Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.22.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income (loss) before taxes on income is comprised as follows:
Year ended December 31,
2022

2021 2020
Domestic $ (7,910) $ (11,098) $ 1,241 
Foreign (8,483) 863  (853)
Total income (loss) before income taxes
$ (16,393) $ (10,235) $ 388 
Income taxes are comprised as follows:
Year ended December 31,
2022

2021 2020
Current income tax provision (benefit):    
Domestic $ 1,048  $ (8) $ 96 
Foreign 2,129  1,245  1,104 
Total current income tax (benefit) provision
$ 3,177  $ 1,237  $ 1,200 
Year ended December 31,
2022

2021 2020
Deferred income tax provision (benefit):    
Domestic $ —  $ —  $ — 
Foreign (1,160) —  — 
Total deferred income tax (benefit) provision
$ (1,160) $ —  $ — 
Total income tax (benefit) provision $ 2,017  $ 1,237  $ 1,200 
A reconciliation of the U. S. statutory income tax rate to the Company’s effective income tax rate for continuing operations is as follows:
Year ended December 31,
  2022 2021 2020
Total income (loss) before income taxes
$ (16,393) $ (10,235) $ 388 
US statutory rate 21  % 21  % 21  %
Income taxed computed at U. S. federal statutory rate $ (3,443) $ (2,149) $ 81 
Foreign rate differential 101  (14) (155)
State and local income taxes, net (239) (359) 207 
Other non-deductible items 546  (37) 140 
GILTI 2,892  308  — 
Change in valuation allowance 2,305  1,493  159 
Tax credits (474) (338) (469)
Changes in uncertain tax positions 1,202  881  956 
Transaction costs 1,427  578  — 
Warrants - MTM (3,081) 160  (5)
Other 781  714  286 
Total income tax provision
$ 2,017  $ 1,237  $ 1,200 
Effective income tax rate
(12.3) % (12.1) % 309.0  %
The Company’s effective tax rate is subject to significant variations due to several factors, including variability in pre-tax and taxable income (loss) and the mix of jurisdictions to which they relate, intercompany transactions, mergers and acquisitions, the applicability of special tax regimes, changes in the Company’s currently established valuation allowance, foreign currency gains (losses), and other laws and accounting rules in various jurisdictions.
Significant factors that impacted the Company’s effective tax rate between 2022 and 2021 were related to the acquisition of TVS, GILTI, uncertain tax positions, and increase in valuation allowance.
The Company’s effective tax rate between 2021 and 2020 was primarily reflects a pre-tax loss in 2021 compared to pre-tax income in 2020, offset by increases in non-deductible expenses, GILTI, uncertain tax positions and increase in valuation allowance.
Deferred income taxes are provided for the effects of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Significant components of deferred tax assets and deferred tax liabilities consisted of the following:
  December 31,
  2022 2021
Deferred tax assets    
Loss carryforwards $ 11,093  $ 10,201 
Tax credits 1,271  1,128 
Interest limitation carryforwards —  25 
R&D capitalization costs 7,497  — 
Accrued expenses 1,157  597 
Share-based compensation 4,398  127 
Fixed assets 147  180 
Lease liabilities 700  — 
Other 28  187 
Total deferred tax assets, gross
26,291  12,445 
Valuation allowance (18,697) (12,445)
Total deferred tax assets, net
$ 7,594  $ — 
Deferred tax liabilities
Intangibles $ (7,239) $ — 
Right-of-use asset (654) — 
Other (190) — 
Total deferred tax liability, net
$ (8,083) $ — 
Total deferred tax asset (liability) $ (489) $ — 
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset its deferred tax assets, excluding the newly acquired TVS UK which is in a net deferred tax liability position due primarily to acquisition accounting, at December 31, 2022 and 2021 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.
The Israeli corporate tax rate was 23% in 2022, 2021 and 2020. The Company’s production facilities in Israel have been granted the status of a “preferred enterprise” under the Law for the Encouragement of Capital Investments Law, 1959. According to the provisions of the Encouragement of Capital Investments Law, 1959, the Company has been granted a reduced tax rate for certain research and development activities the Company performs in Israel. A preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9%. The tax rate applicable to preferred enterprises located in other areas remains at 16%.
Foreign withholding taxes and Internal Revenue Code Section 986(c) gains and losses have not been recorded on permanently reinvested earnings of certain subsidiaries aggregating $12,888 and $8,720 as of December 31, 2022 and 2021, respectively. The amount of deferred international withholding taxes and Internal Revenue Code Section 986(c) gains and losses relating to these subsidiaries is approximately $1,237 and $1,224 as of December 31, 2022 and 2021, respectively.
The Company’s gross NOLs for tax return purposes are as follows:
 
Year ended December 31,
  2022 2021
Domestic NOLs (federal) $ 11,881  $ 36,817 
Domestic NOLs (state and local) 10,992  36,245 
Foreign NOLs 30,804  1,136 
Total
$ 53,677  $ 74,198 
Domestic (federal and state) NOLs expire in various year starting from 2030 through an indefinite period. Foreign NOLs expire starting from 2026 (Argentina) through an indefinite period (Germany, UK). A portion of domestic (federal and state) NOLs are subject to Internal Revenue Code Section 382 or similar provisions, but the net operating loss carryforwards are expected to be fully realized. The table above reflects gross NOLs for tax return purposes which are different than financial statement NOLs, as the Company’s intention is to settle additional income taxes from tax contingencies with NOLs. The other tax credit carryforwards expire in various years beginning in 2033. The Company’s intention is to settle the tax contingencies associated with the research and development credits with the attribute.
The Company’s unrecognized tax benefits are reconciled as follows:
December 31,
2022 2021 2020
Gross unrecognized tax benefits as of January 1
$ 3,162  $ 2,373  $ 1,438 
Increases - prior year tax positions 60  508  — 
Decreases - prior year tax positions (231) (410) — 
Increases - current year tax positions 2,562  691  935 
Position expiration (97) —  — 
Gross unrecognized tax benefits as of December 31
$ 5,456  $ 3,162  $ 2,373 
The balances of unrecognized tax benefits of $5,456 and $3,162 as of December 31, 2022 and 2021, respectively, represent amounts that, if recognized, would impact the effective income tax rate in future periods, of which $1,495 relates to the Company’s acquisition of TVS.
The Company recognized interest and penalties related to unrecognized tax benefits in its income tax provision. The Company accrued $471 and $136 for interest and penalties as of December 31, 2022 and 2021, respectively.
The Company is subject to income taxes in the US and several foreign jurisdictions including Australia, Argentina, Germany, the UK and Israel. Significant judgment is required in evaluating the Company’s tax positions and determining the Company’s provision for income taxes. During the ordinary course of business there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite the belief that the Company’s tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
The Company’s Israeli Subsidiary is currently under examination by the taxing authorities for 2017 to 2019 tax periods. The last tax assessment that was received by the Company related to tax years through 2014 in Israel.