| Income Taxes | 16. Income
Taxes
The
Company’s income tax expenses are composed of domestic and
foreign income taxes depending on the relevant tax jurisdictions.
Domestic income (loss) before taxes and income tax expenses are
generated or incurred in the United States, where the parent
company resides.
The
components of income tax expense are as follows:
Year Ended
December 31,
2015 2014 2013
Income (loss) before
income taxes
Domestic $ 32,903 $ (22,146 ) $ (6,127 )
Foreign (132,857 ) (93,563 ) (54,106 )
$ (99,954 ) $ (115,709 ) $ (60,233 )
Current income taxes
expense (benefit)
Domestic $ 25 $ (3,300 ) $ (2,258 )
Foreign (14,301 ) 3,312 4,875
Uncertain tax position
liability (Domestic) 10 10 (87 )
Uncertain tax position
liability (Foreign) (1,220 ) (66 ) 7
(15,486 ) (44 ) 2,537
Deferred income taxes
expense (benefit)
Foreign 399 1,567 1,433
Total income tax expense
(benefit) $ (15,087 ) $ 1,523 $ 3,970
Effective tax
rate 15.1 % — —
The
differences between the annual effective tax rates and the U.S.
federal statutory rate of 35.0% primarily result from the
non-income based withholding tax attributable to intercompany
interest income of the Company’s Dutch subsidiary,
application of lower tax rates associated with certain earnings
from the Company’s operations outside the U.S., the parent
Company’s interest income, which is non-taxable for US tax
purposes and the change of valuation allowance of deferred tax
assets. The significant increase in income tax benefit in 2015 is
due to the reversal of withholding tax payable with respect to the
waiver of the accrued interest on the loans granted to the Korean
subsidiary by the Dutch subsidiary. On December 7, 2015, the
Company’s Korean and Dutch subsidiaries agreed that the Dutch
subsidiary waives and releases a partial amount of unpaid interest
of $174,201 thousand on its intercompany loans granted to the
Korean subsidiary. This transaction created a taxable income for
the Korean subsidiary but did not result in a liability because of
the utilization of expired loss carryforwards, which is deductible
only against gains from cancellation of debt. The loss was not tax
deductible for the Dutch subsidiary. This transaction also resulted
in taxable loss for the Luxemburg subsidiary that is reflected
below as a permanent impairment and this tax benefit was offset by
an increase in the change in valuation allowance. In connection
with the waiver of unpaid interest, the related withholding tax was
reversed, resulting in the recognition of income tax benefit of
$17,756 thousand as of December 31, 2015.
The statutory
income tax rate of the Company’s Korean subsidiary,
applicable to the Company was approximately 24.2% in 2015, 2014 and
2013.
The provision
for domestic and foreign income taxes incurred is different from
the amount calculated by applying the statutory tax rate to the net
income before income taxes. The significant items causing this
difference are as follows:
Year Ended
December 31,
2015 2014 2013
Provision computed at
statutory rate $ (34,984 ) $ (40,498 ) $ (21,082 )
Difference in foreign tax
rates 24,359 10,130 5,375
Permanent
differences
Derivative assets
adjustment (143 ) (1,526 ) 1,469
TPECs, hybrid and other
interest (27,273 ) (6,813 ) (3,151 )
Permanent
impairment (62,334 ) — —
Thin
capitalization 2,457 — —
Permanent foreign
currency gain (loss) 11,575 (901 ) 3,351
Non-deductible
settlement — 6,318 —
Non-deductible bad debt
expense 89 — —
Other permanent
differences (69 ) (1,097 ) (881 )
Withholding
tax (14,457 ) 3,506 3,918
Foreign exchange rate
adjustment (8,954 ) 4,687 (7,455 )
Change in valuation
allowance 95,757 29,484 24,062
Tax credit (875 ) (1,811 ) (1,818 )
Uncertain tax positions
liability (1,211 ) (56 ) (80 )
Others 976 100 262
Income tax expenses
(benefit) $ (15,087 ) $ 1,523 $ 3,970
A summary of
the composition of net deferred income tax assets (liabilities) as
of December 31, 2015, 2014 and 2013 are as follows:
Year-Ended
December 31,
2015 2014 2013
Deferred tax
assets
Accounts
receivables $ — $ 1,076 $ 28,628
Inventories 4,063 11,015 5,866
Derivative
assets 10 — —
Accrued
expenses 12,939 9,030 8,758
Product
warranties 345 719 292
Other reserves 474 457 684
Royalty income — 147 1,364
Property, plant and
equipment 13,986 15,914 13,667
Intangible
assets 407 780 922
Accumulated severance
benefits 31,038 30,413 27,769
Foreign currency
translation loss 52,294 17,496 12,220
NOL
carry-forwards 155,545 80,979 53,714
Tax credit 21,868 25,161 26,041
Other long-term
payable 2,385 1,034 608
Others 1,974 1,990 2,887
Total deferred tax
assets 297,328 196,211 183,420
Less: Valuation
allowance (279,867 ) (194,739 ) (178,729 )
17,461 1,472 4,691
Deferred tax
liabilities
Derivative
assets — — 1,189
Foreign currency
translation gain 14,859 748 19
Prepaid
expense 1,953 — —
Others 478 147 1,239
Total deferred tax
liabilities 17,290 895 2,447
Net deferred tax
assets $ 171 $ 577 $ 2,244
Reported
as
Current deferred income
tax assets $ 34 $ 237 $ 1,348
Non-current deferred
income tax assets $ 238 $ 415 $ 896
Current deferred income
tax liabilities $ (98 ) $ (72 ) $ —
Non-current deferred
income tax liabilities $ (3 ) $ (3 ) $ —
The valuation
allowances at December 31, 2015, 2014 and 2013 are primarily
attributable to deferred tax assets for the uncertainty in taxable
income at the Company’s Korean subsidiary. The Company has
recorded a full valuation allowance against the deferred tax
assets, net of its deferred tax liabilities, and against certain
foreign subsidiary’s deferred tax assets pertaining to its
related tax loss carry-forwards that are not anticipated to
generate a tax benefit.
