Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

(a)CIT

Ideanomics, Inc., and its US subsidiaries are subject to U.S. federal and state income tax.

Taxes that are based on gross revenue, rather than net income, are not CIT. In the year ended December 31, 2023, the Company incurred $0.1 million of such taxes that are included in selling, general and administrative expense in the statement of operations.

CB Cayman was incorporated in the Cayman Islands as an exempted company and is not subject to income tax under the current laws of the Cayman Islands.

Mobile Energy Operation Group Limited, M.Y. Products Global Limited and M.Y. Products Global Holdings Limited were incorporated in the British Virgin Islands (BVI) and are not subject to income tax under the current laws of the British Virgin Islands.

Medici Operation Limited and MEG Technology Services Group Limited were incorporated in Hong Kong. Their activities relate to support and ownership of businesses outside of Hong Kong, and consequently their expenses do not create operating loss carryovers.

Tree Technologies is subject to Malaysian federal income tax.

During the year ended December 31, 2022, Tree Technologies recorded a $4.2 million deferred tax benefit resulting almost entirely from the reduction of deferred tax liabilities that accompanied a total impairment of the land-use rights.

At the acquisition of a controlling interest in Energica on March 14, 2022, the Company recognized approximately $6.4 million of deferred tax liabilities related to various intangible assets not recognized for CIT purposes. This was in combination with some smaller temporary differences, as well as net of deferred tax assets, principally related to net operating loss carryovers.

During the period from its acquisition on March 14, 2022 and the end of 2022, Energica and its U.S. subsidiary recorded an income tax benefit of $3.5 million. This arose principally from the reduction of deferred tax liabilities as a result of amortization of the intangible assets as well as from net operating losses for the period, the deferred tax assets from which can be used, with limitations, to offset a portion of Energica’s deferred tax liabilities.

During each of the years ended December 31, 2023 and December 31, 2022, Energica recorded a $1 million deferred tax benefit resulting almost entirely from the reduction of deferred tax liabilities that accompanied a total impairment of the intangible assets.

At the acquisition of a controlling interest in VIA Motors on January 31, 2023, the Company recognized approximately $4.2 million of deferred tax liabilities related to various intangible assets not recognized for CIT purposes. This was in combination with some smaller temporary differences, as well as net of deferred tax assets, principally related to net operating loss carryovers. During the period from its acquisition on January 31, 2023 and the end of 2023, VIA Motors recorded an income tax benefit of $4.2 million. This arose principally from the reduction of deferred tax liabilities as a result of amortization of the intangible assets as well as from net operating losses for the period, the deferred tax assets from which can be used, with limitations, to offset a portion of VIA Motors deferred tax liabilities.

With the exception of the two Hong Kong companies, the three BVI companies, SSE, incorporated in Singapore, and M.Y. Products LLC, all subsidiaries of Ideanomics China are PRC entities. The income tax provision of these entities is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in the PRC.

In accordance with the CIT Law, effective beginning on January 1, 2008, enterprises established under the laws of foreign countries or regions and whose “place of effective management” is located within the PRC territory are considered PRC resident enterprises and subject to the PRC income tax at the rate of 25.0% on worldwide income. The definition of “place of effective management” refers to an establishment that exercises, in substance, and among other items, overall management and control over the production and business, personnel, accounting, and properties of an enterprise. If the Company’s non-PRC incorporated entities are deemed PRC tax residents, such entities would be subject to PRC tax under the CIT Law. Since our non-PRC entities have accumulated losses, the application of this tax rule will not result in any PRC tax liability, if our non-PRC incorporated entities are deemed PRC tax residents.

The CIT Law imposes a 10.0% withholding income tax, subject to reduction based on tax treaty where applicable, for dividends distributed by a FIE to its immediate holding company outside China. Under the PRC-HK tax treaty, the withholding tax on dividends is 5.0% provided that a HK holding company qualifies as a HK tax resident as defined in the tax treaty. No provision was made for the withholding income tax liability as the Company’s foreign subsidiaries were in accumulated loss.

Loss before tax (after impairment of an equity in loss of equity method investees) and the provision for income tax benefit consists of the following components (in thousands):

	2023		2022
Loss before tax, after impairment of and equity in loss of equity method investees
United States	$	(190,246)	$	(208,155)
PRC/Italy/Hong Kong/Malaysia and other	(46,140)		(81,672)
	(236,386)		(289,827)
Deferred tax expense (benefit) of net operating loss
United States - Federal	—		(261)
United States - State	—		(197)
PRC/Italy/Hong Kong/Malaysia and other	—		(2,143)
	—		(2,601)
Deferred tax (benefit) of a decrease in the beginning of the year
Valuation allowance as a result of a change in circumstances	—		—
United States - Federal	—		—
United States - State	—		—
PRC/Italy/Hong Kong/Malaysia and other	—		—
	—		—
Deferred tax expense (benefit) other than the above two categories
United States - Federal	(3,604)		(116)
United States - State	—		(218)
PRC/Italy/Hong Kong/Malaysia and other	(1,638)		1,060
	(5,242)		726
Total deferred income tax (expense) benefit	(5,242)		(1,875)
Current tax expense (benefit) other than benefit of net operating loss
United States - Federal	—		—
United States - State	—		301
PRC/Hong Kong/Singapore/Malaysia	—		—
Total current income tax (expense) benefit	—		301
Total income tax expense (benefit)	$	(5,242)	$	(1,574)

