Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income tax provision (benefit) attributable to the Company for the year ended December 31, 2023, 2022 and 2021, respectively, are as follows (in thousands):
Year Ended December 31,
2023 2022 2021
U.S. current income tax expense $ 715  $ 61  $ 290 
U.S. deferred income tax benefit —  (207) (23,740)
Foreign current income tax expense 13,269  5,846  8,852 
Foreign deferred income tax (benefit) expense (1,687) 7,907  (8,265)
Total $ 12,297  $ 13,607  $ (22,863)

A reconciliation of the statutory federal income tax amount to the recorded expense is as follows (in thousands):
Year Ended December 31,
2023 2022 2021
Income (loss) before income taxes $ 9,134  $ 12,988  $ (124,293)
Statutory income tax rate 21  % 21  % 21  %
Expected income tax expense (benefit) 1,918  2,727  (26,102)
Interest and penalties 2,269  1,677  1,043 
Foreign income tax rate differential 3,416  4,311  (282)
Foreign earnings (loss) not in reported income 5,188  1,565  (336)
Foreign tax credits (11,193) (3,646) (7,749)
Withholding taxes 1,340  1,677  (49)
Other permanent differences 1,011  322  478 
State tax benefit 227  (1,129) (2,449)
Return to provision (11) (116) 390 
Change in valuation allowance 8,132  6,219  12,193 
Total $ 12,297  $ 13,607  $ (22,863)

The Company’s effective tax rate was 134.6% for the year ended December 31, 2023 compared to 104.8% for the year ended December 31, 2022 and 18.4% for the year ended December 31, 2021.

The effective tax rate for the years ended December 31, 2023, 2022 and 2021 differed from the statutory rate of 21% primarily due to the mix of earnings between the United States and Puerto Rico, changes in the valuation allowance and interest and penalties. The Company recorded interest and penalties expense of $1.8 million, $1.7 million and $1.0 million during the years ended December 31, 2023, 2022 and 2021, respectively, related to the 2020, 2021 and 2022 tax year returns in Puerto Rico. Additionally, the Company recorded interest expense of $0.5 million during the year ended December 31, 2023 related to the 2019 tax year return in the United States.
Deferred tax liabilities attributable to the Company consisted of the following (in thousands):
Year Ended December 31,
2023 2022
Deferred tax assets:
Lease asset $ 3,249  $ 4,287 
Intangible assets 997  952 
Accrued liabilities 3,712  926 
Net operating loss carryover 4,334  9,674 
Foreign tax credits 96,303  86,311 
Other 1,315  1,994 
Valuation allowance (86,432) (78,298)
Deferred tax assets 23,478  25,846 
Deferred tax liabilities:
Property and equipment $ (14,708) $ (18,989)
Lease liability (3,160) (4,057)
Prepaid expenses (2,586) (2,573)
Other (1,808) (698)
Deferred tax liabilities (22,262) (26,317)
Net deferred tax (liability) asset $ 1,216  $ (471)
Reflected in accompanying balance sheet as:
Deferred income tax asset $ 1,844  $ — 
Deferred income tax liability (628) (471)
Total $ 1,216  $ (471)

During the years ended December 31, 2023 and 2022, the Company recorded changes in its valuation allowance of $8.1 million and $6.2 million, respectively, related to deferred tax assets that are not expected to be utilized. The Company has foreign tax credits carryforwards of $96.3 million as of December 31, 2023. These credits have a 10-year carryforward period and begin to expire in 2028.

The Company maintains a partial valuation allowance related to U.S. foreign tax credit carryforwards, as it cannot objectively assert that these deferred tax assets are more likely than not to be realized. All available positive and negative evidence was weighed to determine whether a valuation allowance was necessary. The more significant evidential matter is the higher foreign tax rate applied to foreign source income in comparison to the U.S. Federal tax rate of 21%. As a result, the Company has foreign tax credits in excess of the corresponding U.S. income tax liability for which the foreign tax credits are allowed as an offset and, therefore, are not likely to be realized.

At December 31, 2023, the Company had undistributed earnings in its Puerto Rico foreign branch. The distribution of these undistributed earnings is subject to a withholding tax in Puerto Rico and since the Company intends to make these distributions in the future, the withholding tax has been accrued.

The Company has recorded interest and penalties payable of $5.0 million and $2.7 million at December 31, 2023 and 2022, respectively, related to the 2020, 2021 and 2022 tax year returns in Puerto Rico and the 2019 tax year return in the United States. It is the Company’s policy to recognize interest and applicable penalties in income tax expense.

The Company did not have any uncertain tax positions for the years ended December 31, 2023 and 2022.

The Company’s U.S. federal tax returns for tax years 2018 through 2023 remain subject to examination by the tax authorities. The Company’s state and local income tax returns for tax years 2017 through 2023 remain subject to examination, with few exceptions, by the respective tax authorities. Puerto Rico tax returns for tax years 2018 through
2023 and Canada tax returns for the tax years 2016 through 2023 remain open to examination by the respective tax authorities.