Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes [Abstract]

Income Taxes

Note 5 – Income Taxes

Changes in Tax Laws and Regulations

Israel

Effective November 15, 2021, Israel enacted changes in its tax laws.

The Company has historically benefited from tax incentive programs offered by the Israeli government, including the generation of income not subject to current income tax.  Any tax-exempt earnings generated under these programs would incur an additional “claw-back” tax at approximately 11.1% if they were distributed or invested outside of Israel, in addition to normal withholding taxes on earnings distributed from Israel.  Otherwise, taxes on such earnings were indefinitely deferred.

The change in tax law enacted on November 15, 2021 provided companies with an election to currently pay a reduced claw-back rate of as low as 6% upon meeting certain conditions, with the ability to distribute or invest those amounts outside of Israel at any time in the future.  The Company will elect to pay taxes on all previously untaxed earnings at the reduced 6% claw-back rate.

As a direct result of this change in tax law, the Company made the determination during the fourth fiscal quarter of 2021 that  substantially all unremitted foreign earnings in Israel are no longer permanently reinvested.  The Company recorded additional tax expense of $53,316 during the fourth fiscal quarter of 2021 to accrue the claw-back tax on applicable earnings and withholding taxes necessary to distribute these approximately $385,000 of accumulated earnings to the United States.   

United States

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted in the United States.

Under previous law, companies could indefinitely defer U.S. income taxation on unremitted foreign earnings. The TCJA imposed a one-time transition tax on deferred foreign earnings, payable in defined increments over eight years.  Installments of $14,757 were paid in each of 2021, 2020, 2019, and 2018.

The Company expects future installment payments as follows:

2022	$	14,757
2023		27,669
2024		36,893
2025		46,119

The U.S. Internal Revenue Service continues to issue regulations to address the provisions of the TCJA.  During 2021, the Company amended tax returns for 2018 and 2019 and recognized tax benefits of $8,276 as a result of changes in tax regulations, by making an election regarding Global Intangible Low-Taxed Income (“GILTI”).  The Company has elected to account for GILTI tax in the period in which it is incurred and, therefore, does not provide any deferred taxes in the consolidated financial statements at December 31, 2021, 2020, or 2019.

The Company repatriated $104,091 and $188,742 to the United States in 2020 and 2019, pursuant to a repatriation program initiated in response to the enactment of the TCJA.  Tax expense for these repatriation transactions was substantially recorded in 2017 upon enactment of the TCJA.

There are amounts of unremitted foreign earnings in countries other than Israel, which continue to be reinvested indefinitely, and the Company has made no provision for incremental foreign income taxes and withholding taxes payable to foreign jurisdictions related to these amounts. Determination of the amount of the unrecognized deferred foreign tax liability for these amounts is not practicable because of the complexities associated with its hypothetical calculation.

Income (loss) before taxes consists of the following components:

	Years ended December 31,
	2021		2020			2019
Domestic	$	62,921	$	(25,884	)	$	(10,992	)
Foreign		371,689		184,212			237,290
	$	434,610	$	158,328		$	226,298

Significant components of income taxes are as follows:

	Years ended December 31,
	2021		2020			2019
Current:
Federal	$	2,336	$	7,327		$	9,137
State and local		466		218			415
Foreign		82,258		55,399			113,779
		85,060		62,944			123,331
Deferred:
Federal		554		(6,068	)		(13,731	)
State and local		383		(538	)		(802	)
Foreign		49,676		(21,793	)		(47,290	)
		50,613		(28,399	)		(61,823	)
Total income tax expense	$	135,673	$	34,545		$	61,508