At the acquisition of each of Timios, WAVE, US Hybrid and Solectrac in 2021 and VIA Motors in 2023, the companies immediately became includable in the consolidated federal tax return of Ideanomics. WAVE will be included in the state tax returns of Ideanomics. In the case of each acquisition, intangible assets were recognized for financial reporting purposes that were not recognized for income tax purposes. This, in combination with some smaller temporary differences of the five acquired businesses, resulted in the recognition of $12.2 million deferred tax liabilities. The federal deferred tax liabilities, and the WAVE state deferred tax liabilities created, resulted in the valuation allowance on Ideanomics’ deferred tax assets being reduced. by a similar amount. Ideanomics’ net deferred tax assets that had previously been judged to be more likely that not to be unable to reduce the Company’s income tax liability. As a result, the net deferred tax assets were completely offset by a valuation allowance. Once the acquisitions of five acquired businesses occurred, a portion of Ideanomics’ deferred tax assets could be utilized in offsetting the newly acquired deferred tax liabilities, this resulted in income tax benefits of $4.2 million $10.1 million recorded in 2023 and 2022, respectively.

The current CIT for 2021 all relates to Timios, which had taxable income since its acquisition in January 2021 resulting from the non-deductibility of amortization and impairment charges. The current CIT for 2022 also relates to Timios arising from adjustments of prior period estimated amounts.

A reconciliation of the expected income tax derived by the application of the U.S. CIT rate to the Company’s loss before income tax benefit is as follows:

	2023		2022		2021
U. S. statutory income tax rate	21.0	%	21.0	%	21.0	%
Non-deductible expenses:
Non-deductible stock awards	—		(0.8)		(0.6)
Non-deductible impairment or disposal of goodwill	(4.3)		(2.7)		(10.5)
Non-deductible acquisition costs	(0.3)		(0.1)		(0.7)
Non-deductible officers’ compensation	(0.1)		(0.1)		(0.6)
Non-deductible interest expenses	(0.3)		(0.1)		(0.2)
Additional tax cost basis on disposal of subsidiary	—		—		0.4
Expiration of and disposal of subsidiary NOL carryovers	(0.5)		—		(0.5)
Change in state tax rates due to change in state apportionment	(0.2)		(1.1)		1.1
Increase in valuation allowance	(23.3)		(19.8)		(10.3)
Tax rate differential(state and foreign)	3.1		3.7		5.0
Non-taxable gain on remeasurement of previously held equity interest Energica	—		1.4		—
Non-taxable gain Non-deductible (loss) on contingent consideration	6.6		—		0.9
Others	0.8		(0.6)		(0.6)
Effective income tax rate	2.5	%	0.8	%	4.4	%

The Company’s acquisition of WAVE in 2022, which is included with Ideanomics in all state income tax filings, is expected to have a significant effect on the states to which Ideanomics’ income and loss is apportioned. This results in a higher income tax rate at which many of Ideanomics deductible temporary differences are expected to reverse. The increase in the expected rate consequently resulted in a significant increase in the related deferred tax assets in 2022, which were then offset with a valuation allowance.

The Company's acquisition of VIA Motors in 2023 will impact the income apportioned to each state. The change in the expected tax rate was used to determine the value of the deferred tax assets in 2023, offset by a corresponding valuation allowance.

Deferred income taxes are recognized for future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2023 and 2022 are as follows (in thousands):

	December 31, 2023		December 31, 2022
U.S. NOL	$	107,626	$	73,209
Foreign NOL	18,920		14,340
U.S. capital loss carryover	6,620		841
U. S. Section 1231 carryover	2,209		2,274
Accrued payroll and expense	1,141		963
Nonqualified options	4,595		3,661
Intangible assets	15,051		3,247
Inventory reserve	1,817		884
Bad debt allowance	654		346
Impaired assets	10,056		28,497
Urealized losses	314		345
Other	714		218
Property and equipment	1,533		—
Equity investment loss and others	4,794		5,505
Total deferred tax assets	176,044		134,330
Less: valuation allowance	(170,841)		(123,310)
Property and equipment	—		(292)
Intangible assets	(6,211)		(12,707)
Outside basis in domestic subsidiary and other	(937)		(1,021)
Total deferred tax liabilities	(7,148)		(14,020)
Net deferred tax assets (liabilities)	$	(1,945)	$	(3,000)

