Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12.  INCOME TAXES

The components of income before income taxes were as follows (in thousands):

	Year Ended December 31,
	2024			2023			2022
U.S.	$	(46,263	)	$	(15,066	)	$	(30,190	)
Foreign		619,175			520,907			555,127
Income before income taxes	$	572,912		$	505,841		$	524,937

The components of the income tax expense (benefit), net were as follows (in thousands):

	Year Ended December 31,
	2024			2023			2022
Current:
Federal	$	72,576		$	61,064		$	95,176
State		348			4,257			12
Foreign		11,155			5,702			5,019
Deferred:
Federal		2,773			(1,705	)		(8,523	)
State		160			(744	)		-
Foreign		(1,300,800	)		9,893			(4,419	)
Income tax expense (benefit), net	$	(1,213,788	)	$	78,467		$	87,265

The effective tax rate differed from the applicable U.S. statutory federal income tax rate as follows:

	Year Ended December 31,
	2024			2023			2022
U.S. statutory federal tax rate		21.0	%		21.0	%		21.0	%
Foreign income at lower rates		(21.4	)		(21.9	)		(22.8	)
U.S. tax impact of foreign earnings and losses		15.1			14.5			16.3
Changes in valuation allowance		626.6			2.9			0.2
Stock-based compensation		1.9			2.2			2.8
Return to provision true-up adjustment		(0.1	)		(2.0	)		-
Tax attributes, net of reserves		(247.2	)		(1.3	)		(1.0	)
Effects of intercompany transactions		(608.5	)		-			-
Other adjustments		0.7			0.1			0.1
Effective tax rate		(211.9	)%		15.5	%		16.6	%

The prior years’ tax attributes, net of reserves and other adjustments has been disaggregated to conform with the current-year presentation.
 
In 2024, one of the Company’s foreign subsidiaries was granted a ten-year tax incentive, beginning in tax year 2025. A deferred tax benefit of approximately $1.3 billion, net of $0.1 billion of valuation allowance, was recorded during the year ended December 31, 2024 to reflect the estimated future reductions in cash tax paid in that jurisdiction associated with the incentive.

 
In December 2024, the Company completed an intercompany transaction that resulted in one of its foreign subsidiaries recording a step up in the tax basis of intangible assets of approximately $23.2 billion. This resulted in a deferred tax difference between the U.S. GAAP basis and local tax basis of the specified intangibles. The Company does not expect to realize the deferred tax asset for U.S. GAAP purposes; therefore, the Company has recorded a full valuation allowance as of December 31, 2024.

In January 2025, the OECD released new Administrative Guidance on the application of the Global Anti-Base Erosion (“GloBE”) Model Rules. The Company will continue to evaluate the impact of this release or of other prospective guidance on its future global tax provision. 

The components of net deferred tax assets consist of the following (in thousands):

	December 31,
	2024			2023
Deferred tax assets:
Tax attributes	$	1,465,666		$	49,633
Depreciation and amortization		3,465,739			-
Stock-based compensation		3,432			3,404
Deferred compensation		11,202			11,126
Other expenses not currently deductible		9,505			7,755
Deferred tax assets, gross		4,955,544			71,918
Valuation allowance		(3,624,567	)		(35,008	)
Deferred tax assets, net of valuation allowance		1,330,977			36,910
Deferred tax liabilities:
Depreciation and amortization		-			(6,420	)
Undistributed foreign earnings		(953	)		(817	)
Other expenses currently deductible		(3,184	)		(1,619	)
Deferred tax liabilities		(4,137	)		(8,856	)
Net deferred tax assets	$	1,326,840		$	28,054

The prior years’ tax credits and net operating loss components of deferred tax assets have been aggregated within the tax attributes line to conform with the current-year presentation.        

GILTI:

The Company accounts for GILTI as a period cost. 

Valuation Allowance:

The Company periodically evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. The realizability of the Company’s most significant deferred tax asset is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of December 31, 2024 and 2023, the Company has evaluated the realization of its deferred tax assets and recorded a valuation allowance for assets that do not meet the more-likely-than-not recognition threshold.

