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INCOME TAXES
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES

The components of the Company’s income before income taxes are attributable to the following jurisdictions for the years ended December 31 (in thousands):

 
2019
 
2018
United States
$
(5,038
)
 
$
(11,762
)
Foreign
10,774

 
12,251

Income before income taxes
$
5,736

 
$
489



The components of the Company’s income tax expense for the years ended December 31 (in thousands):

Current provision (benefit):
2019
 
2018
Federal
$
131

 
$
13

State
64

 
(25
)
Foreign
1,188

 
3,220

 
1,383

 
3,208

Deferred provision (benefit):
 
 
 
Federal
—

 
1,074

State
—

 
1,027

Foreign
1,064

 
(934
)
 
1,064

 
1,167

 
$
2,447

 
$
4,375



A reconciliation of the Company’s effective income tax rate and the United States federal statutory income tax rate is summarized as follows, for the years ended December 31:
 
2019
 
2018
Federal statutory income taxes
21.0
 %
 
21.0
 %
State income taxes, net of federal benefit
3.5

 
(40.3
)
Difference in foreign and United States tax on foreign operations
(10.1
)
 
(75.6
)
Effect of changes in valuation allowance
(7.3
)
 
920.1

Effect of change in uncertain tax positions (net)
—

 
(0.5
)
Federal Sub-Part F Income from foreign operations
10.5

 
0.4

Global Intangible Low Taxed Income (GILTI)
23.5

 
43.2

Section 78 gross up
5.4

 
—

Section 250 deduction
(4.3
)
 
—

Effect of changes in tax rates
0.5

 
(23.6
)
Foreign Exchange
—

 
(8.4
)
Prior year adjustments
4.1

 
(4.1
)
Foreign tax credits
(10.9
)
 
—

Meals and entertainment
0.7

 
11.9

Share Based Compensation
1.2

 
25.8

Withholding taxes
2.2

 
6.3

Other permanent items
1.9

 
14.4

Other
0.6

 
4.1

 
42.5
 %
 
894.7
 %


For the years ended December 31, 2019 and 2018, the Company’s effective tax rate was 42.5% and 894.7%, respectively. In 2019, the Company had a significant decrease in its rate due to the mix of earnings across jurisdictions. For 2018, the Company had a significant increase in its rate due to the mix of earnings across jurisdictions, valuation allowance recorded on losses in certain jurisdictions, and the impact of GILTI as a result of the TCJA passed in 2017.

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 used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consisted of the following at December 31 (in thousands):
Deferred tax assets:
2019
 
2018
Deferred Revenue
$
243

 
$
277

Inventory
215

 
250

Accrued expenses
878

 
804

Disallowed Interest Expense
—

 
123

Net operating loss (1)
7,570

 
9,293

Equity Compensation
509

 
584

Foreign tax credit carryover
4,180

 
3,621

Lease liability
1,674

 
—

Other
486

 
876

Total deferred tax assets
$
15,755

 
$
15,828

Valuation allowance
(12,375
)
 
(12,793
)
Total deferred tax assets, net of valuation allowance
$
3,380

 
$
3,035

Deferred tax liabilities:
 
 
 
Prepaid expenses
147

 
262

Deferred commissions
253

 
255

Internally-developed software
265

 
326

Lease assets
1,659

 
—

Fixed assets
178

 
267

 
 
 
 
Total deferred tax liabilities
$
2,502

 
$
1,110

 
 
 
 
Total net deferred tax asset
$
878

 
$
1,925


(1) The Company’s net operating loss will expire as follows (dollar amounts in thousands):

