11. INCOME TAXES

The Company’s US and foreign pre-tax income is summarized in the table below:


Amounts in thousands	2018		2017		2016
Income before taxes:
US	$	1,329	$	1,059	$	138
Foreign		4,594		11,392		15,462
Total income before taxes	$	5,923	$	12,451	$	15,600

The Company’s provision for income taxes is summarized as follows:


	For the year
Amounts in thousands	ended December 31,
		2018		2017		2016
US - Current	$	682	$	1,283	$	85
US - Deferred		12		(786)		—
Provision for US income taxes	$	694	$	497	$	85

Foreign - Current	$	1,257	$	3,094	$	1,898
Foreign - Deferred		(34)		969		(196)
Provision for foreign income taxes		1,223		4,063		1,702
Total provision for income taxes	$	1,917	$	4,560	$	1,787

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows:


Amounts in thousands	2018	2017	2016
US Federal income tax statutory rate	21.0%	35.0%	34.0%
Foreign income taxes	8.9%	(9.1%)	(10.0%)
State income tax (net of federal benefit)	0.9%	2.4%	0.2%
Meals, entertainment, gifts & giveaways	3.1%	2.0%	1.1%
Statutory to US GAAP adjustments, including foreign currency	(16.0%)	2.8%	0.5%
Valuation allowance	—	(45.9%)	(17.4%)
Unrecognized tax benefit	1.1%	0.1%	—
Stock options	2.5%	1.6%	1.6%
Tax Act impact	7.0%	43.5%	—
Permanent and other items	3.9%	4.2%	1.5%
Total provision for income taxes	32.4%	36.6%	11.5%

The Company’s current year effective income tax rate was impacted by a decrease in pre-tax income in Canada, Poland, the United Kingdom and Mauritius. The comparison of pre-tax income of $5.9 million for the year ended December 31, 2018 compared to pre-tax income of $12.5 million for the year ended December 31, 2017 should be considered when comparing tax rates year-over-year. The Company’s overall effective tax rate of 32.4% was significantly driven by the reduction of the US corporate tax rate, various other provisions of the Tax Act, and statutory to US GAAP adjustments, including foreign currency adjustments for foreign subsidiaries. A majority of the earnings recognized by the Company during the year ended December 31, 2018 were from the Company’s properties in Canada, which accounted for 82.1% of the total tax expense recorded.

The Tax Act, which was enacted on December 22, 2017, made significant changes to the Internal Revenue Code. The Tax Act reduced the US federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries, and created new taxes on certain foreign-sourced earnings. Due to the complexities involved in accounting for the enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided guidance on accounting for the income tax effects of the Tax Act. SAB 118 provided a measurement period that may not extend beyond one year from the Tax Act enactment date to complete the accounting for the impact of the Tax Act. In 2017, the Company recorded provisional amounts for certain items required by the Tax Act that were effective for the year ended December 31, 2017 by applying the guidance of SAB 118, as accounting for these items had not been completed as of December 31, 2017. As of December 31, 2018, the Company completed its accounting for all income tax effects of the Tax Act. As further discussed below, as a component of income tax expense for 2018, the Company recognized adjustments of $0.4 million to the provisional amounts recorded during 2017.

2017 provisional amounts remeasured and adjusted in 2018 are discussed below.

Deferred tax assets and liabilities: The Company remeasured deferred tax assets and liabilities using the rates at which they are expected to reverse in the future, which would be a blended rate of 24.66%, comprised of a 21% federal rate and a 3.66% state income tax rate net of federal benefit. The provisional amounts recorded as of December 31, 2017 for the remeasurement of the Company's deferred tax assets and liabilities was an income tax expense of $0.3 million. However, this remeasurement was based on estimates as of the enactment date of the Tax Act and the Company’s current analysis of the numerous complex tax law changes in the Tax Act. Upon completing the analysis of the Tax Act and associated regulations, the Company adjusted the provision amount by less than $0.1 million, which was included as a component of income tax expense for the year ended December 31, 2018.

US taxation on foreign earnings: A key component of the Tax Act includes a one-time transition tax applied to foreign earnings that were not previously subject to US tax. This one-time transition tax is based on total post-1986 foreign earnings and profits that were previously deferred from US income taxes. The Company recorded a provisional amount of $5.1 million for the one-time transition tax liability based on its estimates of post-1986 foreign earnings and profits as of December 31, 2017. Upon further analysis of the Tax Act and notices and regulations issued and proposed by the US Treasury Department, as well the Company’s completion of post-1986 foreign earnings and profits support and historical tax pool data, the Company adjusted its provisional amount by recording an additional $0.4 million in income tax expense for the year ended December 31, 2018. The Company’s accounting for the one-time transition tax has been completed based on proposed regulations issued during 2018, which were finalized in January 2019.

The Tax Act creates a new requirement that certain income, such as global intangible low-taxed income (“GILTI”), earned by a controlled foreign corporation (“CFC”) must be included currently in the gross income of the CFC’s US shareholder, effective in 2018. Under US GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future US inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”). The Company has elected to account for GILTI as a period cost and recorded a net tax expense of less than $0.1 million for the year ended December 31, 2018. Additionally, the Tax Act provides US companies with a new permanent deduction of 37.5% for foreign derived intangible income (“FDII”). The Company recorded a tax benefit of less than $0.1 million in 2018 for the FDII deduction.

