14. Income taxes

 

As a company incorporated in the British Virgin Islands ("BVI"), the Company is principally subject to taxation in the BVI. Under the current laws of the BVI, tax on a company's income is assessed at a zero percent tax rate. As a result, the Company has not recorded any income tax benefits from its losses incurred in the BVI during each reporting period, and no net operating loss carryforwards will be available to the Company for those losses. BVI has historically outsourced all of the research and clinical development for its programs under a master services agreement with BPI (see Note 18). As a result of providing services under this agreement, BPI was profitable during the years ended December 31, 2017 and 2016, and BPI is subject to taxation in the United States.

 

The Company's tax provision includes the effects of consolidating the results of operations of BPI, either as a variable interest entity for periods through the acquisition of BPI (see Note 18) or as of December 31, 2017 and 2016 as the Company's wholly owned subsidiary. Due to BPI's history of cumulative losses through September 30, 2016, the Company had recorded no tax benefits for the losses incurred by BPI through that date and had recorded a full valuation allowance against BPI's deferred tax assets, which consisted primarily of its U.S. net operating loss carryforwards for all periods through September 30, 2016. As of December 31, 2016, the Company fully utilized BPI's remaining U.S. net operating loss carryforwards and recorded a full release of the valuation allowance, which did not result in a material impact to the Company's income tax provision.

 

As of December 31, 2017, we evaluated our deferred tax assets and determined that a full valuation allowance on these assets was appropriate due to the generation of tax credits in excess of forecasted taxes. The Company recorded an income tax provision during the year ended December 31, 2017 of $1,006 which primarily represents an alternative minimum tax liability and certain state taxes for the period.

 

Income (loss) before provision for income taxes consisted of the following:

 

 

 

 

 

          The provision for income taxes consisted of the following:

 

 

 

 

 

A reconciliation of the BVI statutory income tax rate of 0% to the Company's effective income tax rate is as follows:

 

 

 

 

 

Net deferred tax assets (liabilities) consisted of the following:

 

 

 

 

 

As of December 31, 2017 and 2016, the Company had no remaining foreign net operating loss carryforwards. The Company had federal and state research and development credits of $2,463 and $414 which begin to expire in 2037.

 

On December 22, 2017, the Tax Cuts and Jobs Act ("The Act"), was signed into law, resulting in significant changes to the Internal Revenue Code of 1986, as amended. These changes include a federal statutory rate reduction from 35% to 21%, limitation on the amount of research and development expenses deductible per year beginning in years after 2021, reduction of the Orphan Drug Credit from 50% to 25% of qualified clinical testing expenditures, increased limitations on certain executive compensation, elimination of the Corporate Alternative Minimum Tax, and modifying or repealing other business deductions and credits. The revaluation of our deferred tax assets due to The Act was not material.

 

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2017 and 2016 were due primarily to the utilization of U.S. net operating loss carryforwards and were as follows:

 

 

 

 

 

The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2017 or 2016. The Company's policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2017 and 2016, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company's statement of operations and comprehensive loss.

 

BPI files income tax returns in the U.S. and certain state jurisdictions. BPI's U.S. federal and state income tax returns are subject to tax examinations for the tax year ended December 31, 2014 and subsequent years. There are currently no income tax examinations pending.