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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Tax Disclosure | NOTE 11: INCOME TAXES The Company's subsidiaries are separately taxed under the domestic tax laws of the jurisdiction of incorporation of each entity. Loss before taxes on income is comprised as follows:
|  | Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
Domestic |  | $ | 66,346 |  |  | $ | 75,259 |  |  | $ | 67,540 |
Foreign |  | (5,719) |  |  | (22,478) |  |  | (12,330) |
Loss before taxes on income |  | $ | 60,627 |  |  | $ | 52,781 |  |  | $ | 55,210 |
The provision for income taxes was as follows:
|  | Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
Federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  | 88 |  |  | 65 |  |  | 57 |
Foreign |  | 7,780 |  |  | 6,505 |  |  | 3,496 |
Total provision for income taxes |  | $ | 7,868 |  |  | $ | 6,570 |  |  | $ | 3,553 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2022 and 2021, the Company has provided a full valuation allowance in respect of deferred tax assets. Management currently believes that it is more likely than not that the deferred tax regarding the tax loss carry forwards and other temporary differences will not be realized in the foreseeable future in the U.S. Significant components of the Company's deferred tax assets are as follows:
|  | December 31, |
|  | 2022 |  | 2021 |
Deferred tax assets: |  |  |  |  |
Net operating losses carryforward |  | $ | 71,887 |  |  | $ | 76,950 |  |
Disallowed business interest expense |  | $ | 4,760 |  |  | $ | 4,404 |  |
Capitalized R&D costs |  | 16,322 |  |  | — |  |
Reserves & accruals |  | 1,489 |  |  | 1,762 |  |
Deferred revenue |  | 283 |  |  | 205 |  |
Lease liability |  | 1,009 |  |  | — |  |
Stock based compensation |  | 2,710 |  |  | 481 |  |
Other assets |  | 49 |  |  | — |  |
Deferred tax assets before valuation allowance |  | 98,509 |  |  | 83,802 |  |
Valuation allowance |  | (84,795) |  |  | (75,051) |  |
Total deferred tax assets |  | $ | 13,714 |  |  | $ | 8,751 |  |
Deferred tax liabilities: |  |  |  |  |
Acquired Intangible Assets |  | (798) |  |  | (696) |  |
Deferred contract acquisition and fulfillment costs |  | (8,782) |  |  | (6,607) |  |
Internal use software |  | (3,073) |  |  | (1,418) |  |
Operating lease right-of-use assets |  | (923) |  |  | — |  |
Property and equipment |  | (138) |  |  | (30) |  |
Total deferred tax liabilities |  | $ | (13,714) |  |  | $ | (8,751) |  |
Total net deferred tax assets |  | $ | — |  |  | $ | — |  |
As of December 31, 2022, the U.S. parent company had a net U.S. operating loss carry forward ("NOLs") for federal income tax purposes of approximately $277,496 and U.S. state NOLs of approximately $172,429. Out of the operating losses attributed to the U.S. parent company, $169,095 were generated before January 1, 2018, and are subject to the 20-year carryforward period. The remaining $108,401 can be carried forward indefinitely but are subject to the 80% taxable income limitation. Utilization of the U.S. net operating losses above may be subject to substantial annual limitations due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of substantial net operating losses before utilization (the 80% limitation was waived for NOLs utilized in 2019 and 2020 under the CARES Act). The Company has analyzed the impact of Section 382 on its NOLs through 2020 and believes that the NOLs are not materially limited by Section 382. However, any future changes of ownership could impact the Company’s ability to utilize NOLs. A reconciliation of the Company's theoretical income tax expense to actual income tax expense is as follows:
|  | Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
Loss before tax as reported at the consolidated statement of operations |  | $ | 60,627 |  |  | $ | 52,781 |  |  | $ | 55,210 |
Statutory tax rate |  | 21 | % |  | 21 | % |  | 21 | %
Theoretical tax benefit |  | $ | 12,732 |  |  | $ | 11,084 |  |  | $ | 11,594 |
Non-deductible expenses and other permanent differences |  | 154 |  |  | 403 |  |  | 269 |
Remeasurement of warrants to Fair Value |  | — |  |  | 3,160 |  |  | 8,716 |
Stock based compensation |  | 2,193 |  |  | 3,651 |  |  | 1,081 |
Change in valuation allowance |  | 9,745 |  |  | 13,232 |  |  | 3,300 |
State taxes, net of federal benefit |  | 4,946 |  |  | (3,700) |  |  | — |
Income tax at rate other than the U.S. statutory tax rate |  | 3,045 |  |  | 320 |  |  | 1,786 |
Exchange rate differences |  | 332 |  |  | (100) |  |  | (113) |
Other |  | 185 |  |  | 688 |  |  | 108 |
Total tax expenses |  | $ | 7,868 |  |  | $ | 6,570 |  |  | $ | 3,553 |
