NOTE 19: INCOME TAXES

A.Tower Statutory Income Rates

Substantially all of Tower’s existing facilities and other capital investments made through 2012 have been granted approved enterprise status, as provided by the Law for the Encouragement of Capital Investment in Israel (“Investments Law”).

Tower, as an Israeli industrial company located in Migdal Ha’emek, may elect the Preferred Enterprise regime to apply to it under the Investment Law. The election is irrevocable.

Under the Preferred Enterprise regime, Tower’s entire preferred income is subject to a tax rate of 7.5%. Any portion of Tower’s taxable income that is not eligible for Preferred Enterprise benefits, if at all, shall be taxed at the regular corporate tax rate of 23%.

B. Income Tax Provision

The Company's provision for income taxes is affected by income taxes in a multinational tax environment. The income tax provision is an estimate determined based on current enacted tax laws and tax rates at each of its geographic locations, with the use of acceptable allocation methodologies based upon the Company’s organizational structure, operations and business mode of work, and result in applicable local taxable income attributable to those locations.

The Company’s income tax provision consists of the following for the years ended December 31, 2022, 2021 and 2020:

Details	2022			2021			2020
Current tax expense:
Foreign	$	13,167		$	13,504		$	2,232
Deferred tax expense (benefit):
Local		21,550			2,518			8,481
Foreign		(9,215	)		(14,998	)		(5,314	)
Income tax expense	$	25,502		$	1,024		$	5,399

Details	2022			2021			2020
Profit before taxes:
Local	$	295,438		$	166,273		$	100,145
Foreign		(3,465	)		(11,174	)		(11,457	)
Total profit before taxes	$	291,973		$	155,099		$	88,688

C. Components of Deferred Tax Asset/Liability

The following is a summary of the components of the deferred tax assets and liabilities reflected in the balance sheets as of the respective dates (*), as of December 31, 2022 and 2021:

Details	2022			2021
Deferred tax asset and liability - long-term:
Deferred tax assets:
Net operating loss carryforward	$	53,473		$	77,586
Employees compensation		7,670			5,366
Accruals and allowances		10,935			7,863
Research and development credit		21,340			20,633
Research and development - Section 174		11,748			-
Others		1,894			3,737
		107,060			115,185
Valuation allowance, see Note 19F below		(17,541	)		(11,644	)
Deferred tax assets	$	89,519		$	103,541
Deferred tax liabilities - long-term:
Depreciation and amortization	$	(69,314	)	$	(72,678	)
Others		77			(1,114	)
Deferred tax liabilities	$	(69,237	)	$	(73,792	)

Presented in long term deferred tax assets	$	32,787		$	53,526
Presented in long term deferred tax liabilities	$	(12,505	)	$	(23,777	)

(*) Deferred tax assets and liabilities relating to Tower for the years 2022 and 2021 are computed based on the Israeli Preferred Enterprise tax rate of 7.5%.

D. Unrecognized Tax Benefit

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Details	Unrecognized tax benefits
Balance as of January 1, 2022	$	7,763
Additions for tax positions of current year		727
Reduction due to statute of limitations of prior years		-
Balance as of December 31, 2022	$	8,490

Details	Unrecognized tax benefits
Balance as of January 1, 2021	$	15,314
Additions for tax positions of current year		624
Reduction due to statute of limitations of prior years		(8,175	)
Balance as of December 31, 2021	$	7,763

Details	Unrecognized tax benefits
Balance as of January 1, 2020	$	15,113
Additions for tax positions of current year		624
Reduction due to statute of limitations of prior years		(423	)
Balance as of December 31, 2020	$	15,314

E. Effective Income Tax

The reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2022, 2021 and 2020:

Details	2022			2021			2020
Tax expense computed at statutory rates, see (*) below	$	67,154		$	35,673		$	20,398
Effect of different tax rates in different jurisdictions and Preferred Enterprise Benefit		(46,012	)		(24,683	)		(15,046	)
Change in valuation allowance, see Note 19F below		5,911			899			3,479
Permanent differences and other, net		(1,551	)		(10,865	)		(3,432	)
Income tax expense	$	25,502		$	1,024		$	5,399

(*) The tax expense was computed based on the regular Israeli corporate tax rate of 23%.

F. Net Operating Loss Carryforward

As of December 31, 2022, Tower had net operating loss carryforward for tax purposes of approximately $500,000 which may be carried forward indefinitely.

The future utilization of Tower US Holdings’ federal net operating loss carryforward to offset future federal taxable income is subject to an annual limitation as a result of ownership changes that have occurred. Additional limitations could apply if ownership changes occur in the future.

TSNB had two “change in ownership” events that limit the utilization of net operating loss carryforward. The first “change in ownership” event occurred in February 2007 upon Jazz Technologies’ acquisition of TSNB. The second “change in ownership” event occurred in September 2008, upon Tower’s acquisition of TSNB. TSNB concluded that the net operating loss limitation for the change in ownership which occurred in September 2008 will be an annual utilization of approximately $2,000 in its tax return.

As of December 31, 2022, Tower US Holdings has federal net operating loss carryforwards of approximately $75,000 of which approximately $62,000 does not expire and is subject to an annual taxable income limitation of 80%. The remaining federal tax loss carryforward of $13,000 will expire in 2028, unless previously utilized.

As of December 31, 2022, Tower US Holdings had California state net operating loss carryforward of approximately $11,000. The state tax loss carryforward will begin to expire in 2029, unless previously utilized.

Tower US Holdings recorded a valuation allowance thereby reducing the deferred tax asset balances of the federal and state net operating loss carryforward.

As of December 31, 2022, and 2021, TPSCo had no net operating loss carryforward.

G. Final Tax Assessments

Tower possesses final tax assessments through the year 1998. In addition, the tax assessments for the years 1999-2017 are deemed final. During 2023, the Israeli tax authority commenced a tax assessment on Tower for the tax years 2018 to 2021. As of the date of issuance of this annual report, the tax assessment is in initial stages.

Tower US Holdings files a consolidated tax return including TSNB and TSSA. Tower US Holdings and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple states.

In general, Tower US Holdings is no longer subject to U.S. federal income tax examinations on years before 2019 and state and other U.S local income tax examinations on years before 2018. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount.

TPSCo possesses final tax assessments through the year 2020.