Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

16. Income Taxes

The Company’s income tax expense (benefit) is composed of domestic and foreign income taxes depending on the relevant tax jurisdictions. Domestic income (loss) before income tax expense (benefit) is generated or incurred in the United States, where the parent company resides.

The components of income tax expense (benefit) are as follows (in thousands):

	Year Ended December 31,
	2023			2022			2021
Income (loss) before income tax expense (benefit)
Domestic	$	2,691		$	(1,955	)	$	41,566
Foreign		(50,250	)		(924	)		32,403
		(47,559	)		(2,879	)		73,969
Current income tax expense (benefit)
Domestic		13			639			6,876
Foreign		3,020			4,297			9,415
Uncertain tax position liability (foreign)		(41	)		(33	)		(35	)
		2,992			4,903			16,256
Deferred income tax expense (benefit)
Domestic		(1,053	)		(1,264	)		1,314
Foreign		(12,876	)		1,518			(309	)
		(13,929	)		254			1,005
Total income tax expense (benefit)	$	(10,937	)	$	5,157		$	17,261

The provision for domestic and foreign income taxes (benefit) incurred is different from the amount calculated by applying the statutory tax rate to the income (loss) before income tax expense. The significant items causing this difference are as follows (in thousands):

	Year Ended December 31,
	2023			2022			2021
Provision computed at statutory rates	$	(9,988	)	$	(605	)	$	15,533
Change in statutory tax rates		269			2,006			(259	)
Difference in foreign tax rates		1,401			302			2,820
Permanent differences
Derivative assets adjustment		(17	)		(62	)		(23	)
TPECs, hybrid and other interest		(2,003	)		(2,096	)		(3,400	)
Equity-based compensation		(388	)		(241	)		(802	)
Permanent foreign currency gain (loss)		(910	)		1,676			1,888
Penalty		78			75			427
GILTI		—			8,187			6,156
Intercompany debt restructuring		—			8,061			971
Other permanent differences		25			72			(767	)
Withholding tax		1,594			(2,031	)		2,060
State net operating loss write off		—			—			9,844
Change in valuation allowance		(429	)		(4,582	)		(13,803	)
Tax credits claimed		(636	)		(5,658	)		(5,508	)
Uncertain tax positions liability		(41	)		(33	)		(35	)
Change in net operating loss carry-forwards		17			(145	)		621
Foreign local taxes		45			919			723
Others		46			(688	)		815
Income tax expense (benefit)	$	(10,937	)	$	5,157		$	17,261

For the year ended December 31, 2023, the withholding tax expense of $1,594 thousand and the permanent tax benefit of $2,003 thousand recorded were related to the intercompany loans granted to the Korean subsidiary by the Dutch subsidiary. The permanent tax benefit of $910 thousand related to foreign currency gain was mainly derived from the unrealized foreign translation gain associated with the intercompany loan granted to the Luxembourg subsidiary by the U.S. parent company. The Company did not have a permanent difference related to Global intangible low-taxed income (“GILTI”) in the U.S., mainly due to the Korean subsidiary’s current year loss.

For the year ended December 31, 2022, a permanent difference of $8,187 thousand was included as GILTI in the U.S., which was primarily attributable to the income earned by certain foreign subsidiaries of the Company, including its Korean subsidiary. The permanent tax expense of $8,061 thousand related to intercompany debt restructuring recorded for the year ended December 31, 2022 was derived from the waiver and release of unpaid interests of the intercompany loans granted to the Korean subsidiary by the Dutch subsidiary. In connection with the waiver of unpaid interests, the related withholding tax was reversed, resulting in the recognition of income tax benefit of $2,031 thousand.

The income tax benefit of $4,582 thousand was due to the changes in valuation allowances during the year ended December 31, 2022, of which $2,670 thousand related to the release of valuation allowances related to the U.S. parent company’s current year earnings, which was mainly driven by GILTI inclusion. The remaining

$1,912 thousand represented the release of valuation allowances based on the realizability of the related deferred tax assets in future years.

Of the income tax benefit of $13,803 thousand attributable to the change in valuation allowances during the year ended December 31, 2021, $9,844 thousand related to the release of the valuation allowance established against the deferred tax assets associated in the U.S. entity due to the dissolution of the Company’s domestic subsidiary in 2021 subsequent to the sale of the Foundry Services Group business and Fab 4. The offsetting expense of $9,844 thousand was included in the state net operating loss write-off in 2021, resulting in no income tax effect in the year. The Company’s parent entity in the U.S. is no longer subject to state income taxes in 2022 and thereafter. The remaining $3,959 thousand represented the release of valuation allowances based on the assessment of the realizability of the related deferred tax assets in future tax years.

