INCOME TAXES

12 Months Ended

Dec. 31, 2020

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


	2020		2019
United States	$	4,934	$	(5,038)
Foreign	791		10,774
Income before income taxes	$	5,725	$	5,736

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


Current provision (benefit):	2020		2019
Federal	$	(1,086)	$	131
State	114		64
Foreign	716		1,188
	(256)		1,383
Deferred provision (benefit):
Federal	—		—
State	—		—
Foreign	(280)		1,064
	(280)		1,064
	$	(536)	$	2,447

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:


	2020		2019
Federal statutory income taxes	21.0	%	21.0	%
State income taxes, net of federal benefit	2.9		3.5
Difference in foreign and United States tax on foreign operations	1.9		(10.1)
Effect of changes in valuation allowance	(7.7)		(7.3)
CARES NOL Carryback Benefit	(25.3)		—
Foreign Derived Intangible Income (FDII) deduction	(6.6)		—
Global Intangible Low Taxed Income (GILTI)(1)	(7.3)		23.5
Federal Sub-Part F Income from foreign operation	—		10.5
Section 78 gross up	—		5.4

Section 250 deduction	—		(4.3)
Effect of changes in tax rates	—		0.5
Foreign Charitable Contributions	1.4		—
Prior year adjustments	8.2		4.1

Foreign tax credits	—		(10.9)
Meals and entertainment	—		0.7
Share Based Compensation	—		1.2
Withholding taxes	3.2		2.2
Other permanent items	—		1.9
Other	(1.1)		0.6
	(9.4)	%	42.5	%

(1)This amount relates to the reversal of the 2018 GILTI inclusion due to the GILTI high-tax election the IRS made available in Q3 2020.

For the years ended December 31, 2020 and 2019, the Company’s effective tax rate was (9.4)% and 42.5%, respectively. In 2020, the Company had a significant decrease in its rate due to the carryback of U.S net operating losses as allowed by the CARES Act. In 2019, the Company had a higher effective rate due to the mix of earnings across jurisdictions and valuation allowance recorded on certain losses.

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:	2020		2019
Deferred Revenue	$	317	$	243
Inventory	343		215
Accrued expenses	1,034		878
Disallowed Interest Expense	—		—
Net operating loss (1)	7,078		7,570
Equity Compensation	296		509
Foreign tax credit carryover	4,615		4,180
Lease liability	922		1,674
Other	443		486
Total deferred tax assets	$	15,048	$	15,755
Valuation allowance	(11,933)		(12,375)
Total deferred tax assets, net of valuation allowance	$	3,115	$	3,380
Deferred tax liabilities:
Prepaid expenses	131		147
Deferred commissions	305		253
Internally-developed software	237		265
Lease assets	884		1,659
Fixed assets	383		178

Total deferred tax liabilities	$	1,940	$	2,502

Total net deferred tax asset	$	1,175	$	878

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


Jurisdiction	Gross NOL		Tax Effected NOL		Expiration Years
Australia	$	282	$	85	Indefinite
Bermuda	$	52	$	—	N/A

China	$	242	$	61	2024
Colombia	$	1,907	$	591	Indefinite
Cyprus	$	1,414	$	177	2026
Gibraltar	$	180	$	—	Indefinite
Hong Kong	$	24	$	4	Indefinite
Japan	$	139	$	48	Indefinite
Mexico	$	10,329	$	3,099	2021-2030
Norway	$	329	$	72	Indefinite
Russia	$	8	$	2	Indefinite
Singapore	$	150	$	26	Indefinite
South Africa	$	727	$	204	Indefinite
Sweden	$	513	$	106	Indefinite
Switzerland	$	6,713	$	617	2021-2028
Taiwan	$	5,569	$	1,114	2021-2030

United States - State	$	13,506	$	804	2022-2040
United Kingdom	$	370	$	70	Indefinite

The United States fully utilized its federal net operation losses due to the passage of the CARES Act. In addition to net operating loss attributes, the Company has recorded a foreign tax credit carryforward of $4.6 million, which will begin to expire in 2025. The Company maintains a full valuation against the foreign tax credits.

At December 31, 2020 and 2019, the Company’s valuation allowance was $11.9 million and $12.4 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 allowance against the Company's deferred tax assets consisted of the following at December 31 (in thousands):


Country	2020		2019
Australia	$	0.2	$	0.2
China	0.4		0.3
Colombia	0.6		0.6
Cyprus	0.2		—

Mexico	3.1		3.3
Norway	0.1		0.1
South Africa	0.2		0.2

Switzerland	0.5		0.5
Taiwan	1.1		1.0
Ukraine	—		0.1
United Kingdom	—		0.1
United States	5.5		6.0

Total	$	11.9	$	12.4

U.S. Tax

Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets at December 31 as follows (in thousands):


	2020		2019
Deferred tax assets	$	1,178	$	881
Deferred tax liabilities	(3)		(3)
Net deferred tax assets	$	1,175	$	878

On January 1, 2007, the Company adopted FIN 48, which was codified into Topic 740, which 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, 2020, 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, 2020, 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, 2020 and 2019 (in thousands):


	2020		2019
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 of the years ended December 31, 2020 and 2019, the Company had accrued interest and penalties of $0.1 million in the consolidated balance sheet, of which $11 thousand and $13 thousand were expensed in the consolidated statement of operations, for December 31, 2020 and 2019, 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, 2020, 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			2012-2019
Japan			2015-2019
Republic of Korea			2016-2019
Switzerland			2016-2019
United States			2014-2015, 2017-2019