Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

Income taxes have been accounted for using the asset and liability method in accordance with ASC 740 “Income Taxes”. The Company computes its interim provision for income taxes by applying the estimated annual effective tax rate method. The Company estimates an annual effective tax rate of 4.6% for the year ending December 31, 2019. This rate does not include the impact of any discrete items. The Company incurred losses for the three month period ended March 31, 2019 and is forecasting additional losses through the year, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2019. Due to the Company’s history of losses, there is not sufficient evidence to record a net deferred tax asset associated with the U.S., Luxembourg, Swiss, and Asian operations. Accordingly, a full valuation allowance has been recorded related to the net deferred tax asset in those jurisdictions. The Swiss jurisdiction has indefinite-lived intangibles that create deferred tax liabilities which cannot be offset against the deferred tax assets, resulting in a net deferred tax liability recorded in that jurisdiction. There is no net deferred tax asset recorded in relation to TransEnterix Italia and accordingly no valuation allowance has been recorded in that jurisdiction. The deferred tax benefit during the three months ended March 31, 2019 and 2018, was approximately $0.6 million and $0.9 million, respectively. The Israeli jurisdiction was profitable through March 31, 2019 and is projected to be profitable for the year ending December 31, 2019. Consequently, $0.02 million of current tax expense was recorded during the three months ended March 31, 2019 for this jurisdiction.

The Company’s effective tax rate for each of the three month periods ended March 31, 2019 and 2018 was 2.6% and 50.2%, respectively. At March 31, 2019, the Company had no unrecognized tax benefits that would affect the Company’s effective tax rate.

The Tax Legislation subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Because the Company was evaluating the provision of GILTI as of December 31, 2017, no GILTI-related deferred amounts were recorded in 2017. The Company has elected to account for GILTI in the year the tax is incurred. The Company does not expect a GILTI inclusion for 2018 or 2019; no GILTI tax has been recorded for the three months ending March 31, 2019 or 2018.