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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income (loss) before taxes on income is comprised as follows:
Year ended December 31,
202120202019
Domestic$(11,098)$1,241 $(6,689)
Foreign863 (853)257 
Total income (loss) before income taxes
$(10,235)$388 $(6,432)
Income taxes are comprised as follows:
Year ended December 31,
202120202019
Current income tax provision (benefit):  
Domestic(8)96 25 
Foreign1,245 1,104 877 
Total current income tax (benefit) provision
$1,237 $1,200 $902 
A reconciliation of the U. S. statutory income tax rate to the Company’s effective income tax rate for continuing operations is as follows:
Year ended December 31,
202120202019
Income (loss) before income taxes
Domestic$(11,098)$1,241 $(6,689)
Foreign863 (853)257 
Total income (loss) before income taxes
(10,235)388 (6,432)
US statutory rate21 %21 %21 %
Income taxed computed at U. S. federal
statutory rate(2,149)81 (1,351)
Foreign rate differential(14)(155)(52)
State and local income taxes(359)207 (464)
Non-deductible expenses81 40 114 
Share-based compensation (118)100 98 
GILTI308 — 261 
Change in valuation allowance1,493 159 1,661 
Tax credits(338)(469)(301)
Changes in uncertain tax positions881 956 880 
Foreign currency adjustment(22)187 22 
Withholding tax266 113 73 
162m Addback538 — — 
Transaction Costs578 — — 
Warrants - MTM160 (5)5 
Tax Inflation Adjustment185 — — 
Tax Impact of Tax Rate Changes111 (33)(61)
Other(364)19 17 
Total income tax provision
$1,237 $1,200 $902 
Effective income tax rate
(12)%309 %(14)%
The Company’s effective tax rate is subject to significant variations due to several factors, including variability in pre-tax and taxable income (loss) and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in the Company’s currently established valuation allowance, foreign currency gains (losses), and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized.
Significant factors that impacted the Company’s effective tax rate between 2021 and 2020 were related to a pre-tax loss in 2021 compared to pre-tax income in 2020, offset by increases in non-deductible expenses, GILTI, uncertain tax positions and increase in valuation allowance.
A significant factor that impacted the Company’s effective tax rate between 2020 and 2019 was GILTI. Innovid Argentina generated a taxable loss in 2020 and therefore generated a tested loss for GILTI purposes. As a result, the tested income of the remaining foreign subsidiaries was offset entirely by the tested loss of Innovid Argentina. Thus, the Company does not have a GILTI inclusion for the 2020 tax year.
Deferred income taxes are provided for the effects of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Significant components of deferred tax assets and deferred tax liabilities consisted of the following:
December 31,
20212020
Deferred tax assets  
Loss carryforwards$10,201 $9,131 
Tax credits1,128 891 
Interest limitation carryforwards25 — 
Accrued expenses597 716 
Share-based compensation127 106 
Fixed assets and intangibles180 176 
Other187 164 
Total deferred tax assets, gross
12,445 11,184 
Valuation allowance(12,445)(11,184)
Total deferred tax assets, net
— — 
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset its deferred tax assets at December 31, 2021 and 2020 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.
The Israeli corporate tax rate was 23% in 2021, 2020 and 2019. The Company’s production facilities in Israel have been granted the status of a “preferred enterprise” under the Law for the Encouragement of Capital Investments Law, 1959. According to the provisions of the Encouragement of Capital Investments Law, 1959, the Company has been granted a reduced tax rate. A preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9%. The tax rate applicable to preferred enterprises located in other areas remains at 16%.
Foreign withholding taxes and Internal Revenue Code Section 986(c) gains and losses have not been recorded on permanently reinvested earnings of certain subsidiaries aggregating $8,720 and $7,594 as of December 31, 2021 and 2020, respectively. The amount of deferred international withholding taxes and Internal Revenue Code Section 986(c) gains and losses relating to these subsidiaries is approximately $1,224 and $873 as of December 31, 2021 and 2020, respectively.
The Company’s gross NOLs for tax return purposes are as follows:
Year ended December 31,
20212020
Domestic NOLs (federal)36,817 32,948 
Domestic NOLs (state and local)36,245 29,567 
Foreign NOLs1,136 1,740 
Total
74,198 64,255 
Domestic (federal and state) NOLs expire in various year starting from 2030 through an indefinite period. Foreign NOLs expire starting from 2026. A portion of domestic (federal and state) NOLs are subject to Internal Revenue Code Section 382 or similar provisions, but the net operating loss carryforwards are expected to be fully realized. The table above reflects gross NOLs for tax return purposes which are different than financial statement NOLs, as the Company’s intention is to settle additional income taxes from tax contingencies with NOLs. The other tax credit carryforwards expire in various years beginning in 2033. The Company’s intention is to settle the tax contingencies associated with the research and development credits with the attribute.
The Company’s unrecognized tax benefits are reconciled as follows:
December 31,
20212020
Gross unrecognized tax benefits as of January 1
2,373 1,438 
Increases - prior year tax positions508 — 
Decreases - prior year tax positions(410)— 
Increases - current year tax positions691 935 
Gross unrecognized tax benefits as of December 31
3,162 2,373 
The balances of unrecognized tax benefits as of December 31, 2021 and 2020 are $3,162 and $2,373, respectively of which $3,162 and $2,373, respectively represent amounts that, if recognized, impact the effective income tax rate in future periods.
The Company recognized interest related to unrecognized tax benefits in its income tax provision. The Company accrued $136 and $49 for interest as of December 31, 2021 and 2020, respectively.
The Company is subject to income taxes in the US and several foreign jurisdictions including Australia, Argentina, the UK and Israel. Significant judgment is required in evaluating the Company’s tax positions and determining the Company’s provision for income taxes. During the ordinary course of business there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite the belief that the Company’s tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
The Company estimates that it is reasonably possible that the balance in unrecognized tax benefits as of December 31, 2021 will decrease by approximately $82 in the next 12 months. The unrecognized tax benefits relate to research and development credits and currently established positions in Israel.
The Company’s Israeli Subsidiary is currently under examination by the taxing authorities for 2016 to 2019 tax periods.. The last tax assessment that was received by the Company related to tax years through 2014 in Israel.