22—INCOME

TAXES

Income / (Loss) before income taxes

Income / (loss) before income taxes is comprised of the following:

	2018			2017			2016
France		1,687			1,003			4,936
Other countries		(1,667	)		(1,296	)		(492	)
Total		20			(293	)		4,444

Income tax (expense)/ benefit

Income tax (expense)/benefit consists of the following:

	2018			2017			2016
Current income tax expense:
France		(163	)		(161	)		(323	)
Other countries		(351	)		(373	)		(249	)
Sub-total current income tax expense		(515	)		(534	)		(572	)
Deferred income tax (expense) benefit:
France		2			(15	)		(2	)
Other countries		155			161			(30	)
Sub-total deferred income tax (expense) benefit		157			146			(32	)
Total		(358	)		(388	)		(602	)

Deferred income taxes:

Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities reported for financial reporting purposes and such amounts as measured in accordance with tax laws. The tax effects of temporary differences which give rise to significant deferred tax assets (liabilities) are as follows by nature:

	December 31,
	2018			2017
Net operating loss carry forwards		13,675			13,218
Elimination of intercompany profit in inventory		187			167
Elimination of intercompany profit in fixed assets		343			265
Provisions for retirement indemnities		488			566
Capital leases treated as operating leases for tax		10			(3	)
Other items		174			216
Total deferred tax assets		14,877			14,431
Total deferred tax liabilities		–			–
Net deferred tax assets		14,877			14,431
Valuation allowance for deferred tax assets		(14,553	)		(14,266	)
Deferred tax assets (liabilities), net of allowance		324			165

Net operating loss carryforwards available amounts to

€57,595

thousand as of

December 31, 2018,

of which

€32,535

thousand at EDAP TMS SA,

€21,229

thousand at Edap Technomed Inc.,

€2,342

thousand at Edap Technomed Co Ltd Japan,

€1,489

thousand at EDAP Technomed Italia S.R.L. These net operating losses generate deferred tax assets of

€13,675

thousand as at

December 31, 2018.

Realization of these assets is contingent on future taxable earnings in the applicable tax jurisdictions. As of

December 31, 2018,

€55,253

thousand out of these

€57,595

thousand net operating loss carry-forwards have

expiration date but the amount of the net operating loss carry-forward used each year is limited. The remaining tax loss carry-forwards expire from years

2019

through

2029.

In accordance with ASC

740,

a valuation allowance is established if, based on the weight of available evidence, it is more-likely-than-

not

that some portion or all of the deferred tax asset will

not

be realized.

The

2017

U.S. Tax Act was enacted on

December 22, 2017.

The

2017

U.S. Tax Act includes a number of changes in existing tax law which impacted our business in the U.S. Starting with tax year

2018,

the U.S. corporate tax rates changed from a graduated system ranging from

15%

39%

to a flat

21%

of taxable net income. For taxable net income of

$100K

and greater for years

2018

and following, EDAP’s U.S. subsidiary would pay significantly lower taxes than with the previous tax law.

Starting from tax year

2018,

the French corporate tax rates of taxable net income will gradually decrease from

33.33%

25%

2022.

Effective tax income (expense)

A reconciliation of differences between the statutory French income tax rate and the Company’s effective tax income (loss) is as follows:

	2018			2017			2016
Effective income / (loss) tax at French statutory tax rate		(6	)		98			(1,480	)
Income of foreign subsidiaries taxed at different tax rates		(124	)		64			109
Effect of net operating loss carry-forwards and valuation allowances		(210	)		(1,530	)		115
Non-taxable debt fair value variation		235			1,026			1,207
Permanent differences		(392	)		178			217
Effect of cancellation of intra-group positions		35			144			–
French business tax included in income tax (CVAE)		(161	)		(161	)		(152	)
Other		265			(207	)		(617	)
Effective income (loss) tax		(358	)		(388	)		(602	)

Uncertainty in Income Taxes

According to ASC

740,

the Company reviewed the tax positions of each subsidiary. On

December 31, 2018

the Company believes that there is

significant uncertainty in the Company’s tax positions.

The Company remains subject to examination by major tax jurisdictions.

Interest and penalties on income taxes are classified as a component of the provision for income taxes. There were

interest or penalties in

2016,

2017

and

2018.