Changes in
valuation allowance for deferred tax assets for the years ended
December 31, 2015, 2014 and 2013 are as follows:
Year Ended
December 31,
2015 2014 2013
Beginning
balance $ 194,739 $ 178,729 $ 162,968
Charged to
expense 95,757 29,484 24,062
NOL/tax credit
expiration (1,197 ) (7,605 ) (10,150 )
Translation
adjustments (9,432 ) (5,869 ) 1,849
Ending balance $ 279,867 $ 194,739 $ 178,729
The amount
presented as “Charged to expense” primarily relates to
the utilization of net operating loss and tax credit
carry-forwards, or pre-tax losses for which there is no tax
benefit.
The
evaluation of the recoverability of the deferred tax asset and the
need for a valuation allowance requires the Company to weigh all
positive and negative evidence to reach a conclusion that it is
more likely than not that all or some portion of the deferred tax
asset will not be realized. The weight given to the evidence is
commensurate with the extent to which it can be objectively
verified. The more negative evidence that exists, the more positive
evidence is necessary and the more difficult it is to support a
conclusion that a valuation allowance is not needed. Realization of
the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company’s ability to
generate future taxable income within the period during which the
temporary differences reverse, the outlook for the economic
environment in which the Company operates and the overall future
industry outlook.
As of
December 31, 2015, 2014 and 2013, the Company had net deferred
tax assets of $171 thousand, $577 thousand and $2,244
thousand, respectively, related to the Company’s Japanese
subsidiary. As of December 31, 2015, 2014 and 2013, the
Company recorded a valuation allowance of $279,867 thousand,
$194,739 thousand and $178,729 thousand on its deferred tax assets
related to temporary differences, net operating loss carry-forwards
and tax credit in domestic and foreign subsidiaries. The Company
maintained to record these valuation allowances on deferred tax
assets based on its assessment that the negative evidence of
expected losses in early future years outweighed the positive
evidence of historical income.
As of
December 31, 2015, the Company had approximately $587,115
thousand of net operating loss carry-forwards available to offset
future taxable income, of which $274,672 thousand is associated
with the Company’s Korean subsidiary, which expires in part
at various dates through 2025. The net operating loss of $269,381
thousand associated with the Company’s Luxembourg subsidiary
is carried forward indefinitely. The remaining net operating loss
mainly relates to US corporation, which expires in part at various
dates through 2035. The Company utilized net operating loss of $121
thousand, $1,219 thousand and $69,159 thousand, for the years ended
December 31, 2015, 2014 and 2013, respectively. The Company
also has Korean, Dutch and U.S. tax credit carry-forwards of
approximately $7,811 thousand, $13,668 thousand and $390 thousand,
respectively, as of December 31, 2015. The Korean tax credits
expire at various dates starting from 2016 to 2020, and the Dutch
tax credits are carried forward to be used for an indefinite period
of time.
Uncertainty in Income Taxes
The Company
and its subsidiaries file income tax returns in Korea, Japan,
Taiwan, the U.S. and in various other jurisdictions. The
Company is subject to income tax examinations by tax authorities of
these jurisdictions for all open tax years.
As of
December 31, 2015, 2014 and 2013, the Company recorded $2,139
thousand, $3,495 thousand and $3,706 thousand of liabilities for
unrecognized tax benefits, respectively. For the years ended
December 31, 2015, 2014 and 2013, the Company recorded $1,606
thousand, $110 thousand and $106 thousand of income tax benefits by
reversing liabilities due to the lapse of the applicable statute of
limitations and incurred $351 thousand, $44 thousand and $7
thousand of income tax expenses for uncertain tax positions mainly
resulting from withholding taxes related to intercompany
balances.
For the years
ended December 31, 2015, 2014 and 2013, the Company recognized
$45 thousand, $10 thousand, $20 thousand of interest and penalties
related to unrecognized tax benefits as a component of income tax
expense. Total interest and penalties accrued as of
December 31, 2015, 2014 and 2013 were $359 thousand, $480
thousand and $530 thousand, respectively.
The company
is currently unaware of any uncertain tax positions that could
result in significant additional payments, accruals, or other
material deviation in this estimate over the next 12
months.
A tabular
reconciliation of the total amounts of unrecognized tax benefits at
the beginning and end of each period is as follows:
Year Ended
December 31,
2015 2014 2013
Unrecognized tax
benefits, balance at the beginning $ 14,969 $ 11,865 $ 11,196
Additions based on tax
positions related to the current year 1,789 4,472 1,690
Additions for tax
positions of prior years — 47 —
Lapse of statute of
limitations (2,142 ) (1,040 ) (1,067 )
Translation
adjustments (1,286 ) (375 ) 46
Unrecognized tax
benefits, balance at the ending $ 13,330 $ 14,969 $ 11,865 |
