XML 64 R17.htm IDEA: XBRL DOCUMENT

Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2013

10. Income taxes:

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% to income before provision for income taxes as a result of the following:

	Year ended December 31, 2013			Year ended December 31, 2012			Year ended December 31, 2011
Income for the year before provision for income taxes	$	5,799,803		$	6,428,298		$	3,450,610
Computed expected tax expense	$	1,971,933		$	2,185,621		$	1,173,207
Increase (reduction) in income tax expense resulting from:
State income taxes		14,500			16,071			8,627
Permanent differences, including foreign exchange		13,700			21,728			13,700
Investment tax credits recovered		(115,455	)		(106,941	)		(41,833	)
Other, including alternative minimum tax and adjustments to opening deferred tax assets		(265,339	)		(112,323	)		(218,252	)
Change in beginning of the year balance of the valuation allowance allocated to income tax expense		—			—			(3,655,070	)
Provision for (recovery of) income taxes	$	1,619,339		$	2,004,156		$	(2,719,621	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2013 and 2012 are presented below:

	December 31, 2013			December 31, 2012
Deferred tax assets:
Deferred revenue	$	5,300,868		$	5,429,220
Losses		290,714			—
Foreign tax credit		1,914,090			—
Amortization		69,169			541,242
Accruals, including foreign exchange and other		(1,123,278	)		—
Total gross deferred tax assets		6,451,563			5,970,462
Less valuation allowance		—			—
Net deferred tax assets	$	6,451,563		$	5,970,462
Deferred income tax asset, current portion		1,081,526			—
Deferred income tax asset, long-term portion		5,370,037			5,970,462
	$	6,451,563		$	5,970,462
Deferred tax liabilities:
Accruals, including foreign exchange and other	$	—		$	(914,429	)
Limited life intangible assets		(301,500	)		(394,100	)
Indefinite life intangible assets		(4,840,000	)		(4,840,000	)
Total deferred tax liabilities		(5,141,500	)		(6,148,529	)
Less deferred tax liability, current portion		—			(914,429	)
Deferred tax liability, long-term portion	$	(5,141,500	)	$	(5,234,100	)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment. During the fourth quarter of 2011 management released its remaining valuation allowance of $3.6 million.

The Company had approximately $0.1 million of total gross unrecognized tax benefit as of December 31, 2013 and $0.4 million of total gross unrecognized tax benefit as of December 31, 2012, which if recognized would favorably affect its income tax rate in future periods. The unrecognized tax benefit relates primarily to prior year Pennsylvania state franchise taxes and other insignificant U.S. state taxes.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense. The Company did not have any significant interest and penalties accrued as of December 31, 2012 and December 31, 2013.

Tucows believes that it is reasonably possible that $0.1 million of the unrecognized tax benefit will decrease in the next twelve months as it is anticipated that the foreign tax authorities will finalize their review of prior years’ taxes owing in Pennsylvania within that period.

The following is a reconciliation of Tucows’ change in uncertain tax position under ASC 740, “Income Taxes”:

	Total Gross Unrecognized Tax Benefits
Balance as at December 31, 2012	$	382,000
Decrease in uncertain tax benefits of prior years		(265,000	)
Balance as at December 31, 2013	$	117,000

- 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+ Details