Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes The domestic and foreign components of pre-tax loss were as follows:
(1)Includes the impact of intercompany charges to foreign affiliates for financing, management fees, and research and development cost sharing, inclusive of stock-based compensation. The components of our income tax (benefit) expense were as follows:
The following is a reconciliation of the statutory federal income tax rate to our effective tax rate:
(1) Inclusive of state research and development credits. The significant components of net deferred tax balances were as follows:
On December 20, 2021, the Organisation for Economic Co-operation and Development (“OECD”) published Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax. A number of countries, including the United Kingdom, are currently proposing or have enacted legislation to implement core elements of the Pillar Two proposal by the start of 2024. On February 1, 2023, the FASB indicated that they believe the minimum tax imposed under Pillar Two is an alternative minimum tax, and, accordingly, deferred tax assets and liabilities associated with the minimum tax would not be recognized or adjusted for the estimated future effects of the minimum tax but would be recognized in the period incurred. While we are still closely monitoring developments and evaluating the potential impact on future periods, we do not expect Pillar Two to have a significant impact on our financial results, particularly due to safe harbor relief during the transition period. Beginning January 1, 2022, the Tax Cuts and Jobs Act eliminated the option to currently deduct research and development expenditures in the period incurred and required taxpayers to capitalize and amortize such expenditures over five or fifteen years, as applicable, pursuant to Section 174 of the Internal Revenue Code. Although this tax law change did not result in any U.S. federal tax liability through December 31, 2023 due to the use of existing U.S. federal net operating loss carryforwards, it did result in incremental state tax liability and expense due to limitations on the use of existing state net operating loss carryforwards. On June 10, 2021, the U.K. Finance Act 2021 was enacted, increasing the U.K. tax rate from 19% to 25% effective April 1, 2023. This change in tax rate resulted in a $188.9 million increase to our U.K. net deferred tax assets, which was fully offset by an increase in our valuation allowance, for the period ending December 31, 2021. As of December 31, 2023, we had an immaterial amount of unremitted earnings related to certain foreign subsidiaries. We intend to continue to reinvest these foreign earnings indefinitely and do not expect to incur any significant taxes related to such amounts. As of December 31, 2023, we had accumulated U.S. federal and state net operating loss carryforwards of $6.7 billion and $4.5 billion, respectively. Of the $6.7 billion of federal net operating loss carryforwards, $0.5 billion was generated before January 1, 2018 and is subject to a 20-year carryforward period. The remaining $6.2 billion can be carried forward indefinitely but is subject to an 80% taxable income limitation. The pre-2018 federal and certain significant state net operating loss carryforwards will begin to expire in 2037 and 2031, respectively. As of December 31, 2023, we had $4.5 billion of U.K. net operating loss carryforwards that can be carried forward indefinitely; however, use of such carryforwards in a given year is generally limited to 50% of such year’s taxable income. As of December 31, 2023, we had accumulated U.S. federal and state research tax credits of $816.6 million and $478.9 million, respectively. The U.S. federal research tax credits will begin to expire in 2032. The U.S. state research tax credits do not expire. We recognize valuation allowances on deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. We had valuation allowances against net deferred tax assets of $4.5 billion and $4.1 billion as of December 31, 2023 and 2022, respectively. In 2023, the increase in the valuation allowance was primarily attributable to a net increase in our deferred tax assets resulting from the loss from operations. Uncertain Tax Positions The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended December 31, 2023, 2022, and 2021:
Substantially all of the unrecognized tax benefit was recorded as a reduction in our gross deferred tax assets, offset by a corresponding reduction in our valuation allowance. We have net unrecognized tax benefits of $27.3 million and $21.7 million included in other liabilities on our consolidated balance sheet as of December 31, 2023 and 2022, respectively, which, if recognized, would result in a tax benefit. Our policy is to recognize interest and penalties associated with tax matters as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our consolidated balance sheet. During the year ended December 31, 2023, interest expense recorded related to uncertain tax positions was not material. The income taxes we pay are subject to potential review by taxing jurisdictions globally. Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We believe that our estimate has adequately provided for these matters. However, our future results may include adjustments to estimates in the period the audits are resolved, which may impact our effective tax rate. The material tax jurisdictions in which we are subject to potential examination include the United States for tax years ending on or after 2012, and the United Kingdom for tax years ending on or after 2020. We are currently under examination by the U.K. tax authorities for tax years 2020 and 2021, and also in various other jurisdictions covering multiple tax years.
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