Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

21. Income Taxes

The effective tax rate for the years ended December 31, 2021 and 2020 were 4.2% and (1.2)% respectively. For the year ended December 31, 2021, the Company’s effective tax rate differs from the federal statutory rate primarily due to losses in certain jurisdictions where the Company presently has recorded a valuation allowance against the related tax benefit and non-deductible officer’s compensation. For the year ended December 31, 2020, the Company’s effective tax rate differs from the federal statutory rate primarily due to losses in certain jurisdictions where the Company has recorded a valuation allowance against the related tax benefit.

The components of earnings (loss) before income taxes on the Company’s consolidated statement of operations by the United States and foreign jurisdictions were as follows:

	Year Ended December 31, 2021			Year Ended December 31, 2020			Year Ended December 31, 2019
	(in millions)
United States	$	(13.5	)	$	(14.4	)	$	(19.3	)
Foreign jurisdictions		(24.8	)		(17.6	)		(21.7	)
Total loss before income taxes	$	(38.3	)	$	(32.0	)	$	(41.0	)

Income tax provision (benefit), as reflected in the Company’s consolidated statement of operations, consists of the following:

	Year Ended December 31, 2021			Year Ended December 31, 2020		Year Ended December 31, 2019
	(in millions)
Current (benefit) provision
Federal	$	—		$	—	$	—
State		—			—		—
Foreign		(1.6	)		0.4		0.1
Total current	$	(1.6	)	$	0.4	$	0.1

		Year Ended December 31, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
		(in millions)
Deferred (benefit) provision
Federal	$	—	$	—	$	—
State		—		—		—
Foreign		—		—		—
Total current	$	—	$	—	$	—

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2021 AND 2020, AND FOR THE YEARS ENDED

DECEMBER 31, 2021, 2020 AND 2019

The differences between the federal statutory tax rate and our effective rate are reflected in the following table for the years ended December 31, 2021, 2020 and 2019:

	December 31, 2021			December 31, 2020			December 31, 2019
	(in millions)
Statutory income tax		21.0	%		21.0	%		21.0	%
State taxes (net of federal)		0.0	%		0.0	%		3.3	%
Non-deductible officer compensation		(5.4	)%		0.0	%		0.0	%
Tax effect of other permanent differences		(1.5	)%		(6.2	)%		(11.9	)%
Effect of foreign taxes		(0.3	)%		0.5	%		(1.5	)%
True ups		4.6	%		0.1	%		3.2	%
Rate change		0.0	%		0.0	%		(0.5	)%
Valuation allowance		(14.2	)%		(16.6	)%		(13.8	)%
Effective income tax rate		4.2	%		(1.2	)%		(0.2	)%

The net deferred tax assets and liabilities arising from temporary differences are as follows:

	December 31,			December 31,
	2021			2020
	(in millions)
Depreciation	$	71.4		$	48.0
Net operating losses		31.6			26.5
Other temporary differences		4.4			6.2
Total gross deferred tax assets		107.3			80.7
Valuation allowance balance		(104.5	)		(76.4	)
Gross deferred tax assets		2.9			4.3
Intangible assets		(0.3	)		(2.2	)
Other temporary differences		(2.5	)		(2.1	)
Gross deferred tax liabilities		(2.9	)		(4.3	)
Net deferred tax assets	$	—		$	—

Changes in the valuation allowance are as follows:

	December 31, 2021		December 31, 2020
	(in millions)
Beginning balance	$	76.4	$	65.7
Increase (decrease)		28.1		10.7
Reversal of allowance		—		—
Ending balance	$	104.5	$	76.4

As of December 31, 2021 and 2020, the Company has $39.5 million and $34.8 million, respectively, of gross federal net operating loss carry forwards, the earliest of which will begin to expire in 2034. The utilization of the Company’s pre-merger net operating losses is subject to a limitation due to the “change of ownership provisions” under Section 382 of the Internal Revenue Code. As of December 31, 2021 and 2020 the Company also has gross net operating losses in foreign jurisdictions, primarily the United Kingdom, totaling $83.2 million and $89.9 million, respectively. The majority of these net operating losses have an unlimited carry forward period. It is anticipated that these losses will not be utilized due to continuing losses in these jurisdictions, as such, the losses are fully offset with a valuation allowance.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the consideration of these items, management determined that it is more likely than not that the Company will not realize the deferred income tax asset balances and therefore, recorded full valuation allowances of $104.5 million and $76.4 million as of December 31, 2021 and 2020.

The Company has not recognized deferred tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries. We do not provide for taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed because we intend to invest such undistributed earnings indefinitely outside of the United States.

Currently, there are no federal, state or foreign jurisdiction tax audits pending. The Company’s corporate federal and state tax returns from 2018 to 2020 remain subject to examination by tax authorities and the Company’s foreign tax returns from 2014 to 2020 remain subject to examination by tax authorities.

INSPIRED ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2021 AND 2020, AND FOR THE YEARS ENDED

DECEMBER 31, 2021, 2020 AND 2019