11.	Income Taxes

The components for the income tax expense (benefit) are as follows for the years ended December 31 (in thousands):

	2017			2016			2015
Current income taxes
Federal	$	—		$	—		$	—
State		—			—			—
Foreign		—			—			—
Deferred income taxes
Federal		—			—			—
State		—			—			—
Foreign		(3,300	)		(5,523	)		(1,024	)
Total income tax expense (benefit)	$	(3,300	)	$	(5,523	)	$	(1,024	)

The United States and foreign components of loss from operations before taxes are as follows for the years ended December 31 (in thousands):

	2017			2016			2015
United States	$	(124,418	)	$	(88,624	)	$	(44,438	)
Foreign		(23,678	)		(36,879	)		(3,534	)
Total loss from operations before taxes	$	(148,096	)	$	(125,503	)	$	(47,972	)

Significant components of the Company’s deferred tax assets consist of the following at December 31 (in thousands):

	2017			2016
Noncurrent deferred tax assets:
Stock-based compensation		2,216			2,300
Inventory		375			204
Accrued expenses and other		637			564
Research credit carryforward		5,540			4,970
Fixed assets		450			557
Capitalized start-up costs and other intangibles		2,130			3,586
Net operating loss carryforwards		64,300			82,298
		75,648			94,479
Valuation allowance		(71,520	)		(91,885	)
Net noncurrent deferred tax asset		4,128			2,594
Noncurrent deferred tax liabilities
Fixed assets		(334	)		(292	)
Purchase accounting intangibles		(12,183	)		(12,699	)
Net noncurrent deferred tax liability		(12,517	)		(12,991	)
Net deferred tax asset (liability)	$	(8,389	)	$	(10,397	)

At December 31, 2017 and 2016, the Company has provided a full valuation allowance against its net deferred assets in the U.S. Luxembourg, and Swiss tax jurisdiction, since realization of these benefits is not more likely than not. The valuation allowance decreased approximately $20.4 million from the prior year. At December 31, 2017, the Company had federal and state net operating loss tax carryforwards of approximately $254.6 million and $204.8 million, respectively. These net operating loss carryforwards expire in various amounts starting in 2027 and 2022, respectively. At December 31, 2017, the Company had federal research credit carryforwards in the amount of $5.5 million. These carryforwards begin to expire in 2027. The utilization of the federal net operating loss carryforwards and credit carryforwards will depend on the Company’s ability to generate sufficient taxable income prior to the expiration of the carryforwards. In addition, the maximum annual use of net operating loss and research credit carryforwards is limited in certain situations where changes occur in stock ownership.

At December 31, 2017, the Company had foreign operating loss carryforwards in Italy of approximately $15.6 million, which can be carried forward indefinitely; foreign operating loss carryforwards in Luxembourg of approximately $0.2 million, which can be carried forward indefinitely; and foreign operating loss carryforwards in Switzerland of approximately $16.7 million, which begin to expire in 2023.

As of December 31, 2017 the Company has adopted ASU 2016-09 which is effective for public companies for annual periods beginning after December 15, 2016. The ASU requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement in the year in which they occur. As such, the Company has grossed up its net operating loss deferred tax asset to include all excess tax benefits as of December 31, 2017.

The Company has evaluated its tax positions to consider whether it has any unrecognized tax benefits. As of December 31, 2017, the Company had gross unrecognized tax benefits of approximately $1.2 million. Of the total, none would reduce the Company’s effective tax rate if recognized. The Company does not anticipate a significant change in total unrecognized tax benefits or the Company’s effective tax rate due to the settlement of audits or the expiration of statutes of limitations within the next twelve months. Furthermore, the Company does not expect any cash settlement with the taxing authorities as a result of these unrecognized tax benefits as the Company has sufficient unutilized carryforward attributes to offset the tax impact of these adjustments.

The following is a tabular reconciliation of the Company’s change in gross unrecognized tax positions at December 31 (in thousands):

	2017		2016		2015
Beginning balance	$	1,048	$	862	$	606
Gross increases for tax positions related to current periods		143		186		256
Gross increases for tax positions related to prior periods		11		—		—
Ending balance	$	1,202	$	1,048	$	862

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2017 and 2016, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company has analyzed its filing positions in all significant federal, state, and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to United States Federal, state, and local tax examinations by tax authorities for years before 2014, although carryforward attributes that were generated prior to 2014 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period. No income tax returns are currently under examination by taxing authorities. The North Carolina Department of Revenue recently completed an examination of the North Carolina state income tax returns for the 2013, 2014, and 2015 tax years for the Company’s subsidiary, TransEnterix Surgical, Inc. No material changes were made as a result of the audit, and those tax years are now effectively settled.

Taxes computed at the then-current statutory federal income tax rate of 34% are reconciled to the provision for income taxes as follows for the years ended December 31:

	2017						2016						2015
				% of Pretax						% of Pretax						% of Pretax
	Amount			Earnings			Amount			Earnings			Amount			Earnings
United States federal tax at statutory rate	$	(50,352	)		34.0	%	$	(42,671	)		34.0	%	$	(16,311	)		34.0	%
State taxes (net of deferred benefit)		(4,663	)		3.1	%		(2,487	)		2.0	%		(1,121	)		2.3	%
Nondeductible expenses		466			(0.3	%)		667			(0.5	%)		1,797			(3.7	%)
Change in fair market value of contingent consideration		777			(0.5	%)		—			—			—			—
Warrant remeasurement and financing costs		32,348			(21.8	%)		—			—			—			—
Research & Development credits		(712	)		0.5	%		(922	)		0.7	%		(1,281	)		2.7	%
Change in unrecognized tax benefits		142			(0.1	%)		186			(0.1	%)		256			(0.5	%)
Foreign tax rate differential		3,619			(2.4	%)		3,969			(3.2	%)		175			(0.4	%)
Goodwill impairment		—			0.0	%		20,816			(16.6	%)		—			—
Change in enacted tax rates and other, net		35,440			(24.1	%)		(1,069	)		0.8	%		532			(1.2	%)
Change in valuation allowance		(20,365	)		13.8	%		15,988			(12.7	%)		14,929			(31.1	%)
Income tax benefit	$	(3,300	)		2.2	%	$	(5,523	)		4.4	%	$	(1,024	)		2.1	%

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Legislation”) was enacted into law, which reduced the US federal corporate income tax rate to 21% for tax years beginning after December 31, 2017. As a result of the newly enacted tax rate, the Company adjusted its U.S. deferred tax assets as of December 31, 2017, by applying the new 21% rate, which resulted in a decrease to the deferred tax assets and a corresponding decrease to the valuation allowance of approximately $36.1 million. The newly enacted tax rate had no impact on deferred tax liabilities as they do not relate to U.S. amounts.

The Tax Legislation also implements a territorial tax system. Under the territorial tax system, in general, the Company's foreign earnings will no longer be subject to tax in the U.S. As part of transition to the territorial tax system the Tax Legislation includes a mandatory deemed repatriation of all undistributed foreign earnings that are subject to a U.S. income tax. The Company estimates that the deemed repatriation will not result in any additional U.S. income tax liability as it estimates it currently has no undistributed foreign earnings.

The SEC staff issued SAB 118 which will allow the Company to record provisional amounts related to accounting for the Tax Legislation during a measurement period which is similar to the measurement period used when accounting for business combinations. The Company is following the guidance set forth by SAB 118 and any amounts calculated are provisional estimates and will be reevaluated as more information or guidance becomes available. The Company will continue to assess the impact of the Tax Legislation on its business and consolidated financial statements.