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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes |
8. Income Taxes
Income (loss) before income taxes subject to taxes in the following jurisdictions is as follows:
| Twelve Months Ended December 31,
(In millions) | 2021 |  | 2020 |  | 2019
United States | $ | 235.3 |  |  | $ | 270.7 |  |  | $ | 119.1 |
Outside of the United States | (61.4) |  |  | (45.7) |  |  | (14.9) |
Total | $ | 173.9 |  |  | $ | 225.0 |  |  | $ | 104.2 |
Significant components of the provision for income taxes are as follows:
| Twelve Months Ended December 31,
(In millions) | 2021 |  | 2020 |  | 2019
Current: |  |  |  |  |
Federal | $ | 5.7 |  |  | $ | — |  |  | $ | — |
State | 8.3 |  |  | 6.1 |  |  | 1.0 |
Foreign | 10.1 |  |  | 2.6 |  |  | 1.9 |
Total current income taxes | 24.1 |  |  | 8.7 |  |  | 2.9 |
Deferred: |  |  |  |  |
Federal | 5.5 |  |  | (198.8) |  |  | — |
State | (3.4) |  |  | (51.4) |  |  | — |
Foreign | (7.0) |  |  | (27.1) |  |  | 0.2 |
Total deferred income taxes | (4.9) |  |  | (277.3) |  |  | 0.2 |
Total | $ | 19.2 |  |  | $ | (268.6) |  |  | $ | 3.1 |
Significant loss and tax credit carryforwards and years of expiration are as follows:
| December 31, |  | Year of Expiration
(In millions) | 2021 |  | 2020 |
Net operating loss: |  |  |  |  |
Federal | $ | 38.0 |  |  | $ | 169.1 |  |  | 2027
California | 236.3 |  |  | 236.3 |  |  | 2029
Other states | 21.3 |  |  | 36.1 |  |  | 2029
UK | 102.4 |  |  | 113.2 |  |  | Indefinite
Tax credits: |  |  |  |  |
Federal |  |  |  |  |
R&D credits | 80.1 |  |  | 73.1 |  |  | 2026
Foreign tax credits | 1.5 |  |  | — |  |  | 2031
California R&D credits | $ | 81.4 |  |  | $ | 66.2 |  |  | Indefinite
On June 29, 2020, California’s Governor Newsom signed AB 85 into law, suspending California net operating loss utilization and imposing a $5.0 million cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020 through 2022. As a result of the legislation, we are utilizing $2.2 million of California research and development credits for the tax year ended December 31, 2021. Utilization of net operating losses and credit carryforwards is subject to an annual limitation due to ownership change limitations provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. An ownership change limitation occurred as a result of the stock offering completed in February 2009. The limitation will result in approximately $1.8 million of U.S. research and development tax credits that will expire unused. The related deferred tax assets have been removed from the components of our deferred tax assets as summarized in the table below. The tax benefits related to the remaining federal and state net operating losses and tax credit carryforwards may be further limited or lost if future cumulative changes in ownership exceed 50% within any three-year period. Significant components of our deferred tax assets and liabilities as of December 31, 2021 and 2020 are shown below. Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets. We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, reliability of forecasting, and reversal of temporary differences. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.
