ended June 30, 2016, relates primarily to an increase in the valuation allowance resulting from the generation of unused foreign tax credits during the year. As discussed above, the Company has generated excess foreign tax credits related to the Transition Tax and any distribution received from Net1's subsidiaries will first be applied against the deemed distributions recognized as a result of the Transition Tax as so called "previously taxed income, or PTI,". Therefore distributions actually made during the year ended June 30, 2018, were treated as PTI and did not generate any additional foreign tax credits because the quantum of the actual distributions were lower than the deemed distributions calculated as a result of the Transition Tax. Net1 included actual and deemed dividends received from one of its South African subsidiaries in its years ended June 30, 2017 and 2016, taxation computation. Net1 applied net operating losses against this income during the year ended June 30, 2017 and did not generate any indirect foreign tax credits. However, Net1 generated foreign tax credits as a result of the inclusion of the dividends in its taxable income in 2016. Net1 has applied certain of these foreign tax credits against its current income tax provision for the years ended June 30, 2017 and 2016. A reconciliation of income taxes, calculated at the fully-distributed South African income tax rate to the Company's effective tax rate, for the years ended June 30, 2018, 2017 and 2016 is as follows:
| 2018 |  | 2017 |  | 2016 |
Income tax rate reconciliation: |  |  |  |  |  |
Income taxes at fully-distributed South African tax rates | 28.00 | % | 28.00 | % | 28.00 | %
Non-deductible items | 22.35 | % | 1.01 | % | 0.38 | %
Foreign tax rate differential | (0.96 | %) | 0.00 | % | 7.42 | %
Transition Tax | 81.88 | % | - | % | - | %
Foreign tax credits | (82.17 | %) | (0.05 | %) | (36.88 | %)
Indirect foreign tax credits repealed | 48.07 | % | - | % | - | %
Taxation on deemed dividends in the United States | 2.84 | % | 8.00 | % | 34.60 | %
Movement in valuation allowance | (39.22 | %) | 0.07 | % | (0.09 | %)
Change in tax laws – United States | 0.16 | % | - | % | - | %
Prior year adjustments | (0.03 | %) | 0.07 | % | (0.09 | %)
Income tax provision | 60.92 | % | 37.10 | % | 33.34 | %
Non-deductible items for the year ended June 30, 2018, includes the impairment loss recognized related to goodwill impaired. The impact on foreign tax credits, indirect foreign tax credits repealed and the movement in the valuation allowance during the year ended June 30, 2018, was primarily due to the impact of the Transition Tax. Net1 received dividends from one of its South African subsidiaries during the year ended June 30, 2017, which resulted in an increase in taxation on dividends received. No significant foreign tax credits were generated during the year ended June 30, 2017, and the Company utilized foreign tax credits generated in prior years. The utilization of these foreign tax credits used in prior years is included in the movement in the valuation allowance. The non-deductible items during the year ended June 30, 2017, includes transaction related expenses, including legal and consulting fees incurred that are not deductible for tax purposes. Net1 received substantial dividends from one of its South African subsidiaries during the year ended June 30, 2016, which resulted in an increase in the amount of foreign tax credits generated and an increase in taxation on dividends received. A portion of these foreign tax credits generated were not used during the year and a valuation allowance has been created for unused foreign tax credits. The foreign tax rate differential represents the difference between statutory tax rates in South Africa and foreign jurisdictions, primarily the United States. Deferred tax assets and liabilities Deferred income taxes reflect the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The primary components of the temporary differences that gave rise to the Company's deferred tax assets and liabilities as of June 30, and their classification, were as follows:
|  | 2018 |  |  | 2017 |
Total deferred tax assets |  |  |  |  |  |
Net operating loss carryforwards | $ | 11,339 |  | $ | 4,946 |
Provisions and accruals |  | 6,384 |  |  | 4,413 |
FTS patent |  | 367 |  |  | 475 |
Intangible assets |  | 687 |  |  | 829 |
Foreign tax credits |  | 10 |  |  | 32,574 |
Other |  | 7,779 |  |  | 5,717 |
Total deferred tax assets before valuation allowance |  | 26,566 |  |  | 48,954 |
Valuation allowances |  | (16,057 | ) |  | (38,967 | )
Total deferred tax assets, net of valuation allowance |  | 10,509 |  |  | 9,987 |
Total deferred tax liabilities: |  |  |  |  |  |
Intangible assets |  | 35,541 |  |  | 9,141 |
Investments |  | 6,772 |  |  | - |
Other |  | 8,490 |  |  | 6,655 |
Total deferred tax liabilities |  | 50,803 |  |  | 15,796 |
Reported as |  |  |  |  |  |
Current deferred tax assets |  | - |  |  | 5,330 |
Long-term deferred tax assets |  | 6,312 |  |  | - |
Long-term deferred tax liabilities |  | 46,606 |  |  | 11,139 |
Net deferred income tax liabilities | $ | 40,294 |  | $ | 5,809 |
