Note 13. Income Taxes
The domestic and foreign components of pre-tax loss for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Domestic |
|
$ |
(18,412 |
) |
|
$ |
(237,325 |
) |
|
$ |
(201,628 |
) |
|
Foreign |
|
|
(77,006 |
) |
|
|
(203,509 |
) |
|
|
(331,677 |
) |
|
Loss before income taxes |
|
$ |
(95,418 |
) |
|
$ |
(440,834 |
) |
|
$ |
(533,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision (benefit) for income taxes for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
1,977 |
|
|
$ |
1,087 |
|
|
$ |
— |
|
|
State |
|
|
316 |
|
|
|
(143 |
) |
|
|
1,226 |
|
|
Foreign |
|
|
16,767 |
|
|
|
19,870 |
|
|
|
14,625 |
|
|
Total current provision for income taxes |
|
|
19,060 |
|
|
|
20,814 |
|
|
|
15,851 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(4,701 |
) |
|
|
293 |
|
|
|
(23,208 |
) |
|
State |
|
|
(67 |
) |
|
|
17 |
|
|
|
(852 |
) |
|
Foreign |
|
|
(1,647 |
) |
|
|
(5,085 |
) |
|
|
(4,065 |
) |
|
Total deferred benefit for income taxes |
|
|
(6,415 |
) |
|
|
(4,775 |
) |
|
|
(28,125 |
) |
|
Provision (benefit) for income taxes |
|
$ |
12,645 |
|
|
$ |
16,039 |
|
|
$ |
(12,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2017, 2016 and 2015:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Tax at federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State taxes, net of federal benefit |
|
|
(0.3 |
) |
|
|
0.0 |
|
|
|
(0.1 |
) |
|
Stock-based compensation |
|
|
(25.4 |
) |
|
|
(2.3 |
) |
|
|
(2.9 |
) |
|
Research and development credits |
|
|
28.2 |
|
|
|
6.6 |
|
|
|
7.2 |
|
|
Valuation allowance |
|
|
425.2 |
|
|
|
(7.0 |
) |
|
|
3.1 |
|
|
Deferred tax impacts of the Tax Act |
|
|
(369.8 |
) |
|
|
0.0 |
|
|
|
0.0 |
|
|
Nondeductible compensation |
|
|
(3.2 |
) |
|
|
(0.5 |
) |
|
|
0.0 |
|
|
Nondeductible interest expense |
|
|
(3.5 |
) |
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
Nondeductible other expenses |
|
|
(8.7 |
) |
|
|
(6.1 |
) |
|
|
(5.5 |
) |
|
Foreign rate differential |
|
|
(44.1 |
) |
|
|
(19.5 |
) |
|
|
(23.7 |
) |
|
Change in tax positions |
|
|
(46.6 |
) |
|
|
(9.5 |
) |
|
|
(10.7 |
) |
|
Other |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
0.0 |
|
|
Effective tax rate |
|
|
(13.3 |
)% |
|
|
(3.6 |
)% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences and related deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
720,444 |
|
|
$ |
235,668 |
|
|
Accruals and reserves |
|
|
51,948 |
|
|
|
61,594 |
|
|
Stock-based compensation expense |
|
|
36,280 |
|
|
|
64,136 |
|
|
Research and development credits |
|
|
312,637 |
|
|
|
251,808 |
|
|
California Enterprise Zone Credit |
|
|
15,119 |
|
|
|
12,266 |
|
|
Fixed assets and intangible assets |
|
|
10,803 |
|
|
|
2,631 |
|
|
Other |
|
|
8,843 |
|
|
|
11,980 |
|
|
Total deferred tax assets |
|
|
1,156,074 |
|
|
|
640,083 |
|
|
Valuation allowance |
|
|
(1,021,326 |
) |
|
|
(439,993 |
) |
|
Total deferred tax assets, net of valuation allowance |
|
|
134,748 |
|
|
|
200,090 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Fixed assets and intangible assets |
|
|
(111,924 |
) |
|
|
(168,223 |
) |
|
Convertible notes |
|
|
(11,653 |
) |
|
|
(24,303 |
) |
|
Other |
|
|
(954 |
) |
|
|
(1,612 |
) |
|
Total deferred tax liabilities |
|
|
(124,531 |
) |
|
|
(194,138 |
) |
|
Net deferred tax assets |
|
$ |
10,217 |
|
|
$ |
5,952 |
|
|
|
|
|
|
|
|
|
|
|
The Tax Act reduces the federal statutory corporate tax rate from 35% to 21% for the Company’s tax years beginning in 2018, which resulted in the re-measurement of the federal portion of its deferred tax assets and related valuation allowance as of December 31, 2017 from 35% to the new 21% tax rate. Based on the available objective evidence, management believes it is more-likely-than-not that the net U.S. and Brazil deferred tax assets were not fully realizable as of the year ended December 31, 2017. Accordingly, the Company has established a full valuation allowance against its U.S. and Brazil deferred tax assets. As of December 31, 2017, the Company has net $8.3 million of deferred tax assets in foreign jurisdictions which it believes are more-likely-than-not to be fully realized given the expectation of future earnings in these jurisdictions.