A summary of the composition of net deferred income tax assets (liabilities) as of December 31, 2023 and 2022 are as follows (in thousands):

	Year Ended December 31,
	2023			2022
Deferred tax assets
Inventory reserves	$	2,519		$	3,108
Accrued expenses		1,593			1,668
Property, plant and equipment		2,679			2,685
Accumulated severance benefits		9,927			10,269
Operating lease right-of-use liabilities		997			1,098
Foreign currency translation loss		19,049			22,272
NOL carry-forwards		96,361			78,698
Tax credit carry-forwards		14,372			13,337
Other long-term payable		2,242			4,005
Interest expense deduction limitation		3,610			91
Derivative liabilities		—			427
Others		1,191			1,394
Total deferred tax assets		154,540			139,052
Less: Valuation allowance		(87,201	)		(84,563	)
		67,339			54,489
Deferred tax liabilities
Prepaid expense		1,787			3,065
Severance benefit deposits		6,456			5,364
Operating lease right-of-use assets		960			1,051
Foreign currency translation gain		6,411			5,621
Others		892			1,064
Total deferred tax liabilities		16,506			16,165
Net deferred tax assets	$	50,833		$	38,324

The Company has not recognized a deferred tax liability related to outside basis differences inherent in its foreign subsidiaries because the investments in those foreign subsidiaries within the group are essentially permanent in duration or earnings in foreign subsidiaries are intended to be indefinitely reinvested. It is not

practicable to estimate the amount of deferred income taxes not recorded that are associated with those outside basis differences. If circumstances change and it becomes apparent that the undistributed earnings from foreign subsidiaries will be remitted or the parent entity will dispose of its interest in the subsidiaries in the foreseeable future, and related income taxes have not been recognized by the parent entity, the parent entity will accrue as an expense of the current period income taxes attributable to that remittance or disposition.

Changes in valuation allowance for deferred tax assets for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):

	Year Ended December 31,
	2023			2022			2021
Beginning balance	$	84,563		$	94,212		$	115,636
Reductions		(428	)		(4,582	)		(13,803	)
Translation adjustments		3,066			(5,067	)		(7,621	)
Ending balance	$	87,201		$	84,563		$	94,212

As of December 31, 2023, 2022 and 2021, respectively, the Company recorded a valuation allowance of $87,201 thousand, $84,563 thousand, and $94,212 thousand on its deferred tax assets related to temporary differences, net operating loss carry-forwards and tax credits of domestic and foreign subsidiaries.

The Company has recorded a full valuation allowance against certain foreign subsidiaries’ deferred tax assets pertaining to its related tax loss carry-forwards that are not anticipated to generate a tax benefit. The valuation allowances at December 31, 2023, 2022, and 2021 were primarily attributable to its Luxembourg subsidiary.

The net operating loss carry-forwards balance as of December 31, 2023, 2022 and 2021 are as follows (in thousands):

	Year Ended December 31,
	2023		2022		20210
NOL carry-forwards	$	403,989	$	324,134	$	502,511

As of December 31, 2023, the Company had $403,989 thousand of net operating loss carry-forwards available to offset future taxable income, of which $282,153 thousand is associated with the Company’s Luxembourg subsidiary, mainly attributable to certain expenses incurred in connection with its shareholding in the Company’s Dutch subsidiary. Of the $282,153 thousand net operating loss carry-forwards, $273,447 thousand is carried forward indefinitely and the remaining $8,706 thousand expires from 2034 through 2040. The net operating loss carry-forwards retained by the Company’s U.S. parent amounts to $54,757 thousand, of which $4,316 thousand is carried forward indefinitely and the remaining $50,441 thousand expires at various dates through 2037. The net operating loss carry-forwards retained by the Company’s Korea subsidiary amounts to $67,076 thousand, which expires in 2038.

The Company utilized net operating loss of $1,886 thousand, $19,900 thousand, and $70,672 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. The Company also has Dutch tax credit carry-forwards of $13,840 thousand and Korea R&D tax credit $532 thousand as of December 31, 2023. The Dutch tax credits are carried forward to be used for an indefinite period of time.

Uncertainty in Income Taxes

The Company and its subsidiaries file income tax returns in Korea, Japan, Taiwan, and the US and in various other jurisdictions. The Company is subject to income- or non-income tax examinations by tax authorities of these jurisdictions for all open tax years.

As of December 31, 2023, 2022 and 2021, the Company recorded $274 thousand, $316 thousand, and $386 thousand of unrecognized tax benefits, respectively.

A tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of each period is as follows (in thousands):

	Year Ended December 31,
	2023			2022			2021
Unrecognized tax benefits, balance at the beginning	$	316		$	386		$	414
Additions based on tax positions related to the current year		25			40			44
Lapse of statute of limitations		(66	)		(73	)		(79	)
Translation adjustments		(1	)		(37	)		7
Unrecognized tax benefits, balance at the ending	$	274		$	316		$	386

No interest and penalties related to unrecognized tax benefits were recognized as of December 31, 2023, 2022, and 2021.

The Company is currently unaware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviations from this estimate over the next 12 months.