| Income Taxes | 16. Income Taxes In August 2022, the U.S. President signed into law the IRA, which revised U.S. tax law by, among other things, including a new CAMT of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing various incentives to address climate change, including the introduction of the advanced manufacturing production credit. The provisions of the IRA are generally effective for tax years beginning after 2022. Given the complexities of the IRA, which is pending technical guidance and regulations from the IRS and U.S. Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations. In November 2022, the U.S. Treasury Department released proposed foreign tax credit (“FTC”) regulations addressing various aspects of the U.S. FTC regime. Among other items, these proposed regulations provide certain exceptions for determining creditable foreign withholding taxes. Taxpayers may rely on these proposed regulations, which apply to tax years beginning on or after December 28, 2021. As a result of these proposed regulations, foreign withholding taxes will continue to be creditable. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes a number of federal corporate tax relief provisions that are intended to support the ongoing liquidity of U.S. corporations. Among other provisions, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years. As a result of the CARES Act, we expect to carry back our 2019 and 2020 net operating losses to our 2016 U.S. corporate income tax return, which restores certain foreign tax credits we expect to utilize by amending our 2017 and 2018 U.S. corporate income tax returns. Such amended returns restore other general business credits we expect to utilize in future tax years before the credits expire and eliminate the transition tax liability for accumulated earnings of foreign subsidiaries resulting from the Tax Cuts and Jobs Act. As a result, we recorded a tax benefit of $89.7 million for the year ended December 31, 2020, which represents the one-time income tax benefit for the difference between the statutory federal corporate income tax rate of 35% applicable to our 2016 U.S. corporate income tax return and the current federal corporate income tax rate of 21%. Any changes to the estimate will be recorded in the period the carry back claims are filed. Although we continue to evaluate our plans for the reinvestment or repatriation of unremitted foreign earnings, we expect to indefinitely reinvest the earnings of our foreign subsidiaries to fund our international operations, with the exception of certain subsidiaries for which applicable taxes have been recorded as of December 31, 2022. Accordingly, we have not recorded any provision for additional U.S. or foreign withholding taxes related to the outside basis differences of our foreign subsidiaries in which we expect to indefinitely reinvest their earnings. However, our future plans for repatriation of unremitted foreign earnings could be affected by our current and future expansion activities and the timing of the IRA credits, the majority of which are expected to be refunded in cash. The U.S. and non-U.S. components of our income or loss before income taxes for the years ended December 31, 2022, 2021, and 2020 were as follows (in thousands): 2022 2021 2020 U.S. (loss) income $ (17,652) $ 315,297 $ 22,475 Non-U.S. income 26,250 256,865 270,715 Income before taxes and equity in earnings $ 8,598 $ 572,162 $ 293,190 The components of our income tax expense or benefit for the years ended December 31, 2022, 2021, and 2020 were as follows (in thousands): 2022 2021 2020 Current expense (benefit): Federal $ 8,434 $ 9,531 $ (149,162) State 399 3,469 4,027 Foreign 49,984 10,109 26,303 Total current expense (benefit) 58,817 23,109 (118,832) Deferred (benefit) expense: Federal (13,928) 58,510 12,681 State (700) 3,775 7,591 Foreign 8,575 18,075 (8,734) Total deferred (benefit) expense (6,053) 80,360 11,538 Total income tax expense (benefit) $ 52,764 $ 103,469 $ (107,294) Our Malaysian subsidiary has been granted a long-term tax holiday that expires in 2027. The tax holiday, which generally provides for a full exemption from Malaysian income tax, is conditional upon our continued compliance with meeting certain employment and investment thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday in 2027. Our Vietnamese subsidiary had previously been granted a tax incentive that provided a two-year tax exemption, which began in 2020, and reduced annual tax rates through the end of 2025. In May 2022, our Vietnamese subsidiary was granted a new long-term tax incentive that provides an additional two-year tax exemption and reduced annual tax rates through 2036, conditional upon our continued compliance with certain revenue and R&D spending thresholds, which we are currently in compliance with and expect to continue to comply with through the expiration of the tax holiday. Our income tax results differed from the amount computed by applying the relevant U.S. statutory federal corporate income tax rate to our income or loss before income taxes for the following reasons for the years ended December 31, 2022, 2021, and 2020 (in thousands): 2022 2021 2020 Tax Percent Tax Percent Tax Percent Statutory income tax expense $ 1,806 21.0 % $ 120,154 21.0 % $ 61,570 21.0 % Effect of tax holiday 27,424 318.9 % (32,339) (5.7) % (11,500) (3.9) % Changes in valuation allowance 22,239 258.6 % 2,603 0.5 % (31,671) (10.8) % Non-deductible expenses 10,776 125.3 % 3,955 0.7 % 3,834 1.3 % Change in tax contingency 4,326 50.3 % 2,198 0.4 % (59,010) (20.1) % Foreign dividend income 2,857 33.2 % 2,611 0.5 % 3,004 1.0 % Effect of CARES Act 1,127 13.1 % 1,880 0.3 % (89,699) (30.6) % State tax, net of federal benefit 700 8.1 % 4,757 0.8 % 11,059 3.8 % Share-based compensation (1,017) (11.8) % (2,991) (0.5) % (720) (0.2) % Return to provision adjustments (1,767) (20.5) % (4,932) (0.9) % 2,414 0.8 % Foreign tax rate differential (4,227) (49.1) % 4,632 0.8 % 6,135 2.1 % Tax credits (12,654) (147.2) % (3,395) (0.6) % (8,091) (2.8) % Other 1,174 13.8 % 4,336 0.8 % 5,381 1.8 % Reported income tax expense (benefit) $ 52,764 613.7 % $ 103,469 18.1 % $ (107,294) (36.6) % During the year ended December 31, 2022, we