For the year ended December 31, 2017, the Company has not provided for income taxes on $207.7 million of its undistributed earnings for certain foreign subsidiaries because these earnings are intended to be indefinitely reinvested in operations outside the U.S. Determining the unrecognized deferred tax liabilities associated with these earnings is not practicable.
At December 31, 2017, the Company had $3.43 billion of federal and $1.47 billion of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in 2027 for federal and 2018 for state tax purposes.
The Company also has research credit carryforwards of $259.6 million and $208.6 million for federal and state income tax purposes, respectively. The federal credit carryforward will begin to expire in 2027. The state research tax credits have no expiration date. Additionally, the Company has California Enterprise Zone Credit carryforwards of $19.1 million which will begin to expire in 2023.
Utilization of the net operating loss carryforwards and credits may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization.
As of December 31, 2017, the unrecognized tax benefit was $259.8 million, including $246.8 million of unrecognized tax benefits which, if recognized, will not affect the annual effective tax rate as these unrecognized tax benefits would increase deferred tax assets which would be subject to a full valuation allowance, and the remaining $13.0 million of unrecognized tax benefits which, if recognized, would affect the annual effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at the beginning of the year |
|
$ |
269,508 |
|
|
$ |
209,443 |
|
|
$ |
182,484 |
|
|
Additions related to prior year tax positions |
|
|
913 |
|
|
|
3,682 |
|
|
|
1,820 |
|
|
Reductions related to prior year tax positions |
|
|
— |
|
|
|
— |
|
|
|
(45,305 |
) |
|
Reductions related to settlement with tax authorities |
|
|
(1,415 |
) |
|
|
— |
|
|
|
— |
|
|
Reductions related to the Tax Act |
|
|
(71,104 |
) |
|
|
— |
|
|
|
— |
|
|
Additions related to current year tax positions |
|
|
61,879 |
|
|
|
56,383 |
|
|
|
70,444 |
|
|
Balance at the end of the year |
|
$ |
259,781 |
|
|
$ |
269,508 |
|
|
$ |
209,443 |
|
Total unrecognized tax benefits are recorded on the Company’s consolidated balance sheets as follows (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Total unrecognized tax benefits balance |
|
$ |
259,781 |
|
|
$ |
269,508 |
|
|
Amounts netted against related deferred tax assets |
|
|
(246,776 |
) |
|
|
(263,696 |
) |
|
Unrecognized tax benefits recorded on consolidated balance sheets |
|
$ |
13,005 |
|
|
$ |
5,812 |
|
|
|
|
|
|
|
|
|
|
|
The net unrecognized tax benefit of $13.0 million and $5.8 million as of December 31, 2017 and 2016, respectively, was included in the deferred and other long-term tax liabilities, net on the Company’s consolidated balance sheets. The Company does not believe that its unrecognized tax benefits will materially change within the next 12 months.
The Company recognizes interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2017, we accrued an immaterial amount of interest and penalties related to uncertain tax positions.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. Earnings from non-US activities are subject to local country income tax. The material jurisdictions in which the Company is subject to potential examination by taxing authorities include the United States, California and Ireland. The Company is currently under a Federal income tax examination by the Internal Revenue Service (IRS) for tax years 2011, 2012 and 2013, and under examination in California for tax years 2013 through 2015. The Company believes that adequate amounts have been reserved in these jurisdictions. The Company’s 2007 to 2017 tax years remain subject to examination by the United States and California, and its 2013 to 2017 tax years remain subject to examination in Ireland. The Company remains subject to possible examination in various other jurisdictions that are not expected to result in material tax adjustments.