Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12. INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2022 and 2021 from continuing operations is as follows:

	Year Ended December 31, 2022		Year Ended December 31, 2021
Tax expense		4,087		6,934

The domestic and foreign source component of income (loss) from continuing operations before income taxes was:

	Year Ended December 31, 2022			Year Ended December 31, 2021
U.S.		(20,984	)		(13,140	)
Foreign		24,786			18,981
Total		3,802			5,841

Significant components of the provision for income taxes from continuing operations were:

	Year Ended December 31, 2022			Year Ended December 31, 2021
Current
Federal		1,594			58
State		60			272
Foreign		5,640			6,466
Total current (benefit) expense		7,294			6,796
Deferred
Federal		18			(1	)
State		10			10
Foreign		(3,235	)		129
Total deferred (benefit) expense		(3,207	)		138
Total income tax expense		4,087			6,934

Significant components of deferred tax assets and deferred tax liabilities included in the accompanying consolidated balance sheets are as follows:

	As of December 31, 2022			As of December 31, 2021
Deferred tax assets
Unabsorbed losses and depreciation carried forward		21,422			23,633
Property, plant and equipment, net		217			-
Provision for employee benefit		2,509			1,886
Provision for expenses and others		5,829			4,395
Provision for doubtful debts		748			843
Other temporary differences		3,863			2,912
Total deferred tax assets		34,588			33,669
Valuation allowance		(25,676	)		(26,835	)
Total deferred tax assets, net of valuation allowance		8,912			6,834
Deferred tax liabilities
Property, plant and equipment, net		2,311			2,332
Identifiable intangibles		14,298			15,723
Other temporary differences		1,946			1,854
Prepaid expenses		458			102
On retained earnings		2,636			2,572
Total deferred tax liabilities		21,649			22,583
Net of deferred tax assets and liabilities		(12,737	)		(15,749	)

We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis on our investments in foreign subsidiaries that are essentially permanent in duration or not subject to taxation in the U.S. or in the local country. Within consolidated retained earnings at December 31, 2022 are undistributed after-tax earnings from certain non-U.S. subsidiaries that are not indefinitely reinvested. The Company has a deferred tax liability of $2,636 and $2,572 for the estimated taxes associated with the repatriation of these earning for the year ended December 31, 2022 and 2021, respectively. Generally, the earnings of our foreign subsidiaries become subject to U.S. taxation based on certain provisions in U.S. tax law such as the Global intangible low taxable income and under certain other circumstances.

Differences between U.S. federal statutory income tax rates and our effective tax rates for the year ended December 31, 2022 and December 31, 2021 are as follows:

	Year Ended December 31, 2022			Year Ended December 31, 2021
Statutory tax rate		21	%		21	%
Effect of state taxes (net of federal benefit)		-104	%		-22	%
Rate differential on foreign earnings		34	%		14	%
Valuation allowance		6	%		-93	%
Carryover attributes		-20	%		84	%
Disallowances for income tax purposes		79	%		1	%
Global intangible low taxable income		192	%		60	%
Undistributed earnings		3	%		2	%
Foreign Withholding tax		13	%		43	%
Currency translation adjustment		-4	%		3	%
Uncertain tax position		2	%		-
Exempt Income		-112	%		-
Others, net		-3	%		5	%
Total		107	%		118	%

We operate in multiple tax jurisdictions including Australia, Malaysia, India, South Africa, UK, Netherlands, Sri Lanka, Peru, Mauritius, Singapore, Philippines, Honduras, Jamaica, Canada and US. As a result, our effective tax rate changes from year to year based on recurring factors such as the geographical mix of income before taxes, state and local taxes, the ratio of permanent items to pre-tax book income and the implementation of various global tax strategies, as well as non-recurring events.  The Company recorded income tax expense/(benefit) of $4,087 and $6,934  for the year ended December 31, 2022 and 2021, respectively.

The movement in effective tax rate was primarily as a result of:

(i) Increase in state tax losses and corresponding generation of DTA and subsequent creation of VA
(ii) GILTI tax on capital gain arising on account of redemption of interest in partnership 

(iii) Impairment of goodwill
(iv) Reduction in foreign tax credit write off amount as compared to previous year

We had U.S. gross federal net operating losses carry forwards of approximately $39.22 million and $47.80 million as at December 31, 2022 and as at December 31, 2021 respectively, and gross state net operating loss carry forwards of approximately $120.40 million and $28.74 million as at December 31, 2022 and as at December 31, 2021 respectively, which may be available to offset federal and state income tax liabilities, respectively, in the future. The federal net operating loss carryforwards generated in 2017 and before, if not utilized, will expire beginning in 2028. Federal NOL generated in 2018 and after will not expire. The State net operating losses will expire based on each state income tax laws. We had gross Non-US net operating losses carryforward of approximately $25.23 million as at December 31, 2022 and $36.04 million as at December 31, 2021. Net operating losses of Sri Lanka and Mauritius aggregating to $1.11 Million will expire through 2026 and the remaining NOL have no expiration. In general, under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre‑change NOLs to offset future taxable income.

We have been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of Honduras, Jamaica, and certain qualifying locations in the Philippines. Generally, a Tax Holiday is an agreement between us and a foreign government under which we receive certain tax benefits in that country. In Honduras, we have been granted approval for an indefinite exemption from income taxes. The tax holidays for our qualifying Philippines facilities expire at staggered dates through 2031. Our Tax Holidays could be eliminated if there are future changes in our operations or the governmental authorities approve legislation to modify the Tax Holidays in the various taxing jurisdictions. The aggregate reduction in income tax expense was $0.86 million and $0.74 million for the year ended December 31, 2022 and 2021 respectively.

Under accounting standards for uncertainty in income taxes (ASC 740-10), a company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” in the accounting standards for income taxes refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

The following table indicates the changes to our unrecognized tax benefits for the year ended December 31, 2022 and December 31, 2021. The term “unrecognized tax benefits” in the accounting standards for income taxes refers to the differences between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the financial statements. If recognized, all of these benefits would impact our income tax expense, before consideration of any related valuation allowance.

	Year Ended December 31, 2022		Year Ended December 31, 2021
Unrecognized, beginning		78		78
Additions due to acquisition		-		-
Additions based on tax positions taken in the period		80		-
Reductions based on tax positions taken in the period		-		-
Unrecognized, ending		158		78