Post-effective amendment to a registration statement that is not immediately effective upon filing

INCOME TAXES

v3.22.1
INCOME TAXES
12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES

 

20. INCOME TAXES

 

The Company is subject to federal and various state income taxes in the U.S. as well as income taxes in various foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations. The Company is no longer subject to U.S. federal tax examinations for years through 2017, nor to corporate tax examination for years through 2018 in the U.K. In addition, the statute of limitations for years through 2016 in Israel has expired.

 

The income tax credit of $0.7 million in the year ended December 31, 2021 is comprised primarily of a $1.5 million claim of U.K. tax credits for 2020 and 2021 under the Research and Development Expenditure Credit (“RDEC”) regime, offset by an income tax charge of $0.4 million mainly incurred in Japan, a tax charge of $0.3 incurred in India due to Indian transfer pricing controls and a $0.1 million charge related to various foreign jurisdictions. The income tax credit of $0.8 million in the year ended December 31, 2020 is comprised primarily of a $1.8 million claim of tax credits for 2019 and 2020 under the RDEC regime, offset by an income tax charge of $0.8 million mainly incurred in Japan, a tax charge of $0.1 incurred in India due to Indian transfer pricing controls and a $0.1 million charge related to various foreign jurisdictions.

 

 

The provision for income taxes consists of the following (in thousands):

 

               
   

Year Ended

December 31,

 
    2021     2020  
Current tax provision:                
Federal   $

    $ (28
State     1        
Foreign     (691     (754
Total current     (690     (782
                 
Deferred tax provision:                
Federal            
State            
Total deferred            
Total income tax benefit   $ (690   $ (782

 

The loss before tax was $70.1 million and $26.4 million which includes $30.7 million and $15.6 million loss before tax attributable to domestic U.S. operations for the years ended December 31, 2021 and 2020, respectively. The Company did not record a material income tax benefit for the tax losses generated in any of the territories in which it operates because it has experienced operating losses since inception.

 

At December 31, 2021, the Company had the following net operating loss (“NOL”) carry-forwards (gross, in thousands):

 

             
Country     NOL Carryforwards     Expiry Terms
U.K.     $ 262,434     Does not expire
U.S.       207,015     Expires in up to 16 years
U.S.       24,632     Does not expire
Australia       5,220     Does not expire
Israel       281,173     Does not expire
Finland       338     Expires in up to 7 years
Other       1,991     Expires in up to 5 years

 

Significant components of the Company’s deferred tax assets are as follows (in thousands):

 

               
    As of
December 31,
 
    2021     2020  
Net operating loss carryforwards   $ 154,210     $ 145,355  
Fixed assets     2,037       2,539  
R&D amortization     6,613       6,393  
Accruals and reserves     10,813       8,238  
R&D and other credits     4,267       4,191  
Share-based compensation     2,645       2,306  
Total deferred tax assets     180,585       169,022  
Intangible assets     (1,145 )     (1,395 )
Total deferred tax liabilities     (1,145 )     (1,395 )
Valuation allowance     (179,440 )     (167,627 )
Total deferred tax assets, net   $     $  

 

The Company recorded a change in valuation allowance amounting to $11.8 million and $13.4 million for the years ended December 31, 2021 and 2020, respectively.

 

The following is a reconciliation of income taxes, calculated at the effective U.S. federal income tax rate, to the income tax benefit (expense) included in the accompanying consolidated statements of operations for each of the years (in thousands):

 

               
    Years Ended
December 31,
 
    2021     2020  
Expected income tax benefit at U.S. rates   $ 14,713     $ 5,549  
Difference between U.S. rate and rates applicable to subsidiaries in other jurisdictions     238       (301 )
Expenditures not deductible for tax purposes     (198 )     (43 )
Non-deductible officer compensation     (1,656 )      
Fair market value changes     1,590        
Expiry of foreign taxable losses     (4,493 )     6,218  
Other     599       502  
Valuation allowance on tax benefits     (11,817 )     (13,385 )
UK R&D tax credits     1,714       2,242  
Income tax benefit   $ 690     $ 782  

 

Utilization of the U.S. net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and similar state provisions, due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. As of December 31, 2021, the Company has not completed a 2021 Section 382 study to assess whether a change of ownership has occurred in connection with certain of its U.S. net operating losses and credit carryforwards

 

Since the Company’s utilization of these deferred tax assets is dependent on future profits, a valuation allowance equal to the net deferred tax assets has been provided as it is considered more likely than not that such assets will not be realized. The valuation allowance includes a reduction in deferred tax assets through tax rate reductions in non-US jurisdictions. Through December 31, 2021, the Company has historically concluded that a full valuation allowance is required to offset the net deferred tax assets.