8. Income Taxes
The domestic and foreign components of pre-tax loss were as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Domestic |
|
$ |
(3,027,580 |
) |
|
$ |
(520,482 |
) |
|
$ |
(380,216 |
) |
|
Foreign |
|
|
(435,828 |
) |
|
|
(1,241 |
) |
|
|
(266 |
) |
|
Loss before income taxes |
|
$ |
(3,463,408 |
) |
|
$ |
(521,723 |
) |
|
$ |
(380,482 |
) |
The components of our income tax (benefit) expense were as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
(1,784 |
) |
|
|
3 |
|
|
|
3 |
|
|
Foreign |
|
|
932 |
|
|
|
869 |
|
|
|
108 |
|
|
Total current income tax (benefit) expense |
|
|
(852 |
) |
|
|
872 |
|
|
|
111 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(12,287 |
) |
|
|
(6,364 |
) |
|
|
(7,141 |
) |
|
State |
|
|
303 |
|
|
|
(780 |
) |
|
|
(559 |
) |
|
Foreign |
|
|
(5,506 |
) |
|
|
(808 |
) |
|
|
— |
|
|
Total deferred income tax (benefit) expense |
|
|
(17,490 |
) |
|
|
(7,952 |
) |
|
|
(7,700 |
) |
|
Income tax (benefit) expense |
|
$ |
(18,342 |
) |
|
$ |
(7,080 |
) |
|
$ |
(7,589 |
) |
The following is a reconciliation of the statutory federal income tax rate to our effective tax rate:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Tax benefit (expense) computed at the federal statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
State tax benefit (expense), net of federal benefit |
|
|
3.0 |
|
|
|
1.3 |
|
|
|
2.3 |
|
|
Change in valuation allowance |
|
|
(25.4 |
) |
|
|
(34.6 |
) |
|
|
(31.0 |
) |
|
U.S. corporate tax rate reduction |
|
|
(11.4 |
) |
|
|
— |
|
|
|
— |
|
|
Differences between U.S. and foreign tax rates on foreign income |
|
|
(2.4 |
) |
|
|
— |
|
|
|
— |
|
|
Stock-based compensation benefit (expense) |
|
|
1.1 |
|
|
|
(0.4 |
) |
|
|
(4.2 |
) |
|
Federal research & development credit benefit |
|
|
1.4 |
|
|
|
1.2 |
|
|
|
0.5 |
|
|
Other benefits (expenses) |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
0.4 |
|
|
Total income tax benefit (expense) |
|
|
0.5 |
% |
|
|
1.4 |
% |
|
|
2.0 |
% |
The significant components of net deferred tax balances were as follows:
|
|
|
Year Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
10,534 |
|
|
$ |
10,864 |
|
|
Deferred revenue |
|
|
2,142 |
|
|
|
1,900 |
|
|
Intangible assets |
|
|
140,771 |
|
|
|
24,089 |
|
|
Stock-based compensation |
|
|
396,604 |
|
|
|
21,111 |
|
|
Net operating losses |
|
|
473,110 |
|
|
|
33,276 |
|
|
Tax credit carryforwards |
|
|
124,078 |
|
|
|
15,854 |
|
|
Other |
|
|
2,015 |
|
|
|
1,469 |
|
|
Total deferred tax assets |
|
$ |
1,149,254 |
|
|
$ |
108,563 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
$ |
(5,883 |
) |
|
$ |
(167 |
) |
|
Total deferred tax liabilities |
|
|
(5,883 |
) |
|
|
(167 |
) |
|
Total net deferred tax assets before valuation allowance |
|
|
1,143,371 |
|
|
|
108,396 |
|
|
Valuation allowance |
|
|
(1,144,543 |
) |
|
|
(108,872 |
) |
|
Net deferred taxes |
|
$ |
(1,172 |
) |
|
$ |
(476 |
) |
Income tax benefit was $18.3 million and $7.1 million for the years ended December 31, 2017 and 2016, respectively. The effective income tax rate was 0.5% and 1.4% for the years ended December 31, 2017 and 2016, respectively. The income tax benefits for the years ended December 31, 2017 and 2016 were primarily due to discrete tax benefits of $15.5 million and $7.1 million, respectively, as a result of partial releases of valuation allowances against net deferred tax assets related to acquisitions. The net deferred tax liabilities originating from acquisitions during the periods were considered as an available source of income to realize a portion of our deferred tax assets.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease to 21% effective for tax years beginning after December 31, 2017. This change in tax rate resulted in a reduction in our net U.S. deferred tax assets before valuation allowance by $396.2 million, which was fully offset by a reduction in our valuation allowance. The other provisions of the Tax Act, including the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, did not have a material impact on our financial statements as of December 31, 2017.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The impact of the change in tax rate is based on estimates of our net U.S. deferred tax assets before valuation allowance as of December 31, 2017. Additionally, potential further guidance may be forthcoming from the Financial Accounting Standards Board and the Securities and Exchange Commission, as well as regulations, interpretations and rulings from federal and state tax agencies, which could result in additional impacts.
As of December 31, 2017, we had an immaterial amount of unremitted earnings related to certain foreign subsidiaries. We intend to continue to reinvest our foreign earnings indefinitely and do not expect to incur any significant taxes related to such amounts.
As of December 31, 2017, we had accumulated federal and state net operating loss carry-forwards of $1.6 billion and $930.2 million, respectively. The U.S. federal and state net operating loss carry-forwards will begin to expire in 2031 and 2026, respectively. As of December 31, 2017, we had $521.7 million of U.K. net operating loss carry-forwards that can be carried over indefinitely. As of December 31, 2017, we had accumulated U.S. federal and state research tax credits of $90.1 million and $39.9 million, respectively. The U.S. federal research tax credits will begin to expire in 2032. The U.S. state research tax credits do not expire.
Available net operating losses may be subject to annual limitations due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended (“Code”), and similar state provisions. Under Section 382 of the Code, substantial changes in our ownership and the ownership of acquired companies may limit the amount of net operating loss carry-forwards that are available to offset taxable income. The annual limitation would not automatically result in the loss of net operating loss carry-forwards but may limit the amount available in any given future period. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examination from various taxing authorities.
We recognize valuation allowances on deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. We had valuation allowances against net deferred tax assets of $1.1 billion and $108.9 million as of December 31, 2017 and 2016, respectively. In 2017, the change in the valuation allowance was primarily attributable to a net increase in our deferred tax assets resulting from the loss from operations.
Uncertain Tax Positions
The following table summarizes the activity related to our gross unrecognized tax benefits during the years ended December 31, 2017 and 2016:
|
|
|
Year Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Beginning balance of unrecognized tax benefits |
|
$ |
243,862 |
|
|
$ |
— |
|
|
Additions for current year tax positions |
|
|
42,209 |
|
|
|
243,862 |
|
|
Additions for prior year tax positions |
|
|
2,158 |
|
|
|
— |
|
|
Reductions for prior year tax positions |
|
|
(568 |
) |
|
|
— |
|
|
Changes due to foreign currency translation adjustments |
|
|
163 |
|
|
|
— |
|
|
Remeasurement of uncertain tax positions due to the Tax Act |
|
|
(84,647 |
) |
|
|
— |
|
|
Ending balance of unrecognized tax benefits (excluding interest and penalties) |
|
$ |
203,177 |
|
|
$ |
243,862 |
|
|
Interest and penalties associated with unrecognized tax benefits |
|
|
80 |
|
|
|
— |
|
|
Ending balance of unrecognized tax benefits (including interest and penalties) |
|
$ |
203,257 |
|
|
$ |
243,862 |
|
The total amount of gross unrecognized tax benefits, including related interest and penalties, was $203.3 million and $243.9 million as of December 31, 2017 and 2016, respectively. Substantially all of the unrecognized tax benefit was recorded as a reduction in our gross deferred tax assets, offset by a reduction in our valuation allowance. We have net unrecognized tax benefits of $2.1 million and $3.6 million that is included in other liabilities on our consolidated balance sheet as of December 31, 2017 and 2016, respectively. Assuming there continues to be a valuation allowance against deferred tax assets in future periods when gross unrecognized tax benefits are realized, this would result in a tax benefit of $2.8 million within our provision of income taxes at such time.
Our policy is to recognize interest and penalties associated with tax matters as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our consolidated balance sheet. During the year ended December 31, 2017, interest expense we recorded related to uncertain tax positions was not material. Any changes to unrecognized tax benefits recorded as of December 31, 2017 that are reasonably possible to occur within the next 12 months are not expected to be material.
The income taxes we pay are subject to review by taxing jurisdictions globally. Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We believe that our estimate has adequately provided for these matters. However, our future results may include adjustments to estimates in the period the audits are resolved, which may impact our effective tax rate.
Tax years ending on or after December 31, 2012 are subject to examination by federal, state, and various foreign jurisdictions.