|12 Months Ended|
Dec. 31, 2020
|Income Tax Disclosure [Abstract]|
The Company’s earnings (loss) before income tax expense consists of the following:
The provision for income tax consists of the following:
Income taxes differ from the statutory tax rates as applied to earnings before income taxes as follows:
The Company’s provision for income tax expense (benefit) and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign earnings (loss) before income taxes. In the non-U.S. jurisdictions in which the Company has operations, the applicable statutory rates are generally lower than in the U.S., ranging from 0.0% to 34.0%. The Company’s provision for income tax expense (benefit) was calculated using the applicable rate for each jurisdiction applied to the Company’s pre-tax earnings (loss) with application of transfer pricing considerations in each jurisdiction, while the Company’s effective tax rate is calculated by dividing income tax expense (benefit) by earnings before income taxes. For 2020, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 25%, primarily because of earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no corporate income tax. Additionally, the 2020 effective tax rate reflects the favorable impact of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on March 27, 2020. Due to changes in the ownership structure of the Company’s international operations that took effect in December 2020, the Company realized a $15.9 million tax benefit related to the net operating loss carryback provisions of the CARES Act. The Company also received a $4.8 million reduction in payroll taxes as a result of the Employee Retention Credit provisions of the CARES Act.
The Company is subject to a tax on global intangible low-taxed income (“GILTI”). GILTI taxes foreign income in excess of a deemed return on tangible assets of foreign corporations and is treated as a period cost.
The tax effects of temporary differences giving rise to deferred tax assets and liabilities are presented below:
At December 31, 2020, combined foreign net operating loss carry-forwards were approximately $109.5 million, of which $0.1 million expire in 2021 and $27.4 million can be carried forward indefinitely. A valuation allowance of $26.5 million is recorded for the amount which is not likely to be fully utilized. The $10.5 million increase in the valuation allowance primarily relates to increases in deferred tax assets in certain foreign non-benefited loss jurisdictions.
State tax credit and net operating loss carry-forwards at December 31, 2020 were $10.8 million and $53.4 million. These tax credit and net operating loss carry-forward amounts begin to expire in 2024 and 2026. No valuation allowance has been recorded, as the Company believes they will be fully utilized.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Current unrecognized tax benefits are recorded as a reduction in prepaid expense and included in tax expense when recorded. Long-term unrecognized tax benefits are recorded as an increase in long-term taxes payable with a portion included in tax expense and a portion recorded as a reduction in deferred tax liabilities when recorded. If recognized, $17.9 million of unrecognized tax benefits would be recorded as a reduction in income tax expense, and $3.6 million would be recorded as an increase in deferred tax liabilities.
The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to its assessment of relevant risks, facts, and circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are resolved, which may impact the Company’s effective tax rate.
The Company estimates interest and penalties related to income tax matters which are included in income tax expense. Amounts were $0.3 million, $0.4 million, and $0.2 million for the years ended December 31, 2020, 2019, and 2018. Accrued interest and penalties were $2.4 million and $2.1 million as of December 31, 2020 and 2019.
As of December 31, 2020, the Company’s tax filings are generally subject to examination in the U.S. and most foreign jurisdictions for years ending on or after December 31, 2016, and in several Asian and European tax jurisdictions for years ending on or after December 31, 2010. During the year, the Company reduced the balance of unrecognized tax benefits by $1.6 million as a result of expiring statutes and there was no reduction in the balance of unrecognized tax benefits from the settlement of domestic and foreign audits. It is reasonably possible that certain domestic and foreign statutes will expire, and certain domestic and foreign audits will be settled during the next twelve months which would reduce the balance of 2020 and prior year unrecognized tax benefits by $1.3 million and $2.6 million.
The Company’s cash and cash equivalents held in the U.S. and cash provided from operations are sufficient to meet the Company’s liquidity needs in the U.S. for the next twelve months. However, the Company may repatriate certain funds held outside the U.S. for which all applicable U.S. and non-U.S. tax has been fully provided as of December 31, 2020. The Company has provided for the tax impact of expected distributions from its joint venture in China as well as from its subsidiary in Chile to its intermediate parent company in Switzerland. Otherwise, because of the need for cash for operating capital and continued overseas expansion, the Company does not foresee the need for any of its other foreign subsidiaries to distribute funds up to an intermediate foreign parent company in any form of taxable dividend. Under current applicable tax laws, if the Company chooses to repatriate some or all of the funds the Company has designated as indefinitely reinvested outside the U.S., the amount repatriated would not be subject to federal income tax but may be subject to applicable non-U.S. income and withholding taxes, and to certain state income taxes. In addition to certain tax restrictions, our joint venture in China has limitations on its distribution of earnings, as local law currently requires it to maintain $18.8 million of its earnings in a statutory reserve.
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.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef