NOTE 14 – TAXES
a. The Company and the US Subsidiary
The Company and the US Subsidiary are taxed according to tax laws of the United States. The income of the Company is taxed in the United States at a federal tax rate of up to 35% and state tax rate of 8.25% .
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”), which among other changes reduces the federal corporate tax rate to 21%. The Company is currently evaluating the impact of the TCJA on its consolidated financial statements and does not expect any material impact.
b. The Israeli Subsidiary
The Israeli Subsidiary is taxed according to Israeli tax laws.
In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of corporate tax rate in 2016 and thereafter, from
26.5% to
25%.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, the law also included a temporary provision setting the corporate tax rate in 2017 at 24%. As a result, the corporate tax rate in 2017 was 24% and in 2018 and thereafter reduced to 23%.
c . The Belgian Subsidiaries
The Belgian Subsidiaries are taxed according to Belgian tax laws. The regular corporate tax rate in Belgium for 2016 and 2017 is 34%.
On 22 December 2017, the Belgian Parliament has approved the Belgian reform bill. The main impacts of this tax reform are:
d. Tax Loss Carryforwards
1) As of November 30, 2017, the Company had net operating loss (NOL) carry forwards equal to $12.8 million that is available to reduce future taxable income. Out of the Company’s NOL carry forward, an amount of $138 thousand and may be restricted under Section 382 of the Internal Revenue Code (“IRC”). IRC Section 382 applies whenever a corporation with an NOL experiences an ownership change. As a result of Section 382, the taxable income for any post change year that may be offset by a pre-change NOL may not exceed the general Section 382 limitation, which is the fair market value of the pre-change entity multiplied by the long-term tax exempt rate.
2) U.S. Subsidiary - As of November 30, 2017, the U.S. Subsidiary had approximately $276 thousand of NOL carry forwards that are available to reduce future taxable income with no limited period of use.
3) Israeli Subsidiary - As of November 30, 2017, the Israeli Subsidiary had approximately $5.8 million of NOL carry forwards that are available to reduce future taxable income with no limited period of use.
4) Belgian Subsidiaries - As of November 30, 2017, the Belgian Subsidiaries had approximately $15.8 million (€ 13.3 million) of NOL carry forwards that are available to reduce future taxable income, with no limited period of use.
e. Deferred Taxes
The following table presents summary of information concerning the Company’s deferred taxes as of the periods ending November 30, 2017 and 2016 (in thousands):
| November 30, | ||||||
| 2017 | 2016 | |||||
| (U.S dollars in thousands) | ||||||
| Net operating loss carry forwards | $ | 11,819 | $ | 8,278 | ||
| Research and development expenses | 1,065 | 655 | ||||
| Employee benefits | 180 | 152 | ||||
| Property and equipment | (61 | ) | (355 | ) | ||
| Convertible bonds | 1 | |||||
| Deferred income | (292 | ) | (325 | ) | ||
| Intangible assets | (5,117 | ) | (5,117 | ) | ||
| Less: Valuation allowance | (8,284 | ) | (5,151 | ) | ||
| Net deferred tax liabilities | $ | (690 | ) | $ | (1,862 | ) |
Realization of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards losses are expected to be available to reduce taxable income. As the achievement of required future taxable income is not considered more likely than not achievable, the Company and all of its subsidiaries except MaSTherCell have recorded full valuation allowance.
The changes in valuation allowance are comprised as follows:
| Year Ended November 30, | ||||||
| 2017 | 2016 | |||||
| (U.S dollars in thousands) | ||||||
| Balance at the beginning of year . | $ | (5,151 | ) | $ | (2,982 | ) |
| Additions during the year | (3,207 | ) | (2,169 | ) | ||
| Balance at end of year | $ | (8,358 | ) | $ | (5,151 | ) |
f. Reconciliation of the Theoretical Tax Expense to Actual Tax Expense
The main reconciling item between the statutory tax rate of the Company and the effective rate is the provision for full valuation allowance with respect to tax benefits from carry forward tax losses.
g. Tax Assessments
1) The Company - As of November 30, 2017, the Company has received a final tax assessment up to the year 2010.
2) U.S. Subsidiary and the Israeli Subsidiary - As of November 30, 2017, the U.S. Subsidiary and the Israeli Subsidiary have not received any final tax assessment.
3) Belgian Subsidiary - As of November 30, 2017, the Belgian Subsidiary has received a final tax assessment for the year 2014.
4) MaSTherCell - As of November 30, 2017, MaSTherCell has received a final tax assessment for the year 2013.
h. Uncertain Tax Provisions
As of November 30, 2017, the Company has not accrued a provision for uncertain tax positions.