Income Taxes

12 Months Ended

Dec. 31, 2022

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.  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 were no longer indefinitely 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.  The Company repatriated $81,243 to the United States in 2022 pursuant to this repatriation program.  The Company paid withholding taxes, foreign taxes, and Israeli clawback taxes of $25,201 due to the repatriation. 

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 2022, 2021, 2020, 2019, and 2018.

The Company expects future installment payments as follows:

2023	$	27,670
2024		36,893
2025		46,117

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, 2022, 2021, or 2020.

The Company repatriated $104,091 to the United States in 2020 pursuant to the repatriation program initiated in response to the enactment of the TCJA.  Tax expense for the repatriation transaction was substantially recorded in 2017 upon enactment of the TCJA.

Change in Indefinite Reversal Assertion

The Company made the determination during the fourth fiscal quarter of 2022 that substantially all unremitted earnings in Germany are no longer indefinitely reinvested.  Additional tax expense was recorded during the fourth fiscal quarter of 2022 to accrue the $59,642 of withholding taxes necessary to distribute these approximately $360,000 of accumulated earnings to the United States.

These changes in this indefinite reinvestment assertion provide greater access to the Company's worldwide cash balances to fund its growth plan and its Stockholder Return Policy.  While the change in assertion provides access to these balances, these amounts will be repatriated only as needed.  The withholding taxes associated with any distribution to the United States is payable upon distribution.

There are amounts of unremitted foreign earnings in countries other than Israel and Germany, 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,
	2022		2021		2020
Domestic	$	132,426	$	62,921	$	(25,884	)
Foreign		461,079		371,689		184,212
	$	593,505	$	434,610	$	158,328

Significant components of income taxes are as follows:

	Years ended December 31,
	2022			2021		2020
Current:
Federal	$	24,423		$	2,336	$	7,327
State and local		3,313			466		218
Foreign		121,810			82,258		55,399
		149,546			85,060		62,944
Deferred:
Federal		(40,136	)		554		(6,068	)
State and local		532			383		(538	)
Foreign		53,080			49,676		(21,793	)
		13,476			50,613		(28,399	)
Total income tax expense	$	163,022		$	135,673	$	34,545

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,
	2022			2021
Deferred tax assets:
Pension and other retiree obligations	$	29,327		$	50,069
Inventories		21,040			17,168
Net operating loss carryforwards		82,498			115,200
Tax credit carryforwards		53,145			76,213
Other accruals and reserves		37,634			29,332
Total gross deferred tax assets		223,644			287,982
Less valuation allowance		(101,169	)		(186,204	)
		122,475			101,778
Deferred tax liabilities:
Property and equipment		(8,307	)		(1,514	)
Tax deductible goodwill		(6,144	)		(5,412	)
Earnings not indefinitely reinvested		(113,661	)		(67,172	)
Other - net		(6,879	)		(1,646	)
Total gross deferred tax liabilities		(134,991	)		(75,744	)
Net deferred tax assets (liabilities)	$	(12,516	)	$	26,034

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.  

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,
	2022			2021			2020
Tax at statutory rate	$	124,636		$	91,268		$	33,249
State income taxes, net of U.S. federal tax benefit		3,038			671			(252	)
Effect of foreign operations		13,422			5,521			(9,896	)
Tax on earnings not indefinitely reinvested		71,141			54,648			4,227
Unrecognized tax benefits		(4,699	)		1,318			4,351
Change in valuation allowance on deferred tax assets		(58,696	)		(14,921	)		-
Foreign income taxable in the U.S.		14,925			9,532			7,675
Foreign tax credit		(20,408	)		(9,477	)		(3,520	)
U.S. Base Erosion Anti-Abuse Tax		20,918			9,134			750
Change in U.S. tax regulations		-			(8,276	)		-
Other		(1,255	)		(3,745	)		(2,039	)
Total income tax expense	$	163,022		$	135,673		$	34,545

The change in valuation allowance on deferred tax assets includes the utilization of a foreign tax credit carryforward from prior years that previously had a valuation allowance.

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, 2022, 2021, and 2020 includes certain discrete tax items for changes in uncertain tax positions, valuation allowances, tax rates, and other related items. These items total $20,032, $39,326, and $1,998 in 2022, 2021, and 2020, respectively.

For the year ended December 31, 2022, the discrete items include tax expense of $59,642 due to the Company's change in its assertion that earnings of its subsidiaries in Germany are indefinitely reinvested, tax benefits of $5,941 for changes in uncertain tax positions following the resolution of a tax audit and a $33,669 tax benefit recognized upon the release of a valuation allowance.

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.

At December 31, 2022, the Company had the following significant net operating loss carryforwards for tax purposes:

			Expires
Austria	$	4,319	No expiration
Belgium		149,864	No expiration
Israel		8,024	No expiration
Japan		4,710		2025 - 2030
Netherlands		9,947	No expiration
The Republic of China (Taiwan)		13,741		2026 - 2028
California		19,650		2028 - 2041
Pennsylvania		585,446		2023 - 2042

At December 31, 2022, the Company had the following significant tax credit carryforwards available:

			Expires
U.S. Foreign Tax Credit	$	34,089		2028 - 2030
California Research Credit		18,902	No expiration

Net income taxes paid were $134,199, $79,106, and $69,706 for the years ended December 31, 2022, 2021, and 2020, respectively.  Net income taxes paid for the years ended December 31, 2022 and 2020 include $25,201 and $16,258, respectively, for repatriation activity.  Net income taxes paid also includes $14,757 in each period presented for the TCJA transition tax.

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

	Years ended December 31,
	2022			2021			2020
Balance at beginning of year	$	26,719		$	40,652		$	36,868
Addition based on tax positions related to the current year		-			141			663
Addition based on tax positions related to prior years		3,197			1,037			8,358
Currency translation adjustments		(366	)		(523	)		1,361
Reduction based on tax positions related to prior years		-			(13,154	)		(3,152	)
Reduction for settlements		(9,420	)		(982	)		(3,446	)
Reduction for lapses of statute of limitation		(1,701	)		(452	)		-
Balance at end of year	$	18,429		$	26,719		$	40,652

All of the unrecognized tax benefits of $18,429 and $26,719, as of December 31, 2022 and 2021, 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, 2022 and 2021, the Company had accrued interest and penalties related to the unrecognized tax benefits of $2,587 and $3,747, respectively. During the years ended December 31, 2022, 2021, and 2020, the Company recognized $376, $591, and $128, 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 through 2016, which were utilized in the year ended December 31, 2017.  During the years ended December 31, 2022, 2021, and 2020, 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 (2017 through 2021), India (2004 through 2020), and Italy (2017 through 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 $6,088 to $9,428.