Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

15. Income Taxes

Components of the Company’s income (loss) before income taxes are as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Income (loss) before income taxes:
Canada	$	(1,371	)	$	(2,278	)	$	78
U.S.		19,168			16,875			25,577
Other		38,375			33,806			20,111
Total	$	56,172		$	48,403		$	45,766

Components of the Company’s income tax provision (benefit) are as follows (in thousands):

	Year Ended December 31,
	2021			2020			2019
Current
Canada	$	95		$	82		$	100
U.S.		205			1,324			1,109
Other		9,486			6,589			8,116
		9,786			7,995			9,325
Deferred
Canada		493			(493	)		—
U.S.		(2,133	)		(1,256	)		703
Other		(2,305	)		(2,364	)		(5,035	)
		(3,945	)		(4,113	)		(4,332	)
Total	$	5,841		$	3,882		$	4,993

 The Company is incorporated in Canada and therefore uses the Canadian statutory rate for income tax disclosure. The reconciliation of the statutory Canadian tax rate to the effective tax rate related to income before income taxes is as follows (in thousands, except percentage data):

	Year Ended December 31,
	2021			2020			2019
Statutory Canadian tax rate		29.00	%		29.00	%		29.00	%
Expected income tax provision at Canadian statutory tax rate	$	16,291		$	14,037		$	13,272
International tax rate differences		(3,621	)		(3,483	)		(3,346	)
U.S. state income taxes, net		(249	)		(108	)		386
Withholding and other taxes		429			485			364
Permanent differences and other		921			259			443
Disallowed compensation		1,111			685			-
Foreign-derived intangible income		(1,211	)		(1,063	)		(787	)
Tax credits		(1,408	)		(2,016	)		(1,457	)
Statutory tax rate changes		489			429			35
Uncertain tax positions		(472	)		(176	)		310
Change in valuation allowance		918			(727	)		(482	)
Acquisition contingent consideration adjustments		87			(1,513	)		287
Transaction costs		248			(23	)		247
Provision to return differences		33			750			(516	)
Windfall benefit from share-based compensation		(5,131	)		(2,322	)		(1,717	)
UK patent box		(2,594	)		(1,332	)		(2,046	)
Reported income tax provision	$	5,841		$	3,882		$	4,993
Effective tax rate		10.4	%		8.0	%		10.9	%

Deferred income taxes result principally from temporary differences in the recognition of certain revenue and expense items and operating loss and tax credit carryforwards for financial and tax reporting purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Losses	$	9,358		$	8,524
Operating lease liabilities		12,200			10,216
Compensation related deductions		6,795			5,955
Inventories		6,594			5,090
Tax credits		2,786			2,958
Restructuring related liabilities		206			185
Warranty		700			720
Other		197			957
Total deferred tax assets		38,836			34,605
Valuation allowance on deferred tax assets		(12,608	)		(11,561	)
Net deferred tax assets	$	26,228		$	23,044
Deferred tax liabilities:
Depreciation	$	(2,585	)	$	(1,583	)
Amortization		(32,117	)		(24,772	)
Unrealized currency gains/losses		-			(372	)
Operating lease right-of-use assets		(11,667	)		(9,960	)
Deferred revenue		(1,391	)		—
Total deferred tax liabilities	$	(47,760	)	$	(36,687	)
Net deferred income tax assets (liabilities)	$	(21,532	)	$	(13,643	)

In determining its income tax provisions, the Company calculated deferred tax assets and liabilities for each separate jurisdiction. The Company then considered a number of factors, including positive and negative evidence related to the realization of its deferred tax assets, to determine whether a valuation allowance should be recognized with respect to its deferred tax assets.

In 2021, the Company recorded an additional $0.9 million valuation allowance. In 2020, the Company reversed valuation allowance of $0.7 million recorded on net operating losses and other timing items in certain tax jurisdictions due to current and forecast taxable income. In 2019, the Company reversed valuation allowance of $0.5 million recorded on net operating losses and other timing items in certain tax jurisdictions due to taxable income generated during the year.

Valuation allowance continues to be provided on the remaining balances of certain U.S. state net operating losses and certain foreign tax attributes that the Company has determined that it is not more likely than not that they will be realized. In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company continuously reassesses the possibility of releasing the valuation allowance currently in place on its deferred tax assets.

