Income Tax Provision

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Tax Provision

NOTE 5 – Income Tax Provision

The table below sets forth information related to our income tax expense:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Domestic pre-tax income	$	53,967		$	27,781		$	185,839		$	53,427
Foreign pre-tax income	$	55,179		$	57,785		$	115,337		$	152,872
Income tax provision	$	20,172		$	14,766		$	55,279		$	36,320
Effective tax rate		18.5	%		17.3	%		18.4	%		17.6	%
Impact of tax holidays on tax expense	$	(173	)	$	(174	)	$	1,118		$	(1,436	)
Earnings per share impact of tax holidays:
Basic	$	0.01		$	-		$	(0.02	)	$	0.03
Diluted	$	0.01		$	-		$	(0.02	)	$	0.03

The increase in the effective tax rate for the three and nine months ended September 30, 2022 when compared to the three and nine months ended September 30, 2021, is primarily attributable to the change in pre-tax earnings during the comparable periods.

Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of certain European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax, but may be subject to non-U.S. withholding taxes.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2013, or for the 2015 tax year. We are no longer subject to China income tax examinations by tax authorities for tax years before 2012. With respect to state and local jurisdictions and countries outside of the U.S. (other than China), with limited exceptions, the Company is no longer subject to income tax audits for years before 2016. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties, if any, have been provided for in the Company’s reserve for any adjustments that may result from currently pending tax audits. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in interest expense. As of September 30, 2022, the gross amount of unrecognized tax benefits was approximately $47.1 million.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.

On August 9, 2022, the United States ("U.S.") government enacted the U.S. CHIPS and Science Act (“CHIPS Act”). The CHIPS Act includes a 25% investment tax credit for certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”). The IRA includes a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations would be eligible to claim a credit for the minimum tax paid against regular tax in future years. The IRA also includes a 1% excise tax on stock repurchases. The IRA applies to tax years beginning after December 31, 2022.

Diodes is currently evaluating the effect the CHIPS Act and the IRA will have on its consolidated financial statements.