Income Taxes

The components of (loss) income before income taxes for the years ended twelve months ended December 31, are as follows:



(Loss) Income Before Income Taxes:	2018			2017			2016

Ireland	$	(42,604	)	$	(3,123	)	$	(22,866	)
United States	(70,340		)	92,754			32,786
France	(253		)	3,029			(19,638		)
Total (loss) income before income taxes	$	(113,197	)	$	92,660		$	(9,718	)

The income tax provision consists of the following for the years ended December 31:



Income Tax (Benefit) Provision:	2018			2017		2016

Current:
United States - Federal	$	—		$	18,064	$	30,738
United States - State	330			331		1,081
France	—			265		5,267
Total current	330			18,660		37,086

Deferred:
United States - Federal	(19,503		)	4,686		(6,443		)
United States - State	1,280			1,043		(23		)
France	—			—		938
Total deferred	(18,223		)	5,729		(5,528		)

Income tax (benefit) provision	$	(17,893	)	$	24,389	$	31,558

The reconciliation between Domestic income taxes at the statutory rate and the Company’s (benefit) provision for income taxes is as follows for the years ended December 31:



Reconciliation to Effective Income Tax Rate:	2018			2017			2016

Statutory tax rate	12.5		%	12.5		%	12.5		%
Differences in international tax rates	8.0		%	22.2		%	(31.9		)%
Nondeductible changes in fair value of contingent consideration	4.0		%	(11.6		)%	(165.0		)%
Income tax deferred charge	—		%	—		%	(9.7		)%
Change in valuation allowances	(5.3		)%	(0.7		)%	11.8		%
Nondeductible stock-based compensation	(1.3		)%	(0.4		)%	(14.8		)%
Cross border merger	—		%	0.3		%	(100.6		)%
Unrealized tax benefits	(1.3		)%	1.4		%	(15.2		)%
State and local taxes (net of federal)	(0.3		)%	0.3		%	(9.6		)%
Change in U.S. tax law	(0.2		)%	3.8		%	—		%
Nondeductible interest expense	(1.1		)%	—		%	—		%
Other	0.7		%	(1.5		)%	(2.3		)%
Effective income tax rate	15.7		%	26.3		%	(324.8		)%

Income tax (benefit) provision - at statutory tax rate	$	(14,149	)	$	11,582		$	(1,215	)
Differences in international tax rates	(9,039		)	20,557			3,097
Nondeductible changes in fair value of contingent consideration	(4,559		)	(10,779		)	16,036
Income tax deferred charge	—			—			938
Change in valuation allowances	5,998			(610		)	(1,143		)
Nondeductible stock-based compensation	1,499			(375		)	1,436
Cross-border merger	—			265			9,773
Unrecognized tax benefits	1,440			1,296			1,475
State and local taxes (net of federal)	299			252			934
Change in U.S. tax law	274			3,513			—
Nondeductible interest expense	1,269			—			—
Other	(925		)	(1,312		)	227
Income tax (benefit) provision - at effective income tax rate	$	(17,893	)	$	24,389		$	31,558

In 2018, the income tax provision decreased by $42,282 when compared to the same period in 2017. The decrease in the income tax provision was primarily driven by a significant reduction in the amount of taxable income recorded in the U.S. and Ireland in 2018, when compared to 2017. There was also a significant increase in valuation allowance in 2018, when compared to the same period in 2017 as a result of the decrease in taxable income in Ireland. In 2018, there was a significant decrease in amounts related to change in U.S. tax law due to the 2017 U.S. Tax Cuts and Jobs Act.

In 2017, the income tax provision decreased by $7,169 when compared to the same period in 2016. The decrease in the income tax provision was primarily driven by a significant reduction in the amount of taxable income recorded in the U.S. in 2017, when compared to 2016. In 2017, the Company did not incur any significant additional income tax provision associated with the Cross-Border Merger as a majority of the transaction was completed in 2016. In 2017, the Company recorded $3,513 of tax provision associated with the U.S. Tax Cuts and Jobs Act signed into law in the U.S. in December of 2017.

