XML 125 R26.htm IDEA: XBRL DOCUMENT
v3.19.3

Income Taxes | 12 Months Ended
--- | ---
Jun. 30, 2019
Income Taxes [Abstract] |
Income Taxes | 18. 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 reduced 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. During the year ended June 30, 2019, the Company was not significantly impacted by the transition to a territorial tax system and it does not expect a significant impact on its 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 its income is taxed at 22%). 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 did not incur a net Transition Tax liability because it generated 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 was 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. During the year ended June 30, 2018, the Company 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 had no liability after the application of generated foreign tax credits. In fact, the Company generated excess foreign tax credits. During the year ended June 30, 2019, the Company finalized its Transition Tax liability as of June 30, 2018, and incurred a Transition Tax, before the application of any foreign tax credits, of $56.9 million, and has no liability after the application of generated foreign tax credits. Global intangible low taxed income The TCJA creates a new requirement that certain income earned by controlled foreign corporations ("CFCs") must be included 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. 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). The Company has not incurred a GILTI tax during the year ended June 30, 2019, because it primarily operates in tax jurisdictions (such as South Africa and South Korea) which have higher corporate income tax rates than the United States and certain of its South Africa subsidiaries have incurred operating losses. Income tax provision The table below presents the components of income before income taxes for the years ended June 30, 2019, 2018 and 2017:
|  | 2019 |  |  | 2018 |  |  | 2017 |
South Africa | $ | (267,637 | ) | $ | 131,366 |  | $ | 129,786 |
United States |  | (23,479 | ) |  | (15,329 | ) |  | (20,902 | )
Other |  | (11,910 | ) |  | (15,671 | ) |  | 5,572 |
(Loss) Income before income taxes | $ | (303,026 | ) | $ | 100,366 |  | $ | 114,456 |
Presented below is the provision for income taxes by location of the taxing jurisdiction for the years ended June 30, 2019, 2018 and 2017:
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  |  |  |  | (As |  |  | (As |
|  |  |  |  | restated A ) |  |  | restated A ) |
Current income tax | $ | 17,163 |  | $ | 95,529 |  | $ | 45,857 |
South Africa |  | 10,076 |  |  | 35,745 |  |  | 35,986 |
Continuing |  | 3,689 |  |  | 35,745 |  |  | 35,986 |
Discontinued |  | 6,387 |  |  | - |  |  | - |
United States |  | 1,100 |  |  | 55,788 |  |  | 4,686 |
Other |  | 5,987 |  |  | 3,996 |  |  | 5,185 |
Deferred taxation (benefit) charge |  | (12,494 | ) |  | 8,537 |  |  | (6 | )
South Africa |  | (11,117 | ) |  | 9,772 |  |  | (439 | )
Continuing |  | (7,854 | ) |  | 9,772 |  |  | (439 | )
Discontinued |  | (3,263 | ) |  | - |  |  | - |
United States |  | 4 |  |  | 477 |  |  | 1,123 |
Other |  | (1,381 | ) |  | (1,712 | ) |  | (690 | )
Foreign tax credits generated – United States |  | (944 | ) |  | (55,778 | ) |  | (3,345 | )
Change in tax rate – United States |  | - |  |  | 309 |  |  | - |
Income tax provision | $ | 3,725 |  | $ | 48,597 |  | $ | 42,506 |
(A) Deferred taxation (benefit) charge – South Africa for 2018 and 2017 have been restated to correct the misstatement discussed in Note 1. There were no changes to the enacted tax rate in the years ended June 30, 2019, 2018 and 2017. 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 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 expected would be utilized/ reversed during the period ended June 30, 2018, were re-measured at the blended rate and those deferred taxes that the Company believed would only be utilized/ reversed in subsequent tax years, were 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 also provided an additional valuation allowance of approximately $0.6 million during the year ended June 30, 2018, related to net operating loss carryforwards that it believed would not be utilized as a result of the enactment of the TCJA. The Company calculated its Transition Tax liability as of June 30, 2018, and incurred a 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. During the year ended June 30, 2019, the Company recorded the difference of $1.1 million between the Transition Tax liability of $56.9 million and the provisional Transition Tax liability of $55.8 million in current income tax, United States. During the year ended June 30, 2019, the Company also included the additional foreign tax credits utilized of $1.1 million against this Transition Tax in foreign tax credits generated – United States. During the year ended June 30, 2018, the Company included a provisional Transition Tax of $55.8 million in current income tax, United States. Foreign tax credits of $65.3 million were generated and included in the computation of provisional Transition Tax of which $55.8 million were utilized against the Transition Tax in that year. The foreign tax credits utilized are included in Foreign tax credits generated – United States for the year ended June 30, 2018. During the year ended June 30, 2019, the Company incurred significant net operating losses through certain of it its South African wholly-owned subsidiaries and recorded a deferred taxation benefit related to these losses. However, the Company has created a valuation allowance for these net operating losses which reduced the deferred taxation benefit recorded. 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. 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 year ended June 30, 2017, 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. Net1 has applied certain of these foreign tax credits against its current income tax provision for the years ended June 30, 2017. 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, 2019, 2018 and 2017, is as follows:
| 2019 |  | 2018 |  | 2017 |
|  |  | (As |  | (As |
|  |  | restated A ) |  | restated A ) |
Income taxes at fully-distributed South African tax rates | 28.00 | % | 28.00 | % | 28.00 | %
Movement in valuation allowance | (24.23 | %) | 5.99 | % | 0.07 | %
Non-deductible items | (4.75 | %) | 15.19 | % | 1.05 | %
Capital gains differential | (1.54 | %) | (1.81 | %) | -% |
Taxation on deemed dividends in the United States | 1.53 | % | 1.92 | % | 8.00 | %
Foreign tax rate differential | 0.38 | % | (0.65 | %) | -% |
Prior year adjustments | (0.63 | %) | (0.02 | %) | 0.07 | %
Transition Tax | (0.36 | %) | 55.38 | % | -% |
Foreign tax credits | 0.37 | % | (55.58 | %) | (0.05 | %)
Change in tax laws – United States | -% |  | -% |  | -% |
Income tax provision | (1.23 | %) | 48.42 | % | 37.14 | %
(A) Non-deductible items for 2018 and 2017 have been restated to correct the misstatement discussed in Note 1. Percentages included in the 2019 column in the reconciliation of income taxes presented above are impacted by the loss incurred by the Company during the year ended June 30, 2019. For instance, the income tax provision of $3.7 million represents (1.39%) multiplied by the net loss before tax of $(268,987). Non-deductible items for the year ended June 30, 2019, includes the impairment losses recognized related to goodwill impaired. Movement in the valuation allowance for the year ended June 30, 2019, includes allowances created related to net operating losses incurred during the year and a valuation allowance created for a deferred tax asset recorded related to the DNI disposal capital losses generated (refer to Note 3) and the Cell C capital loss following the fair value adjustment (refer to Note 7). Non-deductible items for the year ended June 30, 2018, includes the impairment loss recognized related to goodwill impaired, non-deductible interest on borrowings and the accretion of interest. The impact on foreign tax 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. 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:
|  | 2019 |  |  | 2018 |
|  |  |  |  | (As |
|  |  |  |  | restated A ) |
Total deferred tax assets |  |  |  |  |  |
Capital losses related to investments(B) | $ | 43,569 |  | $ | 3,226 |
Net operating loss carryforwards |  | 35,873 |  |  | 10,242 |
Foreign tax credits |  | 32,799 |  |  | 32,644 |
Provisions and accruals |  | 13,230 |  |  | 5,975 |
FTS patent |  | 277 |  |  | 367 |
Intangible assets |  | - |  |  | 687 |
Other |  | 2,394 |  |  | 4,523 |
Total deferred tax assets before valuation allowance |  | 128,142 |  |  | 57,664 |
Valuation allowances |  | (125,887 | ) |  | (48,691 | )
Total deferred tax assets, net of valuation allowance |  | 2,255 |  |  | 8,973 |
Total deferred tax liabilities: |  |  |  |  |  |
Intangible assets |  | 2,676 |  |  | 6,420 |
Investments |  | 1,621 |  |  | 5,886 |
Other |  | 489 |  |  | 7,515 |
Total deferred tax liabilities |  | 4,786 |  |  | 19,821 |
Reported as |  |  |  |  |  |
Long-term deferred tax assets |  | 2,151 |  |  | 4,776 |
Long-term deferred tax liabilities |  | 4,682 |  |  | 16,067 |
Net deferred income tax liabilities | $ | 2,531 |  | $ | 11,291 |
