Income taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

a.     Tax provision:

Income (loss) before income taxes is as follows:

	Year ended December 31,
	2021		2020		2019
United States (U.S.)	$	82,249	$	(15,283)	$	(87,925)
Non-U.S.	(134,324)		33,385		79,101
Total income (loss) before income taxes	$	(52,075)	$	18,102	$	(8,824)

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

	Year ended December 31,
	2021		2020		2019
Current:
U.S.	$	65	$	(11,898)	$	(6,143)
Non-U.S.	6,211		10,192		4,405
Total current	$	6,276	$	(1,706)	$	(1,738)
Deferred:
Non-U.S.	—		—		144
Total deferred	—		—		144
Total income tax provision	$	6,276	$	(1,706)	$	(1,594)

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 2021, 2020 and 2019 tax years 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,
	2021			2020			2019
Income (loss) before income taxes	$	(52,075)		$	18,102		$	(8,824)
U.S. statutory income tax rate	21.0		%	21.0		%	21.0		%
Notional U.S. federal income taxes at statutory rate	$	(10,936)		$	3,801		$	(1,853)
Foreign taxes rate differential	14,651			4,024			(4,216)
Share based compensation	(12,669)			(6,190)			(26,528)
Change in valuation allowance	11,643			6,821			244,344
Return to provision true-ups	2,416			654			(5,204)
Research and Development Credits	(2,216)			(5,243)			(2,333)
State income taxes	1,572			607			(16,679)
Withholding Taxes	273			2,366			384
Non-deductible expenses	(147)			260			357
Unamortized intangible assets	—			—			(189,410)
2020 Cares Act	—			(8,694)			—
Other	1,689			(112)			(456)
Income tax	$	6,276		$	(1,706)		$	(1,594)
Effective tax rate	(12.1)		%	(9.4)		%	18.1		%

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,
	2021		2020
Deferred tax assets:
Unamortized intangible assets	$	138,978	$	157,930
Impact of revenue recognition	$	112,251	$	131,395
Net operating loss carryforwards	$	77,664	$	40,314
Share based compensation	$	25,644	$	17,595
Research and development	$	12,146	$	9,186
Interest limitations	$	7,948	$	6,975
Lease liability	$	4,836	$	1,006
Other temporary differences	$	3,032	$	2,822
Total gross deferred tax assets	$	382,499	$	367,223
Less: valuation allowance	(375,717)		(364,082)
Total deferred tax assets	6,782		3,141
Deferred tax liabilities:
Right of use assets	4,559		936
Fixed assets	2,214		2,185
Other liabilities	9		20
Total gross deferred tax liabilities	$	6,782	$	3,141
Net deferred taxes assets (liability)	$	—	$	—

d.     Carryforward loss:

The Company had $790,668 of gross non-U.S net operating carryforwards (NOLs) as of December 31, 2021 of which $1,968 carry forward indefinitely. The remainder expires from 2026 through 2038.

Approximately $783,347 of these NOLs are attributable to Novocure Switzerland with $405,553 available at the Federal level and $377,794 available at the cantonal level.

In the U.S., the Company had $98,120 of U.S. federal NOLs and $124,146 of U.S. state NOLs. The U.S. federal NOLs carry forward indefinitely. Also, approximately $24,263 in U.S. state NOLs carry forward indefinitely, with the remainder expiring from 2023 through 2040.

e.     Uncertain tax benefits:

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

	December 31,
	2021		2020		2019
Balance at beginning of the year	$	297	$	116	$	103
Additions (reductions) for taxes positions related to prior years	(143)		181		13
Balance at the end of the year	$	154	$	297	$	116

The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2021, 2020 and 2019, the Company accrued $5, $21 and $13, respectively, for interest and penalties expenses related to uncertain tax positions.

The Company files income tax returns in the U.S. and various state and foreign jurisdictions. Currently, the Company is under examination by the tax authorities in Israel for the tax years 2017, 2018 and 2019 and is not under examination by any other tax authority. Additional tax years within the period 2015 to 2020 remain subject to examination by the U.S. Internal Revenue Service. Furthermore, tax years 2015 to 2020 remain subject to examination in other U.S. state and municipal jurisdictions, as well as foreign jurisdictions.