Income Taxes

3 Months Ended

Mar. 31, 2022

Income Taxes

Income Taxes

Note 6. Income Taxes

The 2017 Tax Cuts and Jobs Act (“Jobs Act”) was enacted on December 22, 2017. The Jobs Act revised the U.S. corporate income tax by lowering the statutory corporate tax rate from 35% to 21% in 2018. The Company generates income in higher tax rate foreign locations, which result in foreign tax credits. The lower federal corporate tax rate reduces the likelihood of our utilization of foreign tax credits created by income taxes paid in Puerto Rico and Latin America, resulting in a valuation allowance. Additionally, the Company evaluated the potential interest limitation established under the Jobs Act and determined that it would affect the 2022 provision for income taxes.

The Company has historically calculated the provision for income taxes during interim periods by applying an estimated annual effective tax rate for the full fiscal year to income (loss) before income taxes for the reporting period. Since the Company determined that relatively small changes in estimated annual income (loss) before income taxes could result in significant changes in the estimated annual effective tax rate, the Company has calculated the income tax provision using a discrete rate of 8.6% based on the actual income before income taxes for the three months ended March 31, 2022, for all jurisdictions, except for Puerto Rico, as permitted under ASC 740-270-30-36,“Income Taxes - Interim Reporting” The difference between the discrete rate of 8.6% and the statutory Federal income tax rate of 21% in the three months ended March 31, 2022, is primarily due to permanent items, foreign tax credit limitation, and limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m). The losses at Canal 1 are excluded from the provision expense since these losses create a deferred tax asset and due to the uncertainty of the realizability, the Company has recorded a full valuation allowance. The Puerto Rico jurisdiction continues to be computed utilizing an estimated annual effective rate of 25.5%.The difference between the Puerto Rico tax rate of 37.5% and the estimated annual effective rate of 25.5%,is primarily due to a reduced income tax rate in Puerto Rico on specific revenue related to local programming.

For the three months ended March 31, 2021 our income tax expense has been computed utilizing an estimated annual effective tax rate 47.2% for all jurisdictions. The difference between the annual effective rate of 47.2% and the statutory Federal income tax rate of 21% in the three month period ended March 31, 2021, is primarily due to the impact of the Tax Act, which impacted the valuation allowance on foreign tax credits, and limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m). The annual effective tax rate related to income generated in the U.S. is 31.8%. Due to the reduced U.S. tax rate, the Company determined that a portion of its foreign income, which is taxed at a higher rate, will result in the generation of excess foreign tax credits that will not be available to offset U.S. income tax. As a result, 15.4% of the annual effective rate relates to the required valuation allowance against the excess foreign tax credits, bringing the annual effective tax rate for the three month period ended March 31, 2021 to 47.2%. Additionally, the gain related to the step acquisition of Pantaya of $30.1 million was determined to be significant and infrequent, and as a result, this item has not been included in the annual effective tax rate.

Income tax benefit was $0.4 million for the three months ended March 31, 2022. Income tax expense was $1.3 million for the three months ended March 31, 2021.