Increase in total net deferred income tax liabilities Net operating loss carryforwards Net operating loss carryforwards have increased primarily as a result of the losses incurred by CPS, Net1 and the Company's German subsidiaries. Foreign tax credits The decrease in foreign tax credits as of June 30, 2018, resulted from the write off of indirect foreign tax credits that will not be used in future periods due to changes in the United States code under the TCJA. Intangible assets Deferred tax liabilities – intangible assets have increased during the year ended June 30, 2018, as a result of the acquisition of DNI, and partially offset by amortization of KSNET, Masterpayment and Transact24 intangible assets. Investments Deferred tax liabilities – investments have increased during the year ended June 30, 2018, as a result of the fair value adjustments made to the investment in Cell C. Increase in valuation allowance At June 30, 2018, the Company had deferred tax assets of $10.5 million (2017: $10.0 million), net of the valuation allowance. Management believes, based on the weight of available positive and negative evidence it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are revised. At June 30, 2018, the Company had a valuation allowance of $16.1 million (2017: $39.0 million) to reduce its deferred tax assets to estimated realizable value. The movement in the valuation allowance for the years ended June 30, 2018 and 2017, is presented below:
|  |  |  |  |  |  |  | Net |  |  |  |  |  |  |
|  |  |  |  | Foreign |  |  | operating |  |  |  |  |  |  |
|  |  |  |  | tax |  |  | loss carry- |  |  | FTS |  |  |  |
|  | Total |  |  | credits |  |  | forwards |  |  | patent |  |  | Other |
July 1, 2016 | $ | 38,834 |  | $ | 36,748 |  | $ | 931 |  | $ | 158 |  | $ | 997 |
Reversed to statement of operations |  | (4,302 | ) |  | (4,174 | ) |  | (128 | ) |  | - |  |  | - |
Charged to statement of operations |  | 4,684 |  |  | - |  |  | 3,107 |  |  | - |  |  | 1,577 |
Foreign currency adjustment |  | (249 | ) |  | - |  |  | (211 | ) |  | (38 | ) |  | - |
June 30, 2017 |  | 38,967 |  |  | 32,574 |  |  | 3,699 |  |  | 120 |  |  | 2,574 |
Reversed to statement of operations |  | (32,634 | ) |  | (32,634 | ) |  | - |  |  | - |  |  | - |
Charged to statement of operations |  | 9,582 |  |  | 10 |  |  | 971 |  |  | - |  |  | 8,601 |
Utilized |  | 60 |  |  | 60 |  |  | - |  |  | - |  |  | - |
Change in tax laws |  | (894 | ) |  | - |  |  | (263 | ) |  | - |  |  | (631 | )
Foreign currency adjustment |  | 976 |  |  | - |  |  | 1,038 |  |  | (63 | ) |  | 1 |
June 30, 2018 | $ | 16,057 |  | $ | 10 |  | $ | 5,445 |  | $ | 57 |  | $ | 10,545 |
Net operating loss carryforwards and foreign tax credits United States The TCJA amends the rules regarding net operating loss carryforwards for Federal income tax purposes effective from July 1, 2018. The new rules prohibit net operating loss carrybacks, allow indefinite net operating loss carryforwards and limit the amount of the net operating loss carryforwards generated after July 1, 2018, that may be used against future taxable income, to 80% of taxable income before the net operating loss deduction. These new rules did not impact the Company's net operating loss carryforwards generated during the year ended June 30, 2018 and in prior periods. As of June 30, 2018, Net1 had net operating loss carryforwards that will expire, if unused, as follows:
Year of expiration |  | U.S. net operating
|  | loss carry
|  | forwards
2024 | $ | 1,874
2028 | $ | 4,423
During the year ended June 30, 2018, Net1 generated additional direct foreign tax credits related to dividends received from a foreign investment. Net1 did not generate any additional foreign tax credits during the year ended June 30, 2017. Net1 had no net unused foreign tax credits that are more likely than not to be realized as of June 30, 2018 and 2017, respectively. Uncertain tax positions As of June 30, 2018 and 2017, the Company has unrecognized tax benefits of $0.8 million and $0.5 million, respectively, all of which would impact the Company's effective tax rate. The Company files income tax returns mainly in South Africa, South Korea, Germany, Hong Kong, India, the United Kingdom, Botswana and in the U.S. federal jurisdiction. As of June 30, 2018, the Company's South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2014. The Company is subject to income tax in other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results of operations. The Company does not expect the change related to unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months. The following is a reconciliation of the total amounts of unrecognized tax benefits for the year ended June 30, 2018, 2017 and 2016:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Unrecognized tax benefits - opening balance | $ | 475 |  | $ | 1,930 |  | $ | 2,322 |
Gross increases - tax positions in prior periods |  | 196 |  |  | - |  |  | - |
Gross decreases - tax positions in prior periods |  | - |  |  | (2,109 | ) |  | (609 | )
Gross increases - tax positions in current period |  | 311 |  |  | 440 |  |  | 641 |
Gross decreases - tax positions in current period |  | (150 | ) |  | - |  |  | - |
Lapse of statute limitations |  | - |  |  | - |  |  | - |
Foreign currency adjustment |  | 6 |  |  | 214 |  |  | (424 | )
Unrecognized tax benefits - closing balance | $ | 838 |  | $ | 475 |  | $ | 1,930 |
As of June 30, 2018 and 2017, the Company had accrued interest related to uncertain tax positions of approximately $0.1 million and $0.1 million, respectively, on its consolidated balance sheet. As of June 30, 2018 and 2017, the Company had accrued penalties related to uncertain tax positions of approximately $0.2 million and $0.1 million, respectively, on its consolidated balance sheet.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration