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Note 9 - Income Taxes
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

9. Income Taxes:

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 21% for the years ended  December 31, 2022,  December 31, 2021 and  December 31, 2020, to income before provision for income taxes as a result of the following (Dollar amounts in thousands of U.S. dollars): 

 

  

Year ended December 31,

 
  

2022

  

2021

  

2020

 
             

Income (loss) for the year before provision for income taxes

 $(27,788) $7,270  $10,760 

Computed federal tax expense

  (5,836)  1,527   2,259 
             

Increase (decrease) in income tax expense resulting from:

            

State income taxes

  845   314   303 

Foreign earnings

  386   382   (175)

Changes in valuation allowance

  4,023   2,300   1,867 

Expired business tax credits

  -   -   1,044 

Shortfall (excess) tax benefits on share-based compensation

  138   (1,556)  (407)

Permanent differences

  (112)  205   (161)

Others

  339   734   255 

Provision (recovery) for income taxes

 $(217) $3,906  $4,985 

 

Our effective tax rate is mainly driven by changes in valuation allowance on foreign tax credits that we are not expected to realize in future years

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2022, and  December 31, 2021 are presented below (Dollar amounts in thousands of U.S. dollars):

 

  

December 31, 2022

  

December 31, 2021

 

Deferred tax assets:

        

Foreign tax credits

 $17,554  $13,531 

Deferred revenue

  5,349   5,694 

Net operating losses

  2,468   537 

Interest limitation

  1,047   - 

Amortization

  379   - 

Accruals, including foreign exchange and other

  3,909   2,991 

Total deferred tax assets

  30,706   22,753 

Valuation allowance

  (17,554)  (13,531)

Total deferred tax assets

 $13,152  $9,222 

Deferred tax liabilities:

        

Prepaid registry fees and expenses

 $(17,941) $(18,165)

Investment in partnership

  (6,727)   

Amortization

  -   (6,578)
Indefinite life intangible assets  (2,968)  (3,229)

Limited life intangible assets

  (629)  (2,969)

Foreign branch deferred tax liabilities

  (607)  (828)

Total deferred tax liability

 $(28,872) $(31,769)
         

Net deferred tax assets (liabilities)

 $(15,720) $(22,547)

 

The enactment of the Tax Cuts and Jobs Act since 2017 in combination of the change in the geographical mix of income have a material impact on our ability to utilize the foreign tax credits, and we have determined that it is not more likely than not that we will ultimately be able to fully utilize the existing foreign taxes paid as foreign tax credits in future years. Therefore, a full valuation allowance is recorded against the deferred tax assets on foreign tax credits. Should our operating results continue to improve and projections to show utilization of the foreign tax credits, we would take the positive evidence into consideration and reassess our valuation allowance position.

 

We believe it is more likely than not that our remaining deferred tax assets, net of the valuation allowance, will be realized based on current income tax laws, and expectations of future taxable income stemming from forecasted profits from ongoing operations and from the reversal of existing deferred tax liabilities.

 

The Company had nil total gross unrecognized tax benefits as of both December 31, 2022 and December 31, 2021.

 

The Company recognizes interest and penalties related to income tax matters within the provision for income taxes. No material interest and penalties were recognized as of December 31, 2022 and December 31, 2021.