Unrecognized Tax Benefits

The Company or one of its subsidiaries files income tax returns in Ireland, France, U.S. and various states. With few exceptions, the Company is no longer subject to Irish, French, U.S. Federal, and state and local examinations for years before 2014. The Internal Revenue Service (IRS) commenced an examination of the Company's U.S. income tax return for 2015 in the 4th quarter of 2016. The French tax authority commenced an examination of the Company's French tax return for 2017 in the first quarter of 2019.

The following table summarizes the activity related to the Company’s unrecognized tax benefits for the twelve months ended December 31:



Unrecognized Tax Benefit Activity	2018		2017		2016

Balance at January 1:	$	3,954	$	1,686	$	448
Additions based on tax positions related to the current year	1,087		2,268		1,578
Increases (decreases) for tax positions of prior years	274		—		(340		)
Balance at December 31:	$	5,315	$	3,954	$	1,686

The Company does not expect within the next twelve months, as a result of activities performed in various jurisdictions, that the unrecognized tax benefits will change. However, interest and penalties could change by up to $500.

At December 31, 2018, 2017, and 2016, there are $4,597, $3,349, and $1,565 of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2018, 2017, and 2016, the Company recognized approximately $725, $304, and $26 in interest and penalties. The Company had approximately $1,057, and $331 for the payment of interest and penalties accrued at December 31, 2018, and 2017, respectively.

Deferred Tax Assets (Liabilities)

Deferred income tax provisions reflect the effect of temporary differences between consolidated financial statement and tax reporting of income and expense items. The net deferred tax assets/liabilities at December 31, 2018 and 2017 resulted from the following temporary differences:



Net Deferred Tax Assets and Liabilities:	2018			2017

Deferred tax assets:
Net operating loss carryforwards	$	19,510		$	9,831
Amortization	20,642			7,563
Stock based compensation	4,587			4,375
Fair value royalty agreements	—			635
Fair value contingent consideration	384			870
Other	479			406
Gross deferred tax assets	45,602			23,680

Deferred tax liabilities:
Amortization	(308		)	(2,419		)
Accounts receivable	(661		)	(936		)
Prepaid expenses	(405		)	(1,094		)
Gross deferred tax liabilities	(1,374		)	(4,449		)

Less: valuation allowances	(21,199		)	(15,354		)

Net deferred tax assets	$	23,029		$	3,877

At December 31, 2018, the Company had $72,453 of net operating losses in Ireland and $3,259 of net operating losses in France that do not have an expiration date and $25,840 of net operating losses and carryforwards in the U.S. Of the $25,840 of net operating losses and carryforwards in the U.S., $10,365 were acquired due to the acquisition of FSC in 2016 and $15,475 is due to the losses and carryforwards generated at U.S. Holdings in 2018. The portion due to the acquisition of FSC will expire in 2034 through 2035. A valuation allowance is recorded if, based on the weight of available evidence, it is more likely than not that a deferred tax asset will not be realized. This assessment is based on an evaluation of the level of historical taxable income and projections for future taxable income. While the Company believes it is more likely than not that it will be able to realize the deferred tax assets in the U.S., the Company continues to monitor changes in the U.S. hospital products market as unfavorable changes could ultimately impact our assessment of the realizability of our U.S. deferred tax assets. The U.S. net operating losses are subject to an annual limitation as a result of the FSC acquisition under Internal Revenue Code Section 382 and may not be fully utilized before they expire.

We recorded a valuation allowance against all of our net operating losses in Ireland and France as of both December 31, 2018, and December 31, 2017. We intend to continue maintaining a full valuation allowance on the Irish and French net operating losses until there is sufficient evidence to support the reversal of all or some portion of these allowances.