| December 31,
(In millions) | 2021 |  | 2020
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 53.0 |  |  | $ | 69.2 |
Capitalized research and development expenses | 49.3 |  |  | 53.6 |
Tax credits | 105.5 |  |  | 101.1 |
Share-based compensation | 13.3 |  |  | 13.0 |
Fixed and intangible assets | 26.4 |  |  | 16.9 |
Accrued liabilities and reserves | 105.5 |  |  | 110.3 |
Collaborative agreement milestone accrual (1) | 21.9 |  |  | — |
Other | 0.5 |  |  | — |
Total gross deferred tax assets | 375.4 |  |  | 364.1 |
Less: valuation allowance | (69.9) |  |  | (55.5) |
Total net deferred tax assets | 305.5 |  |  | 308.6 |
Deferred tax liabilities: |  |  |
Fixed assets and acquired intangibles assets | (42.5) |  |  | (36.3) |
Convertible debt discount | (48.1) |  |  | (55.9) |
Total deferred tax liabilities | (90.6) |  |  | (92.2) |
Net deferred tax assets (liabilities) | $ | 214.9 |  |  | $ | 216.4 |
(1) This amount is related to the $87.1 million charge recorded in the fourth quarter of 2021 associated with our Restated Collaboration Agreement with Verily, as discussed in Note 2 to the consolidated financial statements. The current year change in net deferred tax assets of $1.5 million is primarily comprised of purchase accounting adjustments of $7.3 million recorded in goodwill and $0.5 million tax effect of unrealized loss on investments recorded in other comprehensive income, offset by $4.9 million of deferred tax benefit recorded through income tax expense and $1.1 million of convertible debt adjustments recorded as a reduction to additional paid-in capital. We maintain a valuation allowance of $69.9 million against our California research and development tax credits, foreign tax credits, and certain foreign intangible assets. The reconciliation between our effective tax rate on income (loss) from continuing operations and the statutory rate is as follows:
| Twelve Months Ended December 31,
(In millions) | 2021 |  | 2020 |  | 2019
U.S. federal statutory tax rate | $ | 36.5 |  |  | $ | 47.3 |  |  | $ | 21.9 |
State income tax, net of federal benefit | 5.6 |  |  | 3.2 |  |  | (2.3) |
Permanent items | 26.2 |  |  | 13.1 |  |  | 1.0 |
Research and development credits | (28.9) |  |  | (24.4) |  |  | (10.8) |
Foreign tax credit | (3.7) |  |  | — |  |  | — |
Foreign rate differential | (0.1) |  |  | (0.1) |  |  | 5.6 |
Stock and officers compensation | (20.4) |  |  | (28.7) |  |  | (14.7) |
Change in statutory tax rates | (10.0) |  |  | (4.1) |  |  | — |
Other | (0.4) |  |  | 0.1 |  |  | (1.0) |
Change in valuation allowance | 14.4 |  |  | (275.0) |  |  | 3.4 |
Income taxes at effective rates | $ | 19.2 |  |  | $ | (268.6) |  |  | $ | 3.1 |
We have elected to account for Global Intangible Low-Taxed Income (“GILTI”) in the period the tax is incurred. The following table summarizes the activity related to our gross unrecognized tax benefits:
(In millions) |
Balance at January 1, 2019 | $ | 25.9 |
Decreases related to prior year tax positions | (0.9) |
Increases related to current year tax positions | 4.5 |
Balance at December 31, 2019 | 29.5 |
Decreases related to prior year tax positions | (0.9) |
Increases related to current year tax positions | 8.0 |
Balance at December 31, 2020 | 36.6 |
Increases related to prior year tax positions | 0.4 |
Increases related to current year tax positions | 9.8 |
Balance at December 31, 2021 | $ | 46.8 |
Of the total unrecognized tax benefits at December 31, 2021, 2020, and 2019, $29.5 million, $23.5 million, and $0, respectively, would reduce our annual effective tax rate if recognized. Interest and penalties are classified as a component of income tax expense and were not material for any period presented. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the uncertain tax benefits in the next twelve months. Due to our global business activities, we file income tax returns and are subject to routine compliance audits in numerous jurisdictions, including those material jurisdictions listed in the following table. The U.S. net operating losses generated since 1999 and utilized in recent years are open for examination. The years remaining subject to audit, by major jurisdiction, are as follows:
Jurisdiction | Fiscal Year
United States (Federal and state) | 1999 - 2021
Germany | 2016 - 2021
United Kingdom | 2016 - 2021
Canada | 2017 - 2021
We operate under a tax holiday in the Philippines, which is effective through December 31, 2023, and may be extended for another three years if certain additional requirements are satisfied. The tax holiday is conditional upon remaining in good standing, committing no violation of Philippine Economic Zone Authority Rules and Regulations, pertinent circulars and directives. The impact of this tax holiday was immaterial in in 2021 and 2020. We have been granted an investment tax allowance incentive by the Malaysian Investment Development Authority (MIDA) in Malaysia, which is effective through December 31, 2025. The tax incentive had no effect on foreign taxes during 2021 or 2020. We have approximately $15.3 million of undistributed earnings attributable to operations in our controlled foreign corporations as of December 31, 2021. We assert that any foreign earnings will be indefinitely reinvested. Accordingly, we have not recorded a liability for taxes associated with these undistributed earnings. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.

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