INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 21 – INCOME TAXES

The following represent components of the income tax benefit (expense) for the years ended December 31, 2021, 2020 and 2019:

	Year Ended December 31,
	2021			2020			2019
	(in thousands)
Current:
U.S. federal	$	(91	)	$	(61	)	$	-
U.S. state		(2	)		(2	)		-
Foreign		(2,195	)		(2,014	)		(3,176	)
Total current tax expense		(2,288	)		(2,077	)		(3,176	)
Deferred:
U.S. federal		2,089			7,325			3,728
U.S. state		-			-			-
Foreign		65			(2,866	)		(34	)
Total deferred tax benefit		2,154			4,459			3,694
Total income tax benefit (expense)	$	(134	)	$	2,382		$	518

Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2021 and 2020 are presented below:

	Year Ended December 31,
	2021			2020			2019
Deferred tax assets:
Net operating loss carry forwards (offshore)	$	522		$	323		$	216
Net operating loss carry forwards (U.S.) and credit		12,173			9,981			3,218
Deferred revenue (offshore)		361			556			1,181
Accruals (U.S.)		15			22			15
Reserves and other (offshore)		1,528			884			426
Stock-based compensation (U.S.)		2,283			1,599			1,168
Property and equipment (U.S.)		1			164			3
Lease liability		559			659			-
Total gross deferred tax assets		17,442			14,188			6,227
Less: valuation allowance		(919	)		(848	)		(896	)
Total deferred tax assets		16,523			13,340			5,331
Deferred tax liabilities:
Fixed assets		(589	)		(697	)		-
Deferred revenue (offshore)		(1,486	)		(967	)		-
Unrealized gain on trading securities		-			(1,886	)		-
Equity Investments		(2,584	)		-			-
Total deferred tax liabilities		(4,659	)		(3,550	)		-
Translation difference		-			-			-
Deferred tax assets, net	$	11,864		$	9,790		$	5,331

The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available evidence, a partial valuation allowance has been established against some net deferred tax assets as of December 31, 2021 and 2020, based on estimates of recoverability. In order to fully realize the U.S. deferred tax assets, the Company must generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

As of December 31, 2021 and 2020, the Company had valuation allowances, respectively, of $160 and $288 for U.S federal purposes, $237 and $237 for U.S. state purposes and $522  and $323 for PRC income tax purposes.

As of December 31, 2021 and 2020, the Company had net operating loss carry-forwards of, respectively, $56,077 and $44,333 for U.S federal purposes, $545 and $545 for U.S. state purposes and $2,086 and $1,294 for PRC income tax purposes. Such losses begin expiring in 2022, 2032 and 2022 for U.S. federal, U.S. state and PRC income tax purposes, respectively.

As of December 31, 2021 and 2020, the Company had research credit carry-forwards of, respectively, $200 and $359 for U.S. federal purposes and $377 and $377 for U.S. state purposes. Such credits begin expiring in 2022 for U.S. federal carry-forwards. There is no expiration date for U.S. state carry-forwards.

Under provisions of the U.S. Internal Revenue Code (the “IRC”), a limitation applies to the use of the U.S. net operating loss and credit carry-forwards that would be applicable if ACM experiences an “ownership change,” as defined in IRC Section 382. ACM conducted an analysis of its stock ownership under IRC Section 382 and $11,957 of the net operating loss carryforwards are subject to annual limitation as a result of the ownership change in 2017. The net operating loss carryforwards are not expected to expire before utilization.

The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 12.5% to 25% for PRC income tax purpose due to the effects of the valuation allowance and certain permanent differences as they pertain to book-tax differences in employee stock-based compensation and the value of client shares received for services. Pursuant to the Corporate Income Tax Law of the PRC, all of the Company’s PRC subsidiaries are liable to PRC Corporate Income Taxes at a rate of 25%, except for ACM Shanghai. According to Guoshuihan 2009 No. 203, if an entity is certified as an “advanced and new technology enterprise,” it is entitled to a preferential income tax rate of 12.5%. ACM Shanghai obtained the certificate of “advanced and new technology enterprise” in each of 2012, 2016 and 2018 with an effective period of three years, and the provision for PRC corporate income tax for ACM Shanghai is calculated by applying the income tax rate of 12.5% for the years ended December 31, 2021, 2020 and 2019.

Income tax expense for the years ended December 31, 2021, 2020 and 2019 differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income as a result of the following:

	Year Ended December 31,
	2021			2020			2019
Effective tax rate reconciliation:
Income tax provision at statutory rate		21.00	%		21.00	%		21.00	%
Stock Compensation		(12.75	)		(36.99	)		(1.05	)
Foreign rate differential		(11.60	)		(5.07	)		(6.44	)
Other permanent difference		(0.23	)		11.71			2.82
Foreign income taxed in US		10.32			6.05			6.94
Foreign Research Expense		(6.59	)		(8.80	)		(5.82	)
Change in valuation allowance		0.16			(0.25	)		(20.19	)
Total income tax expense (benefit)		0.31	%		(12.35	)%		(2.74	)%

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2021 and 2020, were as follows:

	Year Ended December 31,
	2021			2020		2019
Beginning balance	$	570		$	44	$	44
Increase of unrecognized tax benefits taken in prior years		52			116		-
Increase of unrecognized tax benefits related to current year		5,476			410		-
Reductions for tax positions related to prior years		(32	)		-		-
Reductions to unrecognized tax benefits related to lapsing statute of limitations		-			-		-
Ending balance	$	6,066		$	570	$	44

The Company is subject to taxation in the United States, California and foreign jurisdictions. The federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for the tax years ended December 31, 1999 through December 31, 2021. To the extent the Company has tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service or by state or foreign tax authorities to the extent utilized in a future period.

The Company had $6,066 and $570 of unrecognized tax benefits as of December 31, 2021 and 2020, respectively.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2021 and 2020, respectively, the Company had $44 and $44 of accrued penalties related to uncertain tax positions, all of which was recognized in the Company’s consolidated statements of operations and comprehensive income for the year then ended. The amount of the unrecognized tax benefit that, if recognized, would impact the effective tax rate was $5,950 as of December 31, 2021. There were no ongoing examinations by taxing authorities as of December 31, 2021 or 2020.

The Company intends to indefinitely reinvest the PRC earnings outside of the United States as of December 31, 2021 and 2020. Thus, deferred taxes are not provided in the United States for unremitted earnings in the PRC.