Jurisdiction
Gross NOL
 
Tax Effected NOL
 
Expiration Years
Australia
$
393

 
$
118

 
Indefinite
Bermuda
$
42

 
$
—

 
N/A
Canada
$
8

 
$
2

 
2026
China
$
117

 
$
29

 
2024
Colombia
$
1,970

 
$
630

 
Indefinite
Gibraltar
$
147

 
$
—

 
Indefinite
Hong Kong
$
184

 
$
30

 
Indefinite
Japan
$
338

 
$
117

 
Indefinite
Mexico
$
10,950

 
$
3,285

 
2020-2029
Norway
$
281

 
$
62

 
Indefinite
Russia(2)
$
50

 
$
10

 
Indefinite
Singapore
$
138

 
$
23

 
Indefinite
South Africa
$
650

 
$
182

 
Indefinite
Sweden
$
463

 
$
99

 
Indefinite
Switzerland(3)
$
6,591

 
$
606

 
2020-2025
Taiwan
$
5,133

 
$
1,027

 
2020-2029
Ukraine(4)
$
703

 
$
127

 
Indefinite
United States - Federal
$
1,553

 
$
326

 
Indefinite
United Kingdom
$
431

 
$
72

 
Indefinite
 
(2) On August 1, 2016, the Company established a legal entity in Russia.
(3) On July 1, 2019, the Company suspended operations in Switzerland, but maintains the legal entity.
(4) On March 21, 2014, the Company suspended operations in the Ukraine, but maintains the legal entity.


In addition to net operating loss attributes, the Company has recorded a foreign tax credit carryforward of $4.2 million, which will begin to expire in 2025 and a charitable contribution carryforward of $0.1 million, which will expire between 2019-2023. The Company maintains a full valuation against both the foreign tax credits and the charitable contribution carryforward.

At December 31, 2019 and 2018, the Company’s valuation allowance was $12.4 million and $12.8 million, respectively. The provisions of ASC Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing a deferred tax asset cannot be met. A company is to use judgment in reviewing both positive and negative evidence of realizing a deferred tax asset. Furthermore, the weight given to the potential effect of such evidence is commensurate with the extent the evidence can be objectively verified.

The valuation allowances presented below (in millions) at December 31, 2019 and 2018, represented a reserve against the Company’s net deferred tax asset the Company believed the “more likely than not” criterion for recognition purposes could not be met. The U.S. valuation allowance decreased due to the utilization of net operating losses in the current year.

Country
2019
 
2018
Australia
$
0.2

 
$
0.3

China
0.3

 
0.3

Colombia
0.6

 
0.6

Hong Kong
—

 
0.1

Mexico
3.3

 
3.1

Norway
0.1

 
0.1

South Africa
0.2

 
0.2

Sweden
—

 
0.1

Switzerland
0.5

 
—

Taiwan
1.0

 
0.9

Ukraine
0.1

 
0.1

United Kingdom
0.1

 
0.1

United States
6.0

 
6.9

Other Jurisdictions
—

 
—

Total
$
12.4

 
$
12.8



U.S. Tax

On December 22, 2017, President Trump signed into law H.R. 1/Public Law No. 115-97, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” which reduced the US federal tax rate from 35% to 21% for tax years beginning after January 1, 2018. Pursuant to ASC 740-10-25-47, the effects of the new federal legislation are recognized upon enactment, which is the date the president signs a bill into law.     

Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets of December 31 as follows (in thousands):
 
2019
 
2018
Deferred tax assets
$
881

 
$
1,928

Deferred tax liabilities
(3
)
 
(3
)
Net deferred tax assets
$
878

 
$
1,925



Topic 740 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements, uncertain tax positions that it has taken or expects to take on a tax return. Topic 740 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2019, the Company recorded $0.2 million in other long-term liabilities related to uncertain income tax positions and income tax reserves associated with various audits. At December 31, 2019, the Company had unrecognized tax benefits of $0.2 million that, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, for the years ended December 31, 2019 and 2018 (in thousands):

 
2019
 
2018
Balance as of January 1
$
79

 
$
79

Additions for tax positions related to the current year
—

 
—

Additions for tax positions of prior years
—

 
—

Reductions of tax positions of prior years
—

 
—

Settlements
—

 
—

Balance as of December 31
$
79

 
$
79



The Company recognizes interest and/or penalties related to uncertain tax positions in current income tax expense. For each the years ended December 31, 2019 and December 31, 2018, the Company had accrued interest and penalties of $0.1 million in the consolidated balance sheet, of which $13 thousand and $11 thousand were accrued in the consolidated statement of operations, for December 31, 2019 and 2018, respectively. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease within the next twelve months due to uncertainties regarding the timing of any examinations, the Company does not expect its unrecognized tax benefits to decrease during the next twelve months.

The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2019, the tax years that remained subject to examination by a major tax jurisdiction for the Company’s most significant subsidiaries were as follows:
Jurisdiction
Open Years
Australia
2012-2018
Japan
2015-2018
Republic of Korea
2015-2018
Switzerland
2015-2018
United States
2016-2018