As of December 31, 2021, the Company had net operating loss carryforwards of $3.5 million (tax effected). Of this amount, approximately $2.9 million relates to Canada and begin to expire starting in 2033 and have a full valuation allowance. The remainder $0.6 million relates to various U.S. and other foreign jurisdictions, of which $0.2 million can be carried forward indefinitely and the remaining $0.4 million will begin to expire in 2022 through 2036. In addition, the Company had capital loss carryforwards of $5.9 million, which can be carried forward indefinitely and have a full valuation allowance. Of this amount, $5.1 million and $0.8 million related to Canada and the U.K, respectively.

As of December 31, 2020, the Company had net operating loss carryforwards of $3.1 million (tax effected) available to reduce future taxable income. Of this amount, approximately $0.9 million relates to the U.S. and expires through 2037; and $2.1 million relates to Canada and expires starting in 2033. In addition, the Company had capital loss carryforwards of $5.7 million, which had a full valuation allowance. Of this amount, $5.1 million and $0.6 million related to Canada and the U.K, respectively.

As of December 31, 2021, the Company had tax credit carryforwards of approximately $3.8 million. Approximately $2.6 million relate primarily to the U.S. and other immaterial foreign jurisdictions and will expire through 2042. The remaining $1.2

million tax credit carryforwards were related to Canada, of which $0.5 million expires through 2022 and $0.7 million can be carried forward indefinitely.

As of December 31, 2020, the Company had tax credit carryforwards of approximately $3.3 million available to reduce income taxes in future years. Approximately $1.4 million relates to the U.S. state tax credits, of which $1.3 million will expire through 2035 and $0.1 million can be carried forward indefinitely. The remaining $1.9 million tax credit carryforwards were related to Canada, of which $1.2 million expires through 2022 and $0.7 million can be carried forward indefinitely.

Income and foreign withholding taxes have not been recognized on the excess of the amount recognized for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are essentially permanent in nature. The excess amount becomes taxable upon a repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary. The amount of undistributed earnings of foreign subsidiaries totaled $266.1 million as of December 31, 2021. The estimated unrecognized income tax and foreign withholding tax liability on this temporary difference is approximately $4.0 million.

As of December 31, 2021, the Company’s total amount of unrecognized tax benefits was $4.8 million, of which $4.6 million would favorably affect the effective tax rate if benefited. Over the next twelve months, the Company may need to reverse up to $0.5 million of previously recorded unrecognized tax benefits due to statute of limitations closures. The Company believes there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to its results of operations, financial position or cash flows. Furthermore, the Company believes that it has adequately provided for all significant income tax uncertainties.

The reconciliation of the total amounts of unrecognized tax benefits is as follows (in thousands):

Balance at December 31, 2018	$	4,725
Additions based on tax positions related to the current year		727
Additions for tax positions of prior years		5
Reductions to tax positions of prior years		(31	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(497	)
Settlements with tax authorities		—
Balance at December 31, 2019		4,929
Additions based on tax positions related to the current year		476
Additions for tax positions of prior years		356
Reductions to tax positions of prior years		(5	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(498	)
Settlements with tax authorities		—
Balance at December 31, 2020		5,258
Additions based on tax positions related to the current year		1,162
Additions for tax positions of prior years		9
Reductions to tax positions of prior years		(41	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(1,591	)
Settlements with tax authorities		—
Balance at December 31, 2021	$	4,797

The Company recognizes interest and penalties related to uncertain tax positions in income tax provision. As of December 31, 2021 and 2020, the Company had approximately $0.6 million and $0.7 million, respectively, of accrued interest and penalties related to uncertain tax positions. During the years ended December 31, 2021, 2020 and 2019, the Company recognized ($0.1) million, $0.2 million and $0.1 million, respectively, of expense for an increase (decrease) in interest and penalties related to uncertain tax positions.

The Company files income tax returns in Canada, the U.S., and various foreign jurisdictions. Generally, the Company is no longer subject to U.S. or foreign income tax examinations, including transfer pricing tax audits, by tax authorities for the years before 2011.

The Company’s income tax returns may be reviewed by tax authorities in the following countries for the following periods under the appropriate statute of limitations:

United States	2018 -  Present
Canada	2017 -  Present
United Kingdom	2020 -  Present
Germany	2017 -  Present
The Netherlands	2017 -  Present
China	2012 -  Present
Japan	2016 -  Present