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 31,
	2021			2020
Deferred tax assets:
Pension and other retiree obligations	$	50,069		$	53,585
Inventories		17,168			19,539
Net operating loss carryforwards		115,200			124,251
Tax credit carryforwards		76,213			85,651
Other accruals and reserves		29,332			31,347
Total gross deferred tax assets		287,982			314,373
Less valuation allowance		(186,204	)		(206,950	)
		101,778			107,423
Deferred tax liabilities:
Property and equipment		(1,514	)		(1,604	)
Tax deductible goodwill		(5,412	)		(4,708	)
Earnings not permanently reinvested		(67,172	)		-
Convertible debentures		-			(12,777	)
Other - net		(1,646	)		(1,656	)
Total gross deferred tax liabilities		(75,744	)		(20,745	)
Net deferred tax assets (liabilities)	$	26,034		$	86,678

The Company makes significant judgments regarding the realizability of its deferred tax assets (principally net operating losses and tax credits). The carrying value of deferred tax assets is based on the Company’s assessment that it is more likely than not that the Company will realize these assets after consideration of all available positive and negative evidence.  As of December 31, 2021, the Company has generated an excess U.S. foreign tax credit of $58,673.  Because the Company does not anticipate sufficient U.S. foreign source income during the carryforward period, the Company has not recognized the benefit of the carryforward as of December 31, 2021.

A reconciliation of income tax expense at the U.S. federal statutory income tax rate to actual income tax provision is as follows:

	Years ended December 31,
	2021			2020			2019
Tax at statutory rate	$	91,268		$	33,249		$	47,523
State income taxes, net of U.S. federal tax benefit		671			(252	)		(301	)
Effect of foreign operations		5,521			(9,896	)		9,242
Tax on earnings not permanently reinvested		54,648			4,227			6,256
Unrecognized tax benefits		1,318			4,351			5,584
Change in valuation allowance on non-U.S. deferred tax assets		(5,714	)		-			-
Foreign income taxable in the U.S.		9,532			7,675			10,691
Foreign tax credit		(9,477	)		(3,520	)		(4,601	)
Foreign tax credit carryforward utilized		(9,207	)		-			-
U.S. Base Erosion Anti-Abuse Tax		9,134			750			2,851
Change in U.S. tax regulations		(8,276	)		-			-
Deferred tax rate impact of corporate reorganization		-			-			(12,121	)
Other		(3,745	)		(2,039	)		(3,616	)
Total income tax expense	$	135,673		$	34,545		$	61,508

Vishay operates in a global environment with significant operations in various locations outside the United States.  Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate.  Part of Vishay's historical strategy has been to achieve cost savings through the transfer and expansion of manufacturing operations to countries where it can take advantage of lower labor costs and available tax and other government-sponsored incentives.  With the reduction in the U.S. statutory rate to 21% beginning January 1, 2018, Vishay expects that its effective tax rate will be higher than the U.S. statutory rate, excluding unusual transactions.  Historically, the effective tax rates were generally less than the U.S. statutory rate of 35% primarily because of earnings in foreign jurisdictions.

Income tax expense for the years ended December 31, 2021, 2020, and 2019 includes certain discrete tax items for changes in uncertain tax positions, valuation allowances, tax rates, and other related items. These items total $39,326, $1,998, and $799 (tax benefit) in 2021, 2020, and 2019, respectively.

For the year ended December 31, 2021, the discrete items include $53,316 of tax expense recognized to accrue the claw-back and withholding taxes to repatriate unremitted foreign earnings from Israel, a $5,714 tax benefit recognized upon the release of a valuation allowance and $8,276 of tax benefits recognized due to changes in tax regulations.

For the year ended December 31, 2020, the discrete items include a tax benefit of $1,563 resulting from the early extinguishment of convertible senior debentures, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures and $190 (tax benefit) of adjustments to remeasure deferred taxes related to the cash repatriation program described above, and $3,751 of tax expense for changes in uncertain tax positions.

For the year ended December 31, 2019, the discrete items include $7,554 of tax expense related to a tax-basis foreign exchange gain on the settlement of an intercompany loan, which previously had been accounted for at the historical foreign exchange rate (akin to an equity contribution) because the debtor entity did not have the intent or ability to repay such intercompany loan.   Currency translation adjustments were recorded in accumulated other comprehensive income, and were not included in U.S. GAAP pre-tax income.  The Company’s cash repatriation activity resulted in the ability to repay such intercompany loan.  Upon settlement of this intercompany loan, the foreign entity realized a taxable gain.  Discrete tax items also include a tax benefit of $1,601 resulting from the early extinguishment of convertible senior debentures, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures, $9,583 (tax benefit) of adjustments to remeasure of deferred taxes related to the cash repatriation program described above, and $2,831 of tax expense for changes in uncertain tax positions.