At December 31, 2018, the Company has unremitted earnings of $2,798 outside of Ireland as measured on a U.S. GAAP basis. Whereas the measure of earnings for purposes of taxation of a distribution may be different for tax purposes, these earnings, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends or if the Company were to sell our stock in the subsidiaries, net of any prior income taxes paid. It is not practicable to estimate the amount of deferred tax liability on such earnings, if any.

Research and Development Tax Credits Receivable

The French and Irish governments provide tax credits to companies for spending on innovative R&D. These credits are recorded as an offset of R&D expenses and are credited against income taxes payable in years after being incurred or, if not so utilized, are recoverable in cash after a specified period of time, which may differ depending on the tax credit regime. As of December 31, 2018, the Company’s research tax credit receivable, net amounts to $7,555 and represents a French gross research tax credit of $6,922 and an Irish gross research tax credit of $633. As of December 31, 2017, the Company’s net research tax credit receivable amounted to $5,272 and represented a French gross research tax credit of $4,754 and an Irish gross research tax credit of $518.

Income Tax Deferred Charge

On December 16, 2014, we transferred all of our intangible intellectual property from our French entity to our Irish entity as part of a global reorganization. The intellectual property includes patents on drug delivery platforms, clinical data sets and other intangible assets related to the pipeline of proprietary products in development. This intra-entity transaction resulted in a charge of $14,088 of related taxes to the French government in December 2014. As this represents an intra-entity transaction, no deferred tax asset was originally recognized, but rather was recorded as $986 of prepaid expenses and $13,102 of a long-term income tax deferred charge asset in accordance with ASC 740-10-25-3 (e). This income tax deferred charge asset is amortized over the tax life of the asset at a rate of 7% per year and will result in tax relief in Ireland of $8,500 from 2016 to 2029, subject to the ability to realize tax benefits for additional deductions. At December 31, 2016, the balance of these respective accounts was classified as prepaid expenses of $814 and income tax deferred charge asset of $10,342. In 2017, the Company adopted the provisions of ASU 2016-16, related to Intra-Entity Transfers of Assets Other Than Inventory. Adoption of ASU 2016-16 eliminated the $11,156 income tax deferred charge recorded within the consolidated balance sheet as of December 31, 2016. In addition to the elimination of the income tax deferred charge, the Company recorded a deferred tax asset of $7,954 related to the remaining unamortized tax basis of the intangible intellectual property. A full valuation allowance was recorded against the deferred tax asset as sufficient evidence does not exist at this time that the Company will be able to utilize these benefits.

Cross-Border Merger

In 2016, we changed our jurisdiction of incorporation from France to Ireland by merging with and into our wholly owned Irish subsidiary. Information about the reincorporation was included in the definitive proxy statement filed with the Securities and Exchange Commission on July 5, 2016. Prior to the merger, the Company submitted a request to the French tax authorities seeking to benefit from a special regime for mergers and demergers, conditional upon a formal consent of the French tax authority, which would allow for the deferral of a portion of the tax cost of the cross-border merger. In 2017, the Company received a letter from the French tax authorities indicating that our request to benefit from the special regime had been declined. Completion of the cross-border merger resulted in the recognition of a net income tax provision of $4,266, after considering tax benefits from the utilization of current and prior year French net operating losses. The Company was able to utilize $4,266 of French research and development tax credits to offset the remaining cost of the transaction. The Company also removed $111,495 of French net operating losses as the carryforward of these losses was contingent on receiving favorable consent from the French tax authority. The French net operating losses had a full valuation allowance, resulting in no impact to the income tax provision from their removal.

2017 Tax Cuts and Jobs Act

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21%; limitations on the deductibility of interest expense and executive compensation; creation of the base erosion anti-abuse tax (“BEAT”) and a new minimum tax. As a result of the Act being signed into law, the Company recognized a charge of $274 and $3,513 in 2018 and 2017, respectively, related to the re-measurement of its U.S. net deferred tax assets and certain unrecognized tax benefits at the lower enacted corporate tax rates. A majority of the provisions in the Tax Act are effective January 1, 2018.