As of December 31, 2023, 2022 and 2021, the Company had U.S. domestic cumulative tax loss carryforwards of $444.5 million, $303.7 million and $191.4 million, respectively, and foreign cumulative tax loss carryforwards of $78.7 million, $59.0 million and $26.9 million, respectively, which may be available to reduce future income tax liabilities in certain jurisdictions. $28.2 million of the U.S. carryforwards expire in the years 2027 through 2037. The remaining U.S. tax loss is not subject to expiration. PRC tax loss carryforwards of $26.9 million will expire beginning year 2024 to year 2028. Italian tax loss carryforwards of $42.8 million, do not expire. Malaysian tax loss carryforwards of $5.9 million will expire in the years 2030 to 2032. At December 31, 2023, the Company also has U.S. capital loss and section 1231 loss carryovers of $27.3 million and $9.1 million respectively. The capital loss carryover expires in 2028, while the 1231 loss carryover does not expire. Utilization of NOLs may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code and similar state and foreign provisions. This annual limitation may result in the expiration of NOLs before utilization. Management has however, excluded from the carryforward totals amounts shown on the tax returns but for which management has assessed cannot be used before expiration because of the annual limitations.

The Company has conducted an analysis of potential limitations of the use of its loss US loss carryovers under Internal Revenue Code section 382, and has concluded that as of December 31, 2022, any such limitations would not have a significant impact on the ability to utilize the loss carryovers and other deferred tax assets discussed above.

Subsequent to December 31, 2022, the Company believes that the VIA transaction (see Note 25), in combination with previous issuances of Company stock, triggered the imposition of limits on the future use of losses that previously did not have any material limitations to approximately $4.8 million per year. This limit would not only apply to loss carryovers, but also to approximately $10.1 million of future amortization deductions. The limit would also apply to any realization in the next five years of the losses that give rise to the $34.3 million of deferred tax assets above that relate to impaired assets and equity method losses. Any portion of the annual limit not used on one year can be carried forward and used in later years.

The triggering of the 382 limitations has an immaterial effect on the net deferred tax assets due to the current valuation allowance. Under the limitations, it would still be at least theoretically possible to eventually utilize all of the Company’s deferred tax assets.

Realization of the Company’s net deferred tax assets is largely dependent upon the Company’s ability to generate future taxable income in the respective tax jurisdictions to obtain benefit from the reversal of temporary differences and NOL carryforwards. It is, however, possible that the Company could record an income tax benefit in 2024 or later years from the reduction of the valuation allowance resulting from acquisitions in which deferred tax liabilities are recorded. In such a case, as occurred in 2022, deferred tax assets could be utilized to offset the acquired deferred tax liabilities. The valuation allowance increased by $47.5 million, $48.3 million and $28.2 million in the years ended December 31, 2023, 2022 and 2021, respectively.

The following table reflects the changes in the valuation allowance (in thousands):

Valuation allowance - January 1, 2021	$	46,732
Increase - year ended December 31, 2021	28,240
Valuation allowance - December 31, 2021	74,972
Increase - year ended December 31, 2022	48,338
Valuation allowance - December 31, 2022	123,310
Increase - year ended December 31, 2023	47,531
Valuation allowance - December 31, 2023	$	170,841

(b)Uncertain Tax Positions

Accounting guidance for recognizing and measuring uncertain tax positions prescribes a threshold condition that a tax position must meet for any of the benefit of uncertain tax position to be recognized in the financial statements. The deferred tax assets listed above as of December 31, 2023 and 2022, do not include $0.3 million of potential deferred tax assets, arising in the current year, not recognized because they do not meet the threshold for recognition. If these assets were to be recognized they would be fully offset by a valuation allowance. There were no other identified uncertain tax positions December 31, 2023, 2022 and 2021.

The following table reflects changes in the gross unrecognized tax positions (in thousands):

Unrecognized tax benefits at beginning of year - January 1, 2021	$	256
Gross changes - year ended December 31, 2021	—
Unrecognized tax benefits at end of year - December 31, 2021	256
Gross changes - year ended December 31, 2022	—
Unrecognized tax benefits at end of year - December 31, 2022	256
Gross increases - current year tax positions	—
Unrecognized tax benefits at end of year - December 31, 2023	$	256

As of December 31, 2023, 2022 and 2021, the Company did not accrue any material interest and penalties. The Company’s United States federal and state income tax returns are generally subject to examination for potential assessment for 2018 and later years. The use of U.S. net operating loss carryovers from earlier years are subject to challenge in any future year utilized. Due to the uncertainty regarding the filing of tax returns for years before 2007, it is possible that the Company is subject to examination by the IRS for earlier years. All of the PRC tax returns for the PRC operating companies are subject to examination by the PRC tax authorities for all periods from the companies’ inceptions in 2009 through 2023 as applicable. All of Tree Technologies’ tax returns since inception in 2020 are subject to examination by the Malaysian tax authorities. Energica’s tax returns are subject to examination by Italian tax authorities for 2017 and later years.