

	2019			2018			2017
	(in thousands)
Current taxes:
Federal	$	—		$	772		$	11,559
Foreign	37,194			15,600			3,576
State	13,528			9,018			5,025
Total current taxes	50,722			25,390			20,160
Deferred taxes:
Federal	184,312			(1,105,053		)	(113,805		)
Foreign	(24,797		)	(364,919		)	(3,222		)
State	7,872			(42,280		)	(10,457		)
Total deferred taxes	167,387			(1,512,252		)	(127,484		)
Provision for (benefit from) income taxes	$	218,109		$	(1,486,862	)	$	(107,324	)

A reconciliation of the provision for (benefit from) income taxes as computed by applying the U.S. federal statutory rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017 to the provision for (benefit from) income taxes is as follows:



	2019			2018			2017
	(in thousands)
Income (loss) before provision for (benefit from) income taxes	$	1,394,919		$	600,241		$	(15,689	)

Expected provision for (benefit from) income taxes	292,933			126,051			(5,491		)
State taxes, net of federal benefit	8,478			8,680			4,742
Foreign income tax rate differential	6,178			23,427			77,801
Tax credits	(59,459		)	(52,629		)	(58,204		)
Benefit from income taxes attributable to valuation allowances	(2,672		)	(1,563,169		)	(575,801		)
Permanent items	4,822			1,421			15,324
Tax rate change	—			—			575,192
Stock compensation (benefit) shortfalls and cancellations	(56,324		)	(49,044		)	(21,453		)
Officer’s compensation	10,666			8,310			6,501
Deconsolidation of VIE	—			(9,390		)	(126,183		)
Uncertain tax positions	14,070			15,431			—
Other	(583		)	4,050			248
Provision for (benefit from) income taxes	$	218,109		$	(1,486,862	)	$	(107,324	)

The Company is subject to U.S. federal, state, and foreign income taxes. The Company’s provision for income taxes in 2019 has increased compared to historical amounts due to the release of the Company’s valuation allowance on the majority of its NOLs and other deferred tax assets as of December 31, 2018. Starting in 2019, the Company began recording a provision for income taxes approximating statutory rates on its pre-tax income. The Company’s effective tax rate for 2019 is lower than the U.S. statutory rate primarily due to excess tax benefits related to stock-based compensation and research and development tax credits partially offset by a change in the Company’s valuation allowance as well as the tax impact of officer compensation. Due to the Company's ability to offset its pre-tax income against previously benefited NOLs, the majority of its tax provision represents a non-cash expense until its NOLs have been fully utilized.

In 2019, the “Benefit from income taxes attributable to valuation allowances” in the tax rate reconciliation table above related to a release of a valuation allowance in the United Kingdom of $30.5 million related to the execution of a reimbursement agreement in France in November 2019, partially offset by an increase in the valuation allowance in the United States on state credits and NOLs. In 2018, the change in the “Benefit from income taxes attributable to valuation allowances” was primarily related to the release of the Company’s valuation allowances on the majority of its NOLs and other deferred tax assets related to the United States and the United Kingdom. In 2017, the “Benefit from income taxes attributable to valuation allowances” was primarily due to the utilization of NOLs in the United States and a decrease in the U.S. federal corporate tax rate from 35% to 21% partially offset by the adoption of ASU 2016-09.

In 2018 and 2017, “Deconsolidation of VIE” in the Company’s tax rate reconciliation above related to the impairments of VX-210 and Parion’s pulmonary ENaC platform, respectively, and the decreases in the Company’s fair value of the contingent payments to BioAxone and Parion associated with these deconsolidations, respectively. Please refer to Note K, “Intangible Assets and Goodwill,” for further information regarding these impairments.

The Company operates in foreign tax jurisdictions, which impose income taxes at different rates than the United States. The impact of these rate differences, which are primarily related to the Company’s operations in the United Kingdom, is included in the “Foreign income tax rate differential” in the Company’s tax rate reconciliation above. Other items that affected the Company’s tax rate reconciliation table were related to equity and executive compensation, research and development credits and Orphan Drug Credits during the three years ended December 31, 2019.

Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes were as follows:



	As of December 31,
	2019			2018
	(in thousands)
Deferred tax assets:
Net operating loss	$	512,256		$	882,014
Tax credit carryforwards	549,543			487,635
Intangible assets	275,290			241,775
Deferred revenues	18,833			19,311
Stock-based compensation	85,199			93,915
Accrued expenses	44,367			17,795
Finance lease liabilities	119,160			130,849
Operating lease assets	13,114			—
Other	8,596			6,831
Gross deferred tax assets	1,626,358			1,880,125
Valuation allowance	(205,192		)	(168,491		)
Total deferred tax assets	1,421,166			1,711,634
Deferred tax liabilities:
Property and equipment	(101,235		)	(128,407		)
Acquired intangibles	(87,160		)	—
Deferred revenue	—			(73,357		)
Unrealized gain	(28,838		)	(10,198		)
Operating lease liabilities	(13,118		)	—
Net deferred tax assets	$	1,190,815		$	1,499,672

In 2019, the Company completed acquisitions of Semma and Exonics, resulting in the inclusion of these entities deferred tax bases into the Company’s consolidated deferred tax assets and deferred tax liabilities. As of the acquisition date, Semma’s deferred tax liabilities were $54.2 million. Exonics’ deferred tax assets were not material to the Company’s financial statements.

On a periodic basis, the Company reassesses the valuation allowance on its deferred income tax assets weighing positive and negative evidence to assess the recoverability of the deferred tax assets. In the fourth quarter of 2018, the Company assessed the valuation allowance and considered positive evidence, including significant cumulative consolidated and U.S. income over the three years ended December 31, 2018, revenue growth, clinical trial data from the Company’s triple combination regimens, competitor clinical progress and expectations regarding future profitability, and negative evidence, including the potential impact of competition on the Company’s projections and cumulative losses in one of the jurisdictions. After assessing both the positive evidence and the negative evidence, the Company determined it was more likely than not that its deferred tax assets would be realized in the future and released the valuation allowance on the majority of its NOLs and other deferred tax assets as of December 31, 2018, resulting in a benefit from income taxes of $1.56 billion. As of December 31, 2019, the Company maintained a valuation allowance of $205.2 million related primarily to U.S. state and foreign tax attributes.

As of December 31, 2019, the Company had NOL carryforwards of $1.5 billion, of which $1.3 billion were subject to expiration and $181.1 million had an indefinite carryforward period, and tax credits of $399.0 million for U.S. federal income tax purposes. As of December 31, 2019, the Company had NOL carryforwards of $903.7 million and tax credits of $161.7 million for U.S. state income tax purposes. These U.S. federal and state NOL carryforwards and tax credits expire at various dates through 2039 and may be used to offset future federal and state income tax liabilities, respectively. As of December 31, 2019, the Company had foreign net operating loss carryforwards of $896.9 million, including $16.0 million that were subject to expiration at various dates through 2039 and $880.9 million that had an indefinite carryforward period.



	2019			2018		2017
	(in thousands)
Balance at beginning of the period	$	19,549		$	3,814	$	—
Increases related to current period tax positions	14,407			9,704		3,814
Increases related to prior period tax positions	598			6,031		—
Decreases related to prior period tax positions	(156		)	—		—
Settlement with Tax Authorities	(478		)	—		—
Balance at end of period	$	33,920		$	19,549	$	3,814

The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the benefits recognized in the financial statements. As of December 31, 2019 and 2018, the Company had $33.9 million and $19.5 million, respectively, of gross unrecognized tax benefits, which would affect the Company’s tax rate if recognized. As of December 31, 2017, the Company had $3.8 million of gross unrecognized tax benefits, which would not affect the Company’s tax rate if recognized. The Company does not expect that its unrecognized tax benefits will materially change within the next twelve months. The Company accrues interest and penalties related to unrecognized tax benefits as a component of its “Provision for (benefit from) income taxes.” As of December 31, 2019, no significant interest or penalties were accrued. The Company did not recognize any material interest or penalties related to uncertain tax positions during the three years ended December 31, 2019.

As of December 31, 2019, foreign earnings, which were not significant, have been retained indefinitely by the Company’s foreign subsidiaries for indefinite reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to withholding taxes payable to the various foreign countries.

The Company files U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the United States or any other major taxing jurisdiction for years before 2011, except where the Company has NOLs or tax credit carryforwards that originate before 2011. The Company has various income tax examinations ongoing at any time throughout the world. During the year ended December 31, 2019, the Company concluded tax examinations with Austria, Canada, Germany and Italy, with no material adjustments.