received net tax refunds of $3.9 million. During the years ended December 31, 2021 and 2020, we made net tax payments of $38.2 million and $22.2 million, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities calculated under U.S. GAAP and the amounts calculated for preparing our income tax returns. The items that gave rise to our deferred taxes as of December 31, 2022 and 2021 were as follows (in thousands): 2022 2021 Deferred tax assets: Net operating losses $ 122,950 $ 110,979 Tax credits 103,260 86,885 Capitalized research and development 32,932 — Accrued expenses 28,226 35,193 Long-term contracts 23,531 9,065 Compensation 13,167 10,551 Equity in earnings 4,172 4,174 Deferred expenses 1,735 1,786 Inventory 1,490 10,057 Restricted marketable securities and derivatives 357 — Goodwill and intangible assets 221 1,784 Other 23,249 24,244 Deferred tax assets, gross 355,290 294,718 Valuation allowance (135,763) (123,917) Deferred tax assets, net of valuation allowance 219,527 170,801 Deferred tax liabilities: Property, plant and equipment (150,477) (106,361) Investment in foreign subsidiaries (5,689) (15,583) Acquisition accounting / basis difference (4,065) (4,065) Capitalized interest (1,331) (1,338) Restricted marketable securities and derivatives — (4,337) Other (8,214) (7,654) Deferred tax liabilities (169,776) (139,338) Net deferred tax assets $ 49,751 $ 31,463 We use the deferral method of accounting for investment tax credits under which the credits are recognized as reductions in the carrying value of the related assets. The use of the deferral method also results in a basis difference from the recognition of a deferred tax asset and an immediate income tax benefit for the future tax depreciation of the related assets. Such basis differences are accounted for pursuant to the income statement method. The following table shows changes in the valuation allowance against our deferred tax assets during the years ended December 31, 2022, 2021, and 2020 (in thousands): 2022 2021 2020 Valuation allowance, beginning of year $ 123,917 $ 127,711 $ 151,705 Additions 58,922 8,976 23,884 Reversals (47,076) (12,770) (47,878) Valuation allowance, end of year $ 135,763 $ 123,917 $ 127,711 We maintained a valuation allowance of $135.8 million and $123.9 million as of December 31, 2022 and 2021, respectively, against certain of our deferred tax assets, as it is more likely than not that such amounts will not be fully realized. During the year ended December 31, 2022, the valuation allowance increased by $11.8 million primarily due to current year operating losses in certain jurisdictions, partially offset by the partial release of the valuation allowance in jurisdictions with current year operating income. As of December 31, 2022, we had federal and aggregate state net operating loss carryforwards of $9.0 million and $423.3 million, respectively. As of December 31, 2021, we had federal and aggregate state net operating loss carryforwards of $10.4 million and $428.5 million, respectively. If not used, the federal net operating loss carryforwards incurred prior to 2018 will begin to expire in 2030, and the state net operating loss carryforwards will begin to expire in 2029. Federal net operating losses arising in tax years beginning in 2018 may be carried forward indefinitely, and the associated deduction is limited to 80% of taxable income. The utilization of our net operating loss carryforwards is also subject to an annual limitation under Section 382 of the IRC due to changes in ownership. Based on our analysis, we do not believe such limitation will impact our realization of the net operating loss carryforwards as we anticipate utilizing them prior to expiration. As of December 31, 2022, we had U.S. foreign tax credit carryforwards of $9.3 million, federal and state research and development credit carryforwards of $63.8 million, and investment tax credits of $55.4 million available to reduce future federal and state income tax liabilities. If not used, these credits will begin to expire in 2028, 2029, and 2029, respectively. The following table shows a reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions for the years ended December 31, 2022, 2021, and 2020 (in thousands): 2022 2021 2020 Unrecognized tax benefits, beginning of year $ 7,811 $ 5,370 $ 72,169 Increases related to prior year tax positions 4,569 — 169 Decreases related to prior year tax positions — (44) (256) Decreases from lapse in statute of limitations (361) (492) (67,396) Increases related to current tax positions 2,474 2,977 684 Unrecognized tax benefits, end of year $ 14,493 $ 7,811 $ 5,370 If recognized, $14.5 million of unrecognized tax benefits, excluding interest and penalties, would reduce our annual effective tax rate. Due to the uncertain and complex application of tax laws and regulations, it is possible that the ultimate resolution of uncertain tax positions may result in liabilities that could be materially different from these estimates. In such an event, we will record additional tax expense or benefit in the period in which such resolution occurs. Our policy is to recognize any interest and penalties that we may incur related to our tax positions as a component of income tax expense or benefit. During the years ended December 31, 2022, 2021, and 2020, we recognized interest and penalties of $0.3 million, $0.3 million, and $5.3 million, respectively, related to unrecognized tax benefits. We are subject to audit by federal, state, local, and foreign tax authorities. We are currently under examination in India, Japan, Chile, Singapore, and the state of California. We believe that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed by our tax examinations are not resolved in a manner consistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. The following table summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the most significant jurisdictions in which we operate: Tax Years Vietnam 2012 - 2021 Singapore 2017 - 2021 United States 2018 - 2021 Malaysia 2019 - 2021 In certain of the jurisdictions noted above, we operate through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, tax years are not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination. |
