12. Income Taxes
The components of the Company’s loss before provision for income taxes were as follows:
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
United States of America |
|
$ |
(15,740 |
) |
|
$ |
(7,595 |
) |
|
$ |
(17,173 |
) |
|
International |
|
|
(14,744 |
) |
|
|
(7,481 |
) |
|
|
(15,171 |
) |
|
|
|
$ |
(30,484 |
) |
|
$ |
(15,076 |
) |
|
$ |
(32,344 |
) |
The components of the provision for income taxes were as follows:
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
64 |
|
|
|
58 |
|
|
|
111 |
|
|
Foreign |
|
|
1,301 |
|
|
|
1,708 |
|
|
|
1,193 |
|
|
Total current income tax provision |
|
|
1,365 |
|
|
|
1,766 |
|
|
|
1,304 |
|
|
Deferred income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
Foreign |
|
|
(358 |
) |
|
|
(362 |
) |
|
|
(299 |
) |
|
Total deferred income tax benefit |
|
|
(358 |
) |
|
|
(362 |
) |
|
|
(299 |
) |
|
Provision for income taxes |
|
$ |
1,007 |
|
|
$ |
1,404 |
|
|
$ |
1,005 |
|
The differences in the total provision for income taxes that would result from applying the 34% federal statutory rate to loss before provision for income taxes and the reported provision for income taxes were as follows:
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Tax benefit at U.S. statutory rate |
|
$ |
(10,365 |
) |
|
$ |
(5,126 |
) |
|
$ |
(10,997 |
) |
|
State income taxes, net of federal benefit |
|
|
(2,858 |
) |
|
|
(147 |
) |
|
|
(104 |
) |
|
Foreign income and withholding taxes |
|
|
5,578 |
|
|
|
4,317 |
|
|
|
6,033 |
|
|
Impact of change to U.S. statutory rate from Tax Cuts and Jobs Act |
|
|
14,302 |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
1,085 |
|
|
|
2,231 |
|
|
|
1,039 |
|
|
Change in valuation allowance |
|
|
(8,158 |
) |
|
|
155 |
|
|
|
3,807 |
|
|
Research and development credits |
|
|
(382 |
) |
|
|
(736 |
) |
|
|
(1,067 |
) |
|
Uncertain tax positions |
|
|
1,995 |
|
|
|
1,146 |
|
|
|
1,277 |
|
|
Provision to return adjustments |
|
|
153 |
|
|
|
(484 |
) |
|
|
848 |
|
|
Impact of adoption of ASU 2016-09 |
|
|
(1,291 |
) |
|
|
— |
|
|
|
— |
|
|
Other |
|
|
948 |
|
|
|
48 |
|
|
|
169 |
|
|
|
|
$ |
1,007 |
|
|
$ |
1,404 |
|
|
$ |
1,005 |
|
Major components of the Company’s deferred tax assets (liabilities) as of December 31, 2017 and 2016 are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Net operating loss |
|
$ |
25,002 |
|
|
$ |
32,551 |
|
|
Accruals and reserves |
|
|
1,656 |
|
|
|
2,934 |
|
|
Research and development credits |
|
|
8,757 |
|
|
|
7,368 |
|
|
Stock-based compensation |
|
|
2,796 |
|
|
|
4,622 |
|
|
Property and equipment and intangible assets |
|
|
(710 |
) |
|
|
(1,855 |
) |
|
Other |
|
|
3,161 |
|
|
|
2,842 |
|
|
Net deferred tax assets |
|
|
40,662 |
|
|
|
48,462 |
|
|
Valuation allowance |
|
|
(41,224 |
) |
|
|
(49,382 |
) |
|
Total non-current net deferred tax liabilities, net of valuation allowance |
|
$ |
(562 |
) |
|
$ |
(920 |
) |
The Tax Reform Act of 1986, as amended, imposes restrictions on the utilization of net operating losses and tax credit carryforwards in certain situations where changes occur in the stock ownership of a corporation. Utilization of a domestic net operation loss or tax credit carryforward may be subject to a substantial limitation due to ownership changes that may have occurred or that could occur in the future, as required by Internal Revenue Code Section 382 (“IRC Section 382”), as well as similar state provisions. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under IRC Section 382. Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. The Company assessed the application of IRC Section 382 during the fourth quarter of 2017 and concluded that no such limitation currently applies. This conclusion will be monitored in the future as circumstances dictate. In the event the Company experiences any subsequent changes in ownership, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.