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act, a comprehensive tax law that includes significant changes to the taxation of business entities. These changes include several key tax provisions, among others: (i) a permanent reduction to the statutory federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017; (ii) a partial limitation on the tax deductibility of business interest expenses; (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) and (iv) a one-time deemed repatriation tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate. In addition, begging in 2022, U.S research and experimental expenditures should be capitalized and amortized ratably over a five-year period, Any such expenditures attributable to research conducted outside of the U.S must be capitalized and amortized over a-15 year period. The Israeli corporate tax rate was 23% for the years ended December 31, 2022, 2021 and 2020. However, the effective tax rate payable by a company that derives income from a "Benefited Enterprise" or a "Preferred Enterprise" (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailing corporate tax rate. Tax benefits by virtue of the Law for the Encouragement of Capital Investments, 1959 ("the Investment Law"): Until tax year 2014, Kaltura Israel utilized various tax benefits by virtue of the "Benefited Enterprise" status granted to its enterprise, pursuant to the Investment Law. Kaltura Israel elected benefits under the alternative track of benefits according to which it was exempt from income tax in the first two years (from the date Kaltura Israel earned taxable income). If a dividend is distributed out of tax exempt income earned by a Benefited Enterprise the amount distributed will be subject to corporate tax at the rate that would have otherwise been applicable on the Benefited Enterprise income. Dividends paid out of income attributed to a Beneficiary Enterprise are generally subject to withholding tax at source at the rate of 15% or such lower rate as may be provided in an applicable tax treaty. As of December 31, 2022, approximately $536 was derived from tax exempt profits earned by Kaltura Israel's "Beneficiary Enterprise." The Company and its Board of Directors have determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax-exempt income earned by Kaltura Israel. Accordingly, no provision for deferred income taxes has been provided on income attributable to Kaltura Israel's "Beneficiary Enterprise" as such income is essentially permanently reinvested. If Kaltura Israel's retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate as if it had not elected the alternative tax benefits under the Investment Law and an income tax liability of up to $134 would be incurred as of December 31, 2022. In 2011, new legislation amending the Investment Law was adopted. Under this new legislation, a unified corporate tax rate applied to all qualifying income generated by a "Preferred Company" through its Preferred Enterprise (as such terms are defined in the Investment Law) as of January 1, 2011. Industrial Companies under the Preferred Enterprise status according to the new law as amended in July 2013, and starting January 1, 2014 are entitled to a uniform reduced corporate tax rate of 9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The 2011 Amendment also provided transitional provisions to address companies already enjoying current benefits under the Investment Law. Under the transition provisions, the Company decided to irrevocably implement the new law, effective January 1, 2015. Dividends distributed from income which is attributed to a “Preferred Enterprise” will be subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty. Kaltura Israel's income from other sources is subject to tax at the regular Corporate Income rate. The Company indefinitely reinvests earnings from its foreign subsidiaries and therefore no deferred tax liability has been recognized on the basis difference created by such earnings. The Company has not provided foreign withholding taxes for any undistributed earnings of its foreign subsidiaries. Generally, in U.S. federal and state taxing jurisdictions, tax periods in which certain loss and credit carryovers are generated remain open for audit until such time as the limitation period ends for the year in which such losses or credits are utilized. Kaltura Israel received final tax assessments through 2016 while the rest of the Company's subsidiaries did not have any final tax assessments as of December 31, 2022. A reconciliation of the opening and closing amounts of total unrecognized tax benefits is as follows:
|  | Unrecognized Tax Benefits
Balance as of January 1, 2020 |  | $ | 2,665 |
Increases related to prior years' tax positions |  | 311 |
Increases related to current years' tax positions |  | 887 |
Balance as of December 31, 2020 |  | $ | 3,863 |
Decreases related to prior years' tax positions |  | (107) |
Increases related to current years' tax positions |  | 738 |
Balance as of December 31, 2021 |  | 4,494 |
Decreases related to prior years' tax positions |  | (313) |
Increases related to current years' tax positions |  | 1,145 |
Balance as of December 31, 2022 |  | $ | 5,326 |
The total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, was $5,326 and $4,494 as of December 31, 2022 and 2021. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022 and 2021, the Company had accrued $467 and $313 for the payment of interest and penalties relating to unrecognized tax benefits, respectively. In addition, the Company is subject to the continuous examination of its income tax returns by the IRS and other tax authorities. The Company’s federal and state income tax returns for years subsequent to 2007 remain open to examination. In the Company’s foreign jurisdictions – Israel and the United Kingdom – the tax years subsequent to 2016 remain open to examination. The Company is currently under audit in Israel. 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 currently 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 is difficult to estimate.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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