Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

21. Income Taxes

Effective Income Tax Rate – Three Months Ended March 31, 2019 and March 31, 2018

The Company’s effective income tax rate for the three months ended March 31, 2019 of negative 13.5% resulted in an income tax benefit of $1,049. The Company’s effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a $4,309 reduction in unrecognized tax benefits, a non-taxable gain on revaluation of deferred consideration and a lower tax rate on foreign earnings, partly offset by a valuation allowance on foreign net operating losses, tax shortfalls associated with the vesting and exercise of stock-based compensation awards and state and local income taxes.

The Company’s effective income tax rate for the three months ended March 31, 2018 of 32.3% resulted in income tax expense of $4,498. The Company’s effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses and state and local income taxes, partly offset by tax windfalls associated with the vesting and exercise of stock-based compensation awards.

Deferred Tax Assets

A summary of the components of the Company’s deferred tax assets at March 31, 2019 and December 31, 2018 are as follows:

	March 31, 2019			December 31, 2018
Deferred tax assets:
NOLs – Foreign	$	8,222		$	6,605
Goodwill and intangible assets		1,794			1,841
Accrued expenses		1,358			2,699
Stock-based compensation		1,189			2,673
Net lease liability		1,172			1,184
Capital losses		794			794
NOLs – U.S.		635			762
Other		37			40
Deferred tax assets		15,201			16,598
Deferred tax liabilities:
Fixed assets and prepaid assets		1,439			1,433
Unrealized gains		748			724
Deferred tax liabilities		2,187			2,157
Total deferred tax assets less deferred tax liabilities		13,014			14,441
Less: valuation allowance		(9,016	)		(7,399	)
Deferred tax assets, net	$	3,998		$	7,042

Net Operating Losses – U.S.

The Company’s pre-tax federal net operating losses for tax purposes (“NOLs”) at March 31, 2019 were $2,622 which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in Internal Revenue Code Section 382 that arose as a result of an ownership change.

The Company’s pre-tax capital loss at March 31, 2019 was $3,278. A full valuation allowance was established as it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

Net Operating Losses – Foreign

Certain of the Company’s European subsidiaries and its Canadian subsidiary generated NOLs outside the U.S. These tax effected NOLs were $8,222 and $6,605 at March 31, 2019 and December 31, 2018, respectively. The Company established a full valuation allowance related to these NOLs as it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. Approximately $4,050 of these NOLs at March 31, 2019 expire between the years 2036 and 2039. The remainder is carried forward indefinitely.

Uncertain Tax Positions

Tax positions are evaluated utilizing a two-step process. The Company first determines whether any of its tax positions are more-likely-than-not to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

In connection with the ETFS Acquisition, the Company accrued a liability for uncertain tax positions and interest and penalties at the acquisition date. The table below sets forth the aggregate changes in the balance of these gross unrecognized tax benefits for the three months ended March 31, 2019:

	Total			Unrecognized Tax Benefits			Interest and Penalties
Balance on January 1, 2019	$	34,876		$	28,101		$	6,775
Decrease—Lapse of statute of limitations		(4,309	)		(2,999	)		(1,310	)
Increases		101			—			101
Foreign currency translation(1)		925			745			180
Balance at March 31, 2019	$	31,593		$	25,847		$	5,746

(1) The gross unrecognized tax benefits were accrued in British pounds sterling.

The Company also recorded an offsetting indemnification asset provided by ETFS Capital as part of its agreement to indemnify the Company for any potential claims, for which an amount is being held in escrow. ETFS Capital has also agreed to provide additional collateral by maintaining a minimum working capital balance up to a stipulated amount. The decrease resulting from the lapsing of the statute of limitations of $4,309 was recorded as an income tax benefit and an equal and offsetting amount to reduce the indemnification asset was recorded in other losses, net.

The gross unrecognized tax benefits and interest and penalties totaling $31,593 at March 31, 2019 are included in other non-current liabilities on the Consolidated Balance Sheet. It is expected that the amount of unrecognized tax benefits will change in the next 12 months; however, the Company does not expect the change to have a material impact on its consolidated financial statements.  

At March 31, 2019, there were $25,847 of unrecognized tax benefits that, if recognized, would impact the effective tax rate. The recognition of any unrecognized tax benefits would result in an equal and offsetting adjustment to the indemnification asset which would be recorded in income before taxes due to the indemnity for any potential claims.

Income Tax Examinations

The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. The Company’s federal tax return and ManJer’s tax return (a Jersey-based subsidiary) for the year ended December 31, 2016 are currently under review by the relevant tax authorities. The Company is indemnified by ETFS Capital for any potential exposure associated with ManJer’s tax return under audit. 

The Company is not currently under audit in any other income tax jurisdictions. As of March 31, 2019, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for years before 2015.

Undistributed Earnings of Foreign Subsidiaries

The Company recognizes deferred tax liabilities for withholding taxes that may become payable, where applicable, upon the distribution of earnings and profits from foreign subsidiaries unless considered permanent in duration. As of March 31, 2019, the Company considers all undistributed foreign earnings and profits to be permanent in duration.