|12 Months Ended|
Dec. 30, 2017
|Income Taxes [Abstract]|
NOTE D – INCOME TAXES
NOTE D – INCOME TAXES – CONTINUED
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to existing U.S. tax laws that impact the Company. Most notably, the Tax Act reduced the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. The Tax Act also provides for a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (“Repatriation Tax”) and the acceleration of depreciation for certain assets placed in service after September 27, 2017. The Tax Act also establishes prospective changes beginning in 2018 including the move to a modified territorial system, the repeal of the domestic production activity deduction, limitations on the deductibility of certain executive compensation, and other new international tax provisions.
The Company recognized the income tax effects of the Tax Act in its 2017 financial statements in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the application of ASC 740, Income Taxes, in the reporting period in which the Tax Act was signed into law. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. The Company was able to determine reasonable estimates for all applicable aspects of the Tax Act.
As a result of the Tax Act, the Company has recorded a discrete net tax expense of $30,136 in the period ending December 30, 2017. The primary components of this net expense include $12,823 for valuation allowances on foreign tax credit and research credit carryforwards, $12,562 for the accrual of withholding taxes on unremitted foreign earnings, $2,681 related to the revaluation of U.S. deferred tax assets and liabilities at the new corporate tax rate of 21 percent, and $2,070 for the Repatriation Tax.
Valuation allowances: The Company has considered the impact of the Tax Act on the valuation of its deferred tax assets. The reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent affects the Company’s ability to utilize U.S. foreign tax credits because the vast majority of the Company’s U.S. taxable earnings are from countries with tax rates greater than 21 percent, inclusive of withholding taxes. Therefore, the Company anticipates excess U.S. foreign tax credits for the foreseeable future. Due to this expectation, the Company determined it is more likely than not that the U.S. foreign tax credit carryovers or federal research credit carryovers, which are only available after the utilization of foreign tax credits, will not be utilized prior to expiration. As such, the Company recorded a $10,057 valuation allowance on foreign tax credits and a $633 valuation allowance on research credit carryovers. The Company also recorded a $2,133 valuation allowance on mirrored deferred tax assets recorded in the U.S. to offset deferred tax liabilities of foreign disregarded entities, which will generate additional U.S. foreign tax credits in the future. This valuation allowance is necessary because the Company is limited in its ability to utilize future U.S. foreign tax credits due to the decrease in the U.S. corporate tax rate. In total, the Company has recorded a valuation allowance of $12,823 as a result of the Tax Act.
Withholding Tax Liability: As a result of the Tax Act, the Company will also be limited in is ability to claim a U.S. foreign tax credit benefit for foreign withholding taxes on future dividends. Thus, the Company established a $12,562 deferred tax liability for future withholding taxes on accumulated foreign earnings.
Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. Consequently, the Company has revalued its deferred tax assets and liabilities and recorded a corresponding adjustment to deferred income tax expense of $2,681 for the year ended December 30, 2017.
Repatriation Tax: The Repatriation Tax is a tax on previously untaxed accumulated and current earnings and profits of certain of the Company’s foreign subsidiaries. Because the historical earnings of these foreign subsidiaries were previously considered to be indefinitely reinvested, the Company has recorded tax expense of $2,070 for the Repatriation Tax, which has been fully offset by foreign tax credits.
At December 30, 2017, the Company had foreign tax credit carryforwards of approximately $10,057. If unused, these carryforwards will expire between 2026 and 2027. The Company also has $633 of research credit carryforwards, which will expire between 2036 and 2037 if unused. The Company has placed a full valuation allowance on both the foreign tax credit carryforwards and research credit carryforwards as discussed above. In addition, the Company reported $2,278 of foreign operating loss carry forwards, $2,203 of which have an unlimited carryforward. The deferred tax asset associated with these losses is $759. A full valuation allowance has been placed against the deferred tax asset associated with these foreign operating loss carryforwards.
NOTE D – INCOME TAXES – CONTINUED
The valuation allowance primarily represents amounts for tax credit carryforwards and foreign operating loss carry forwards. However, valuation allowances on other U.S. and foreign deferred tax assets were $398 for a combined valuation allowance of $13,980 as of December 30, 2017. Valuation allowances are determined using a more likely than not realization criteria and are based upon all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. When the Company determines that there is sufficient taxable income to utilize the net operating losses, the valuation allowance will be released which would reduce the provision for income taxes.
As of December 30, 2017, the Company has recorded U.S. tax on all of its accumulated undistributed earnings generated by foreign subsidiaries and is no longer asserting its position that foreign earnings will be indefinitely reinvested abroad. The Company has recorded deferred tax liabilities for foreign withholding taxes associated with the foreign retained earnings in countries with withholding taxes on dividend distributions.
The Company recognizes the impact of a tax position in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of December 31, 2016 and December 30, 2017, the Company had no significant unrecognized tax benefits.
From time to time, the Company is subject to federal, state, and foreign tax authority income tax examinations. The Company remains subject to income tax examinations for each of its open tax years, which extend back to 2014 under most circumstances. Certain taxing jurisdictions may provide for additional open years depending upon their statutes or if an audit is ongoing.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef