Income Taxes

12 Months Ended

Dec. 31, 2019

Income taxes

a. Tax provision

The provision (benefit) for income taxes from continuing operations is comprised of:

Income (loss) before income taxes:


	Year ended December 31,
	2019		2018		2017
United States (U.S.)	$	(87,925)	$	(114,890)	$	(77,654)
Non-U.S.	79,101		68,948		29,157
Total income (loss) before income taxes	$	(8,824)	$	(45,942)	$	(48,497)

Income tax:


	Year ended December 31,
	2019		2018		2017
Current:
U.S. (1)	$	(6,143)	$	6,701	$	8,491
Non-U.S. (2)	4,405		10,568		5,028
Total current	$	(1,738)	$	17,269	$	13,519
Deferred:
U.S.	$	—	—		$	(3)
Non-U.S.	144		348		(351)
Total deferred	144		348		(354)
Total income tax provision	$	(1,594)	$	17,617	$	13,165

(1) This change was driven primarily by research and development credits claimed in the U.S. and deductions associated with share-based compensation.

(2) This change primarily resulted from amortization of intellectual property rights.

b. Theoretical tax

The Company's effective tax rate is affected by the tax rates in the various jurisdictions in which the Company operates. For purposes of comparability, the Company used the notional U.S. federal income tax rate of 21% for the 2019 and 2018 tax year and 35% for the 2017 tax year when presenting the Company's reconciliation of the income tax provision. A reconciliation of the provision for income taxes compared with the amounts at the notional federal statutory rate was:


	Year ended December 31,
	2019			2018			2017
Loss before income taxes	$	(8,824)		$	(45,942)		$	(48,497)
U.S statutory income tax rate	21.0		%	21.0		%	35.0		%
Notional U.S. federal income taxes at statutory rate	$	(1,853)		$	(9,648)		$	(16,974)
Non-deductible expenses	741			1,030			3,308
Foreign taxes rate differential	(4,216)			(6,000)			(7,333)
Change in valuation allowance (see Note 13(c))	244,344			28,657			5,742
State income taxes	(16,679)			1,957			(9,089)
Change in excess tax benefit	(26,528)			2,088			2,203
Unamortized intangible assets	(189,410)			—			—
Research and Development Credits	(2,333)			—			—
Other	(5,673)			(326)			34,881
Unrecognized tax expense (benefit)	13			(141)			427
Income tax	$	(1,594)		$	17,617		$	13,165
Effective tax rate	18.1		%	(38.3)		%	(27.1)		%

In 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law in the U.S. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. In accordance with ASC 740, the Company recorded $34.8 million of deferred tax expense in connection with the remeasurement of certain deferred tax assets and liabilities. This was fully offset by a valuation allowance. Accordingly, there was no net impact on the Company’s income tax expense for the year ended December 31, 2017. The Company’s subsidiary in the United States does not have any foreign subsidiaries and, therefore, the remaining provisions of the TCJA have no material impact on the Company's results of operations. December 22, 2018 marked the end of the measurement period for purposes of ASU 2018-05, and the Company concluded that no change was required to its initial assessment.

The table below reflects the 2017 net impact of the TCJA:


	December 31, 2017
	ETR before TCJA		US Tax Cuts & Jobs Act Impact		Reported ETR
U.S statutory income taxes rate	35.0	%	—	%	35.0	%
Non-deductible expenses	(6.8)		—		(6.8)
Foreign taxes rate differential	15.1		—		15.1
Change in valuation allowance	(83.4)		71.5		(11.9)
State income taxes	12.8		5.9		18.7
Share based compensation	2.0		(6.5)		(4.5)
Change in unrecognized taxes expense	(0.9)		0.1		(0.8)
Other	(0.9)		(71.0)		(71.9)
Effective taxes rate	(27.1)	%	—	%	(27.1)	%

c. Deferred income tax

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:


	December 31,
	2019		2018
Deferred tax assets:
Implicit discounts recognized under ASC 606 (see Note 2)	$	124,255	$	99,316
Net operating loss carryforwards (see Note 13(d))	35,267		843
Share based compensation	12,253		10,886
Deferred revenue	2,450		1,643
Interest limitations	4,028		—
Unamortized intangible assets (1)	176,783		—
Other temporary differences	2,359		1,384
Total gross deferred tax assets	$	357,395	$	114,072
Less: valuation allowance	(357,012)		(112,360)
Total deferred tax assets	$	383	$	1,712
Deferred tax liabilities:
Fixed assets	380		1,427
Other liabilities	3		—
Total gross deferred tax liabilities	$	383	$	1,427

Net deferred taxes assets	$	—	$	285

(1) The Company recorded a deferred tax asset of $189,410 related to unamortized intangible assets. Amortization of this intangible asset will be straight-line through 2029. As of December 31, 2019, the balance of this deferred tax asset was $176,783, offset by a valuation allowance of the same amount.

d. Carryforward loss:

As of December 31, 2019, the Company had $108,172 of U.S. federal net operating loss carryforwards ("NOLs") and $128,912 of U.S. state NOLs. The U.S. federal NOLs carry forward indefinitely. Also, approximately $21,524 in U.S. state NOLs carry forward indefinitely, with the remainder expiring from 2022 through 2039.

In addition, the Company had $38,603 of non-U.S NOLs as of December 31, 2019. Approximately $618 of the non-U.S. NOLs carry forward indefinitely, with the remainder expiring between 2026 and 2036.

e. Uncertain tax benefits:

A reconciliation of the beginning and ending balances of uncertain tax benefits is as follows:


	December 31,
	2019		2018		2017
Balance at beginning of the year	$	103	$	2,827	$	2,400
Additions (reductions) for taxes positions related current year	—		(141)		55
Additions (reductions) for taxes positions related to prior years	13		(2,583)		372
Balance at the end of the year	$	116	$	103	$	2,827

The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2019, 2018 and 2017, the Company accrued $13, $2 and $95, respectively, for interest and penalties expenses related to uncertain tax positions.

We file income tax returns in the U.S. and various state and foreign jurisdictions. We are currently not under examination by the Internal Revenue Service, and any state, local or foreign taxing jurisdictions. Additional tax years within the period 2015 to 2019 remain subject to examination by the U.S. Internal Revenue Service. Furthermore, tax years 2014 to 2019 remain subject to examination in other U.S. state and municipal jurisdictions, as well as foreign jurisdictions.