At December 31, 2021, the Company had the following significant net operating loss carryforwards for tax purposes:

			Expires
Austria	$	13,211	No expiration
Belgium		159,563	No expiration
Israel		10,368	No expiration
Italy		12,638	No expiration
Japan		7,476		2023 - 2030
Netherlands		10,552	No expiration
The Republic of China (Taiwan)		16,750		2026 - 2028
California		19,650		2028 - 2036
Pennsylvania		601,818		2022 - 2041

At December 31, 2021, the Company had the following significant tax credit carryforwards available:

			Expires
U.S. Foreign Tax Credit	$	58,673		2028 - 2031
California Research Credit		17,484	No expiration

Net income taxes paid were $79,106, $69,706, and $185,654 for the years ended December 31, 2021, 2020, and 2019, respectively.  Net income taxes paid for the years ended December 31, 2020 and 2019 include $16,258 and $38,814, respectively, for TCJA repatriation activity and $14,757 in each period for the TCJA transition tax.

The following table summarizes changes in the liabilities associated with unrecognized tax benefits:

	Years ended December 31,
	2021			2020			2019
Balance at beginning of year	$	40,652		$	36,868		$	21,241
Addition based on tax positions related to the current year		141			663			2,383
Addition based on tax positions related to prior years		1,037			8,358			16,190
Currency translation adjustments		(523	)		1,361			1,211
Reduction based on tax positions related to prior years		(13,154	)		(3,152	)		-
Reduction for settlements		(982	)		(3,446	)		(3,121	)
Reduction for lapses of statute of limitation		(452	)		-			(1,036	)
Balance at end of year	$	26,719		$	40,652		$	36,868

All of the unrecognized tax benefits of $26,719 and $40,652, as of December 31, 2021 and 2020, respectively, would reduce the effective tax rate if recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. At December 31, 2021 and 2020, the Company had accrued interest and penalties related to the unrecognized tax benefits of $3,747 and $3,239, respectively. During the years ended December 31, 2021, 2020, and 2019, the Company recognized $591, $128, and $1,201, respectively, in interest and penalties.

The Company and its subsidiaries file U.S. federal income tax returns, as well as tax returns in multiple states and foreign jurisdictions.   The Company's U.S. federal income tax returns are under examination for the years ended December 31, 2017 through 2019.  The IRS may, however, ask for supporting documentation for net operating losses for the years ended December 31, 2013 - 2016, which were utilized in the year ended December 31, 2017.  During the years ended December 31, 2021, 2020, and 2019, certain tax examinations were concluded and certain statutes of limitations lapsed.  The tax provision for those years includes adjustments related to the resolution of these matters, as reflected in the table above.  The tax returns of significant non-U.S. subsidiaries currently under examination are located in the following jurisdictions: Germany (2013 through 2016), India (2004 through 2017), Israel (2018 and 2019), Singapore (2015 through 2019), and the Republic of China (Taiwan) (2019).  The Company and its subsidiaries also file income tax returns in other taxing jurisdictions in the U.S. and around the world, many of which are still open to examination.

The timing of the resolution of income tax examinations is highly uncertain, as are the amounts and timing of tax payments that result from such examinations.  These events could cause large fluctuations in the balance sheet classification of current and non-current unrecognized tax benefits.  The Company believes that in the next 12 months it is reasonably possible that certain income tax examinations will conclude or the statutes of limitation on certain income tax periods open to examination will expire, or both.  Given the uncertainties described above, the Company can only determine an estimate of potential decreases in unrecognized tax benefits ranging from $3,783 to $16,449.