As of December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $110,087 and $91,585, respectively. The federal net operating loss carryforward will begin expiring in 2026 and the state net operating loss carryforward will begin expiring in 2022. As of December 31, 2017, the Company had federal and state research and development credits of approximately $6,139 and $6,451, respectively. The federal research and development credits will begin expiring in 2026. The state research and development credits are not currently subject to expiration.
The Company has recorded a full valuation allowance against its otherwise recognizable deferred income tax assets as of December 31, 2017 and 2016 (except for the deferred income tax assets associated with certain of the Company’s foreign subsidiaries). The Company has determined, after evaluating all positive and negative historical and prospective evidence, that it is more likely than not that the deferred tax assets will not be realized. The valuation allowance decreased by $8,158 during the year ended December 31, 2017, and increased by $469 and $5,467 during the years ended December 31, 2016 and 2015, respectively.
The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. These audits include questioning the timing and amount of deduction, the nexus of income among various tax jurisdictions and compliance with state, local and foreign tax laws. The Company is not currently under any examination by any federal or state tax authorities, but is currently under audit by the French Tax Authority for the tax years of 2012 through 2016. Because of net operating loss and credit carry forwards, all of the Company’s tax years dating to inception in 2006 remain open to examination.
Uncertain Tax Positions
As of December 31, 2017 and 2016, the Company had uncertain tax positions of $1,610 and $1,049, respectively, that if recognized would impact the annual effective tax rate. During 2017, 2016 and 2015, the Company did not recognize any interest or penalties related to uncertain tax positions. The aggregate changes in the balance of gross uncertain tax positions were as follows:
|
Ending balance as of December 31, 2014 |
|
$ |
1,581 |
|
|
Increase in balances related to tax positions taken during the current period |
|
|
3,196 |
|
|
Increase in balances related to tax positions taken during the prior period |
|
|
2,781 |
|
|
Ending balance as of December 31, 2015 |
|
|
7,558 |
|
|
Decrease in balances related to tax positions taken during the current period |
|
|
(2 |
) |
|
Increase in balances related to tax positions taken during the prior period |
|
|
1,240 |
|
|
Ending balance as of December 31, 2016 |
|
|
8,796 |
|
|
Increase in balances related to tax positions taken during the current period |
|
|
1,738 |
|
|
Decrease in balances related to tax positions taken during the prior period |
|
|
(9 |
) |
|
Decrease in balances due to change in United States statutory rate |
|
|
(2,101 |
) |
|
Ending balance as of December 31, 2017 |
|
$ |
8,424 |
|
The Company does not anticipate that the amount of uncertain tax positions relating to tax positions existing at December 31, 2017 will materially increase or decrease within the next twelve months.
The Tax Cuts and Jobs Act
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. As a result, the Company re-measured its deferred tax assets and deferred tax liabilities at the new lower corporate income tax rate and reduced them by $18,696 and $4,394, respectively, with a corresponding net adjustment to the valuation allowance of $14,302 for the year ended December 31, 2017.
The TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of certain of the Company’s foreign subsidiaries as of December 31, 2017. To determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception by the relevant foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially other factors. The Company believes that no such tax will be due, as its foreign subsidiaries have accumulated significant losses.
In addition, the TCJA imposes a U.S. tax on global intangible low-taxed income (“GILTI”) that is earned by certain foreign subsidiaries. Because of the complexity of the new GILTI tax rules, the Company’s management is continuing to evaluate the provision of the TCJA and its application on the accounting for income taxes. In accordance with GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes related to GILTI as a current period expense when incurred, or (2) factoring such amounts into the measurement of deferred taxes. Because the assessment of the impact of GILTI depends not only on the Company’s current structure, but also its intent and ability to modify its structure and business, the Company is not yet able to reasonably estimate the effect of this provision of the TCJA. Therefore, the Company has not made any adjustment related to potential GILTI tax in the consolidated financial statements, and has not made a policy decision regarding whether to record deferred taxes related to GILTI.
The base-erosion and anti-abuse tax (“BEAT”) provisions in the TCJA eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2017.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The Company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may materially differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be completed when the 2017 U.S. corporate income tax return is filed in 2018.