A reconciliation of the beginning and ending balance of valuation allowances was as follows (in thousands):

Period	Balance at Beginning of Period		Additions		Reductions			Balance at End of Period
Year ended December 31, 2022	$	19,520	$	1,743	$	(942	)	$	20,321
Year ended December 31, 2023	$	20,321	$	15,405	$	(718	)	$	35,008
Year ended December 31, 2024	$	35,008	$	3,591,638	$	(2,079	)	$	3,624,567

The additions in 2024 were primarily the result of the step up in tax basis of intangible assets and a tax incentive received by one of our foreign subsidiaries. The Company has evaluated the deferred tax assets generated by each of these events and recorded a valuation allowance for any deferred tax assets that are not realizable on a more-likely-than-not basis.

Undistributed Earnings of Subsidiaries:

The Company has analyzed its global working capital and cash requirements, and has determined that it plans to repatriate cash from a foreign subsidiary on an ongoing basis to fund its future U.S.-based expenditures, stock repurchases and dividends. For the years ended December 31, 2024 and 2023, the Company repatriated $642.0 million and $140.0 million from a foreign subsidiary, respectively. No cash was repatriated from the subsidiary during the year ended December 31, 2022.

For all other foreign subsidiaries, the Company expects to indefinitely reinvest undistributed earnings to fund their operations and R&D. As of December 31, 2024 and 2023, the undistributed earnings were approximately $108.2 million and $85.0 million, respectively. An actual repatriation of the undistributed earnings could be subject to additional foreign withholding taxes and U.S. state taxes. The Company expects to be able to take a dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the unrecognized state and withholding deferred tax liability is not practicable at this time due to the complexities associated with the hypothetical calculation.

Other Income Tax Provision Matters

As of December 31, 2024, the Company did not have federal net operating loss carryforwards. As of December 31, 2024, the state net operating loss carryforwards for income tax purposes were $4.3 million, which will expire beginning in 2030. As of December 31, 2024, the Company has foreign net operating loss carryforwards for income tax purposes of $170.0 million, $3.7 million of which can be carried forward indefinitely, while $166.3 million will expire beginning in 2029. 

As of December 31, 2024, the Company had no R&D tax credit carryforwards for federal income tax purposes. As of December 31, 2024, the Company has $44.7 million for state income tax purposes, which can be carried forward indefinitely.

In the event of a change in ownership, as defined under federal and state tax laws, the Company’s net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.

As of December 31, 2024, the Company had $74.4 million of unrecognized tax benefits, $58.9 million of which would affect its effective tax rate if recognized after considering the valuation allowance. As of December 31, 2023, the Company had $62.7 million of unrecognized tax benefits, $48.9 million of which would affect its effective tax rate if recognized after considering the valuation allowance. 

A reconciliation of the gross unrecognized tax benefits was as follows (in thousands): 

Balance as of January 1, 2022	$	41,521
Increase for tax position of current year		10,965
Increase for tax position of prior year		247
Decrease due to settlement with tax authorities		(970	)
Decrease due to lapse of statute of limitation		(2,486	)
Balance as of December 31, 2022		49,277
Increase for tax position of current year		14,108
Increase for tax position of prior year		2,209
Decrease due to settlement with tax authorities		(1,926	)
Decrease due to lapse of statute of limitation		(1,008	)
Balance as of December 31, 2023		62,660
Increase for tax position of current year		18,125
Increase for tax position of prior year		2,180
Decrease due to lapse of statute of limitation		(8,579	)
Balance as of December 31, 2024	$	74,386

The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2024 and 2023, the Company has $6.3 million and $5.7 million, respectively, of accrued interest related to uncertain tax positions, which were recorded in income tax liabilities on the Consolidated Balance Sheets.

  

The Company is not aware of any facts that would materially change the balance of gross unrecognized tax benefits in the next 12 months.

  

The Company currently has reduced tax rates in its subsidiaries in Chengdu and Hangzhou, China through 2025 and 2024, respectively, for performing R&D activities.

In December 2023, the Bermuda CIT Act was enacted and signed into law. The Bermuda CIT Act includes a 15% CIT applicable to Bermuda businesses that are MNE groups with annual revenue of €750M or more beginning in 2025. As the Bermuda CIT Act is not effective until January 1, 2025, and the Company does not expect to realize material taxable income in Bermuda in 2025, no changes to income tax expense related to the Bermuda CIT Act have been recorded as of December 31, 2024.

Income Tax Examination

The Company is subject to examination of its income tax returns by the IRS and other tax authorities. In general, the tax years for 2007 and forward are open for examination for U.S. federal and state income tax purposes.