14. Income Taxes
The Company is subject to U.S. federal and various state corporate income taxes as well as taxes in foreign jurisdictions for the foreign parent and where foreign subsidiaries have been established.
Net loss before taxes
For the years ended December 31, 2017, 2016 and 2015, the loss before provision for income taxes consist of the following (in thousands):
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Domestic |
|
$ |
5,184 |
|
|
$ |
3,322 |
|
|
$ |
593 |
|
|
Foreign |
|
|
(71,792 |
) |
|
|
(26,040 |
) |
|
|
(26,414 |
) |
|
Total |
|
$ |
(66,608 |
) |
|
$ |
(22,718 |
) |
|
$ |
(25,821 |
) |
The (provision for) benefit from income taxes consist of the following (in thousands):
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(1,533 |
) |
|
$ |
(649 |
) |
|
$ |
(23 |
) |
|
State |
|
|
(42 |
) |
|
|
11 |
|
|
|
(12 |
) |
|
Foreign |
|
|
6 |
|
|
|
17 |
|
|
|
(26 |
) |
|
Total current income taxes |
|
|
(1,569 |
) |
|
|
(621 |
) |
|
|
(61 |
) |
|
Deferred income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(477 |
) |
|
|
30 |
|
|
|
(37 |
) |
|
State |
|
|
297 |
|
|
|
105 |
|
|
|
65 |
|
|
Foreign |
|
|
— |
|
|
|
2 |
|
|
|
26 |
|
|
Total deferred income taxes |
|
|
(180 |
) |
|
|
137 |
|
|
|
54 |
|
|
Total income tax provision |
|
$ |
(1,749 |
) |
|
$ |
(484 |
) |
|
$ |
(7 |
) |
A reconciliation of income tax expense computed at the statutory corporate income tax rate to the effective income tax rate for the years ended December 31, 2017, 2016 and 2015 is as follows:
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax expense at statutory rate |
|
|
9.3 |
% |
|
|
10.3 |
% |
|
|
10.3 |
% |
|
State income tax, net of federal benefit |
|
|
0.3 |
% |
|
|
1.3 |
% |
|
|
0.1 |
% |
|
Nondeductible expenses |
|
|
0.0 |
% |
|
|
1.6 |
% |
|
|
0.0 |
% |
|
Foreign rate differential |
|
|
(2.5 |
%) |
|
|
(3.3 |
%) |
|
|
(1.4 |
%) |
|
Statutory to US GAAP permanent differences |
|
|
1.8 |
% |
|
|
6.6 |
% |
|
|
0.0 |
% |
|
Stock-based compensation |
|
|
(2.9 |
%) |
|
|
(4.9 |
%) |
|
|
(1.4 |
%) |
|
Research credits |
|
|
0.8 |
% |
|
|
3.1 |
% |
|
|
0.6 |
% |
|
Change in valuation allowance |
|
|
(9.4 |
%) |
|
|
(16.8 |
%) |
|
|
(8.2 |
%) |
|
Effective income tax rate |
|
|
(2.6 |
%) |
|
|
(2.1 |
%) |
|
|
— |
|
The federal statutory rate reflects the Switzerland mixed company service rate.
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following (in thousands):
|
|
|
Years Ended December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
9,987 |
|
|
$ |
3,934 |
|
|
Accruals and reserves |
|
|
1,123 |
|
|
|
791 |
|
|
Deferred Rent |
|
|
3,494 |
|
|
|
5,228 |
|
|
Other deferred tax assets |
|
|
36 |
|
|
|
7 |
|
|
Deferred revenue |
|
|
1,721 |
|
|
|
2,525 |
|
|
Research credit |
|
|
543 |
|
|
|
425 |
|
|
Total deferred tax assets |
|
|
16,904 |
|
|
|
12,910 |
|
|
Less valuation allowance |
|
|
(13,041 |
) |
|
|
(6,770 |
) |
|
Net deferred tax assets |
|
|
3,863 |
|
|
|
6,140 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
(3,791 |
) |
|
|
(5,909 |
) |
|
Intangible assets |
|
|
(59 |
) |
|
|
(68 |
) |
|
Other deferred tax liabilities |
|
|
(31 |
) |
|
|
— |
|
|
Total deferred tax liabilities |
|
|
(3,881 |
) |
|
|
(5,977 |
) |
|
Long term deferred taxes |
|
$ |
(18 |
) |
|
$ |
163 |
|
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses in its non-U.S. jurisdictions, the Company has concluded that it is more-likely-than-not that the benefit of its non-U.S. deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets in Switzerland, and in the UK for its TRACR subsidiary, as of December 31, 2017 and 2016. The valuation allowance increased by $6.3 million during 2017, which is primarily attributable to losses in Switzerland. Additionally, the Company has established a valuation allowance for certain U.S. deferred tax assets.
On December 22, 2017, the Tax Cuts and Jobs Act ("the Act") was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. On December 22, 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 the recording of provisional amounts during a measurement period not to extend beyond one year of the enactment date. At December 31, 2017, the Company has assessed its provisional accounting for the tax effects of enactment of the Act, including the effects on our existing deferred tax balances and the one-time transition tax. For the year ended December 31, 2017, the Company has recognized no transition tax. The final impact may differ from this provisional amount due to, among other things, changes in interpretations and assumptions the Company has made thus far and the issuance of additional regulatory or other guidance. The Company expects to complete the final impact within the measurement period.
As a result of the Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. This resulted in a decrease to the Company’s gross deferred tax assets of $0.2 million. The impact of the rate reduction on the Company’s deferred tax assets and liabilities is provisional.
As of December 31, 2017, the Company had available non-U.S. net operating loss carryforwards of $127.4 million which begin to expire in 2020. As of December 31, 2017, the Company has U.S. domestic state research and development credit carryforwards of $0.4 million which begin to expire in 2032.
As of December 31, 2017, the Company has U.S. domestic federal research and development credit carryforwards of $0.3 million which expire in 2037, which are net of uncertain tax positions of $0.2 million.
ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statement by prescribing the minimum recognition threshold and measurement of a tax position taken or expected to be taken in a tax return.
As of December 31, 2017 the Company had gross unrecognized tax benefits of $0.4 million of which $0.3 million would favorably impact the effective tax rate if recognized. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2017, 2016 and 2015, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations and comprehensive loss.
The aggregate changes in gross unrecognized tax benefits was as follows (in thousands):
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at beginning of year |
|
$ |
163 |
|
|
$ |
49 |
|
|
$ |
— |
|
|
Increases for tax positions taken during current period |
|
|
178 |
|
|
|
134 |
|
|
|
49 |
|
|
Increases for tax positions taken in prior periods |
|
|
13 |
|
|
|
— |
|
|
|
— |
|
|
Decreases for tax positions taken during current period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Decreases for tax positions taken in prior periods |
|
|
— |
|
|
|
(20 |
) |
|
|
— |
|
|
Balance at end of year |
|
$ |
354 |
|
|
$ |
163 |
|
|
$ |
49 |
|
The Company files income tax returns in the U.S. federal jurisdiction, Massachusetts, and certain non-U.S. jurisdictions. The Company is subject to U.S. federal, Massachusetts, and non-U.S. income tax examinations by authorities for all tax years.