(A) Total deferred tax liabilities: Investments and long-term deferred tax liabilities have been restated to correct the misstatement discussed in Note 1. (B) Capital losses as of June 30, 2018, were previously included in Other and have been reclassified to Capital losses related to investments. Decrease in total net deferred income tax liabilities Capital losses related to investments Capital losses related to investments increased primarily due to the capital loss arising from the difference between the amount paid for Cell C in August 2017 and the its fair value as of June 30, 2019 of $0.0 million and the capital losses incurred related to the DNI disposals (refer to Note 3). Net operating loss carryforwards Net operating loss carryforwards have increased primarily as a result of the losses incurred by certain of the Company's wholly-owned South African subsidiaries. Intangible assets Deferred tax liabilities – intangible assets have decreased during the year ended June 30, 2019, as a result of the disposition of DNI (refer to Note 3), and amortization of KSNET, Masterpayment and Transact24 intangible assets. Investments Deferred tax liabilities – investments has decreased during the year ended June 30, 2019, as a result of the fair value adjustment to reduce the carrying value of the investment in Cell C to below its initial cost. Increase in valuation allowance At June 30, 2019, the Company had deferred tax assets of $2.3 million (2018: $9.0 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, 2019, the Company had a valuation allowance of $125.9 million (2018: $48.7 million) to reduce its deferred tax assets to estimated realizable value. The movement in the valuation allowance for the years ended June 30, 2019 and 2018, is presented below:
|  |  |  |  |  |  | Net |  |  |  |  |  |  |  |  |
|  |  |  |  | Capital losses |  | operating |  |  | Foreign |  |  |  |  |  |
|  |  |  |  | related to |  | loss carry- |  |  | tax |  | FTS |  |  |  |
|  | Total |  |  | investments(A) |  | forwards A |  |  | credits |  | patent |  |  | Other(A)(B) |
July 1, 2017 | $ | 38,967 |  | $ | 997 | $ | 3,699 |  | $ | 32,574 | $ | 120 |  | $ | 1,577 |
Charged to statement of operations |  | 9,582 |  |  | 2,229 |  | 4,573 |  |  | 10 |  | - |  |  | 2,770 |
Utilized |  | 60 |  |  | - |  | - |  |  | 60 |  | - |  |  | - |
Change in tax laws |  | (894 | ) |  | - |  | (263 | ) |  | - |  | - |  |  | (631 | )
Foreign currency adjustment |  | 976 |  |  | - |  | 1,038 |  |  | - |  | (63 | ) |  | 1 |
June 30, 2018 |  | 48,691 |  |  | 3,226 |  | 9,047 |  |  | 32,644 |  | 57 |  |  | 3,717 |
Reversed to statement of operations . |  | (881 | ) |  | - |  | (198 | ) |  | - |  | (57 | ) |  | (626 | )
Charged to statement of operations |  | 79,029 |  |  | 40,159 |  | 26,570 |  |  | 155 |  | - |  |  | 12,145 |
Utilized |  | (1,730 | ) |  | - |  | (10 | ) |  | - |  | - |  |  | (1,720 | )
Foreign currency adjustment |  | 778 |  |  | 184 |  | 452 |  |  | - |  | - |  |  | 142 |
June 30, 2019 | $ | 125,887 |  | $ | 43,569 | $ | 35,861 |  | $ | 32,799 | $ | - |  | $ | 13,658 |
(A) Capital losses related to investments for the prior year have been reclassified from Other. (B) Net operating loss carry-forwards of $3,602 as of June 30, 2018, that were previously included in the other caption have been reclassified to the net operating loss carry-forwards caption. 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, 2019, 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, 2019 and 2018, Net1 generated additional direct foreign tax credits related to dividends received from a foreign investment. Net1 had no net unused foreign tax credits that are more likely than not to be realized as of June 30, 2019 and 2018, respectively. Uncertain tax positions As of June 30, 2019 and 2018, the Company has unrecognized tax benefits of $1.2 million and $0.8 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, Malta, the United Kingdom, Botswana and in the U.S. federal jurisdiction. As of June 30, 2019, 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, 2016. 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, 2019, 2018 and 2017:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Unrecognized tax benefits - opening balance | $ | 838 |  | $ | 475 |  | $ | 1,930 |
Gross increases - tax positions in prior periods |  | 107 |  |  | 196 |  |  | - |
Gross decreases - tax positions in prior periods |  | - |  |  | - |  |  | (2,109 | )
Gross increases - tax positions in current period |  | 307 |  |  | 311 |  |  | 440 |
Gross decreases - tax positions in current period |  | - |  |  | (150 | ) |  | - |
Lapse of statute limitations |  | - |  |  | - |  |  | - |
Foreign currency adjustment |  | (38 | ) |  | 6 |  |  | 214 |
Unrecognized tax benefits - closing balance | $ | 1,214 |  | $ | 838 |  | $ | 475 |
As of each of June 30, 2019 and 2018, the Company had accrued interest related to uncertain tax positions of approximately $0.1 million, respectively, on its consolidated balance sheet. As of each of June 30, 2019 and 2018, the Company had accrued penalties related to uncertain tax positions of approximately $0.2 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://fasb.org/us-gaap/role/ref/legacyRef -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