The Company records deferred tax assets and liabilities based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted statutory tax rate in effect for the year these differences are expected to be taxable or reversed. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The recorded deferred tax assets are reviewed for impairment on a quarterly basis by reviewing the Company’s internal estimates for future taxable income. The Company assesses the need for a valuation allowance based on its ability to realize the benefits of the Company’s deferred tax assets.

The Company’s deferred income taxes at December 31, 2018 and 2017 are summarized as follows:


Amounts in thousands		2018		2017
Deferred tax assets (liabilities) - US Federal and state:

Deferred tax assets
Amortization of goodwill for tax	$	140	$	175
Amortization of startup costs		70		98
Property and equipment		471		433
NOL carryforward		45		51
Accrued liabilities and other		188		172
		914		929
Valuation allowance		—		—
	$	914	$	929
Deferred tax liabilities
Prepaid expenses	$	(140)	$	(143)
	$	(140)	$	(143)
Long-term deferred tax asset	$	774	$	786

Deferred tax assets (liabilities) - foreign

Deferred tax assets
Property and equipment	$	977	$	675
NOL carryforward		2,247		2,745
Tax credits		—		—
Accrued liabilities and other		864		1,046
Contingent liability		157		348
Exchange rate gain		1,035		762
		5,280		5,576
Valuation allowance		—		—
	$	5,280	$	5,576
Deferred tax liabilities
Property and equipment	$	(2,606)	$	(2,786)
Exchange rate loss		(55)		(95)
Intangibles		(1,211)		(1,317)
Others		(637)		(642)
	$	(4,509)	$	(4,840)
Long-term deferred tax asset	$	771	$	736

The Company has analyzed filing positions in all of the US federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its US federal tax return, its state tax return in Colorado and its foreign tax returns in Canada and Poland as “major” tax jurisdictions, as defined by the Internal Revenue Code.

The Company is not currently under an income tax audit in any US or foreign jurisdiction. The Company does not maintain a valuation allowance related to its US or foreign entities, and as a result any adjustment made by a taxing authority in the future could impact the effective tax rate.

The Company’s income tax returns for the following periods are subject to examination:



Jurisdiction:		Periods
US Federal		2007-2017
US State - Colorado		2007-2017
Canada		2006-2017
Mauritius		2015-2017
Poland		2013-2017
Austria		2013-2017
United Kingdom		2017

The Company had income tax net operating loss carryforwards related to its domestic and international operations of approximately $13.0 million as of December 31, 2018. The Company had recorded $2.8 million of deferred tax assets related to the net operating loss carryforwards, excluding the impact of the adjustment of unrecognized tax benefits. The deferred tax assets expire as follows:


Amounts in thousands
2019 - 2030	$	22
2031 - 2038		1,453
No expiration		1,323
Total deferred tax assets	$	2,798

Certain net operating loss carryforwards in the Company’s filed income tax returns include unrecognized tax benefits. The deferred tax assets recognized for those net operating loss carryforwards are presented net of these unrecognized tax benefits.

As of December 31, 2018, the Company has accumulated undistributed earnings generated by its foreign subsidiaries that significantly exceed the approximately $25.8 million of cash and cash equivalents held by its foreign subsidiaries. Because substantially all of these accumulated undistributed earnings have previously been subject to the one-time transition tax on foreign earnings required by the Tax Act or have been subject to tax under the GILTI regime, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company’s foreign investments would generally be limited to foreign and state taxes. The determination of the additional deferred taxes that would be provided for undistributed earnings has not been determined because the hypothetical calculation is not practicable. The Company intends, however, to indefinitely reinvest these earnings and expects its future US cash generation to be sufficient to meet its future US cash needs.

As of December 31, 2018, the Company’s unrecognized tax benefit totaled $0.8 million. The current year unrecognized tax benefit increased as a result of the Company’s assessment of the full implementation of the Tax Act. The current year unrecognized tax benefit decreased due to a favorable change in foreign exchange rates. A portion of this adjustment has been recorded as a component of taxes payable, and a portion of this adjustment has been recorded as a reduction to deferred tax assets in the accompanying consolidated balance sheet as of December 31, 2018. It is not anticipated that certain tax positions will be resolved within the next 12 months, which would decrease the Company’s balance of unrecognized tax benefits. The Company may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. The Company’s total amount of unrecognized tax benefit and changes to unrecognized tax benefit during the years ended December 31, 2018 and 2017 are summarized in the table below:


Amounts in thousands	2018		2017
Unrecognized tax benefit - January 1	$	803	$	754
Gross increases - tax positions in prior period		66		49
Gross decreases - tax positions in prior period		(49)		—
Gross increases - tax positions in current period		—		—
Settlements		—		—
Lapse of statute of limitations		—		—
Unrecognized tax benefit - December 31	$	820	$	803

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued penalties and interest of less than $0.1 million during 2018 and 2017. The $0.8 million balance of unrecognized tax benefits, if recognized, would affect the effective tax rate.