10. Income Taxes

        Theravance Biopharma was incorporated in the Cayman Islands in July 2013 under the name Theravance Biopharma, Inc. as a wholly-owned subsidiary of Innoviva and began operations subsequent to the Spin-Off with wholly-owned subsidiaries in the Cayman Islands, US, United Kingdom, and Ireland. Effective July 1, 2015, Theravance Biopharma became an Irish tax resident, therefore, the loss before income taxes of Theravance Biopharma, the parent company, are included in Ireland in the tables below.

        The components of the loss before income taxes were as follows:

                                                                                                                                                                                    

        The components of provision for income taxes were as follows:

                                                                                                                                                                                    

        The provision for income taxes was $13.7 million, $10.1 million, and $1.0 million in 2017, 2016, and 2015, respectively, although we incurred operating losses on a consolidated basis. In general, the provision for 2017, 2016, and 2015 resulted from recording contingent tax liabilities pertaining primarily to uncertain tax positions taken with respect to transfer pricing and tax credits.

        No provision for income taxes has been recognized on undistributed earnings of our foreign subsidiaries because we consider such earnings to be indefinitely reinvested. In the event of a distribution of these earnings in the form of dividends or otherwise, we may be liable for income taxes, subject to an adjustment, if any, for foreign tax credits and foreign withholdings taxes payable to certain foreign tax authorities. As of December 31, 2017, there were no undistributed earnings.

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

                                                                                                                                                                                    

        For 2017 and 2016, as a result of the Company becoming an Irish tax resident effective July 1, 2015, the tax rates reflect the Irish statutory rate of 25%. The differences between the Irish statutory income tax rate and our effective tax rates were as follows:

                                                                                                                                                                                    

        Realization of deferred tax assets is dependent upon future taxable income in the respective jurisdictions, if any, the timing and the amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance.

        The valuation allowance as of December 31, 2017 increased from $28.5 million (the valuation allowance as of December 31, 2016) to $42.6 million, primarily as a result of additional tax loss generated in Ireland during the current year, and partially offset by the reduction of the US deferred tax balance due to the enactment of the Tax Cuts and Jobs Acts on December 22, 2017 which saw the federal corporate tax rate decrease from 35% to 21%, effective January 1, 2018. Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that the deferred tax assets are recoverable. As required, we prepare our assessment of the realizability of deferred tax assets on a jurisdiction-by-jurisdiction basis.

        As of December 31, 2017, we had $22.8 million of US federal net operating loss carryforwards and $7.5 million of federal research and development tax credit carryforwards which expire beginning in 2035. We had state net operating loss carryforwards of $31.0 million which generally begin to expire in 2034 and state research and development credit carryforwards of $10.1 million to be carried forward indefinitely.

        On January 1, 2017, we adopted ASU 2016-09 that simplifies the accounting for certain aspects of share-based payments to employees. As a result of adoption, the previously unrecognized US excess tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance resulting in no impact to our accumulated deficit.

        Utilization of net operating loss and tax credit carryforwards may be subject to an annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

        Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The amount of tax expense related to interest or penalties was immaterial for the years ended December 31, 2017 and 2016.

Uncertain Tax Positions

        A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits were as follows:

                                                                                                                                                                                    

        The total unrecognized tax benefits of $41.8 million and $23.3 million, at December 31, 2017 and December 31, 2016, respectively, would reduce the effective tax rate in the period of recognition. As of December 31, 2017, we do not believe that it is reasonably possible that our unrecognized tax benefit will significantly decrease in the next twelve months. We currently have a full valuation allowance against our deferred tax assets, which would impact the timing of the effective tax rate benefit should any of these uncertain positions be favorably settled in the future.

        We are subject to taxation in Ireland, the US, and various other jurisdictions. The tax years 2015 and forward remain open to examination in Ireland, tax years 2014 and forward remain open to examination in the US, and the tax years 2012 and forward remain open to examination in other jurisdictions.

        Our future income tax expense may be affected by such factors as changes in tax laws, our business, regulations, tax rates, interpretation of existing laws or regulations, the impact of accounting for share-based compensation, the impact of accounting for business combinations, our international organization, shifts in the amount of income before tax earned in the US as compared with other regions in the world, and changes in overall levels of income before tax.

US Tax Reform

        On December 22, 2017, the US government enacted the Tax Cuts and Jobs Acts (the "Tax Act"). The Tax Act significantly revises the US corporate income tax laws by, amongst other things, reducing the corporate income tax rate from 35% to 21% and implementing a modified territorial tax system that includes a one-time repatriation tax on accumulated undistributed foreign earnings.

        Based on provisions of the Tax Act, we remeasured the deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The estimated amount of the remeasurement of our federal deferred tax balance was $12.4 million. However, as we recognize a valuation allowance on deferred tax assets, if it is more likely than not that the assets will not be realized in future years, there is no impact to effective tax rate, as any change to deferred taxes would be offset by valuation allowances.

        The changes included in the Tax Act are broad and complex. The final transition impact of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impact, including impact from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries. For example, one area where we are waiting on further guidance before finalizing our conclusion as to the impact of the Tax Act on our deferred tax assets and liabilities is the transition rules with respect to the tax deductibility of executive compensation. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by December 22, 2018.