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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes |
Income Taxes | Note 14. Income Taxes We are subject to U.S. federal, state and foreign corporate income taxes. The provision for income taxes is based on income (loss) before provision for income taxes as follows (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
U.S. |  | $ | 478,050 |  | $ | 36,493 |  | $ | 272,574 |
Non-U.S. |  |  | (362,703) |  |  | (348,783) |  |  | (165,170) |
Income (loss) before provision for income taxes |  | $ | 115,347 |  | $ | (312,290) |  | $ | 107,404 |
Our provision for income taxes consists of the following (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |
State |  | $ | 5,010 |  | $ | 486 |  | $ | 2,700 |
Foreign |  |  | 1,303 |  |  | 1,171 |  |  | 482 |
|  |  | 6,313 |  |  | 1,657 |  |  | 3,182 |
Deferred: |  |  |  |  |  |  |  |  |  |
State |  |  | 111 |  |  | (805) |  |  | — |
Foreign |  |  | (570) |  |  | — |  |  | — |
|  |  | (459) |  |  | (805) |  |  | — |
Total provision for income taxes |  | $ | 5,854 |  | $ | 852 |  | $ | 3,182 |
A reconciliation of income taxes at the U.S. federal statutory rate to the provision for income taxes is as follows (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
Provision (benefit) at U.S. federal statutory rate 1 |  | $ | 24,223 |  | $ | (109,302) |  | $ | 37,591 |
Unbenefited net operating losses and tax credits |  |  | (51,861) |  |  | (99,254) |  |  | (47,410) |
Excess tax benefits related to share-based compensation |  |  | (8,233) |  |  | (81,021) |  |  | (29,541) |
Deferred tax impact of Tax Cuts and Jobs Act of 2017 |  |  | — |  |  | 196,751 |  |  | — |
Foreign tax rate differential |  |  | 37,061 |  |  | 86,777 |  |  | 39,975 |
Non-deductible officer compensation |  |  | 4,114 |  |  | 6,351 |  |  | 2,061 |
Other |  |  | 550 |  |  | 550 |  |  | 506 |
Provision for income taxes |  | $ | 5,854 |  | $ | 852 |  | $ | 3,182 |
1. Statutory U.S. federal income tax rate of 21% in 2018 and 35% in 2017 and 2016. The foreign tax rate differential in the table above reflects the impact of operations in jurisdictions with tax rates that differ from the U.S. federal statutory rate. Significant components of our deferred tax assets and liabilities are as follows (in thousands):
|  | December 31, |
|  | 2018 |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carry forwards |  | $ | 148,142 |  | $ | 259,189 |
Federal and state research credits |  |  | 402,798 |  |  | 333,311 |
Capitalized research and development |  |  | 53,871 |  |  | 37,044 |
Deferred revenue and accruals |  |  | 9,443 |  |  | 11,721 |
Non-cash compensation |  |  | 58,194 |  |  | 44,647 |
Acquisition-related contingent consideration |  |  | 43,676 |  |  | 41,831 |
Intangibles, net |  |  | 93,730 |  |  | 94,249 |
Long term investments |  |  | 23,621 |  |  | 12,244 |
Other |  |  | 22,211 |  |  | 12,815 |
Total gross deferred tax assets |  |  | 855,686 |  |  | 847,051 |
Less valuation allowance for deferred tax assets |  |  | (836,992) |  |  | (834,783) |
Net deferred tax assets |  | $ | 18,694 |  | $ | 12,268 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property and equipment |  | $ | (17,424) |  | $ | (11,463) |
Total gross deferred tax liabilities |  |  | (17,424) |  |  | (11,463) |
Net deferred income taxes |  | $ | 1,270 |  | $ | 805 |
The net deferred income tax balance is reported in other assets, net on the consolidated balance sheets as of December 31, 2018 and 2017. As of December 31, 2018, the Company has net operating loss (“NOL”) carryforwards, research and development credit carryforwards and orphan drug tax credit carryforwards as follows (in thousands):
|  | Amount |  | Expiring if not utilized |
Net operating loss carryforwards |  |  |  |  |  |
Federal |  | $ | 216,970 |  | 2034 |
State |  |  | 343,022 |  | 2020 through 2037; indefinite |
Foreign |  |  | 757,312 |  | 2020 through 2025 |
Research and development credit carryforwards |  |  |  |  |  |
Federal |  |  | 197,400 |  | 2019 through 2038 |
State |  |  | 25,247 |  | 2021 through 2032; indefinite |
Orphan drug tax credit carryforwards |  |  | 210,242 |  | 2029 through 2038 |
Our ability to utilize our federal and state NOLs may be limited under Internal Revenue Code Section 382 (“Section 382”). Section 382 imposes annual limitations on the utilization of NOL carryforwards and other tax attributes upon an ownership change. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in our stock by more than 50 percentage points over a testing period (generally three years). We have completed a Section 382 analysis through the year ended December 31, 2017. Based on this analysis, our NOLs and other tax attributes accumulated through 2017 should not be limited under Section 382. We have not updated our analysis through 2018. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to the Internal Revenue Code. The Act contains numerous provisions impacting corporate taxpayers. Changes include a federal corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and temporary full expensing of certain business assets. We recorded provisional tax impacts related to the revaluation of deferred tax assets and liabilities as well as the temporary full expensing of certain business assets in our consolidated financial statements for the year ended December 31, 2017. Upon the completion of the 2017 U.S. federal corporate income tax return during the fourth quarter of 2018, we finalized our analysis of the Act and determined no additional adjustments were required. The valuation allowance for deferred tax assets increased by approximately $2.2 million during the year ended December 31, 2018, increased by approximately $14.6 million during the year ended December 31, 2017 and increased by approximately $277.3 million during the year ended December 31, 2016. The net valuation allowance increase during 2018 was primarily due to the generation of U.S. federal R&D credits, orphan drug credits and Swiss NOLs, offset by the utilization of NOLs in the U.S. Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon our analysis of our historical operating results, as well as projections of our future taxable income (losses) during the periods in which the temporary differences will be recoverable, management believes the uncertainty regarding the realization of our U.S. and Swiss net deferred tax assets requires a full valuation allowance against such net assets as of December 31, 2018. When performing our assessment on projections of future taxable income (losses), we consider factors such as the likelihood of regulatory approval and commercial success of products currently under development, among other factors. The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. If such unrecognized tax benefits were realized and not subject to valuation allowances, we would recognize a tax benefit of $22.4 million. The following table summarizes the gross amounts of unrecognized tax benefits (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |
Balance at beginning of year |  | $ | 18,022 |  | $ | 10,798 |
Additions related to prior periods tax positions |  |  | 2,098 |  |  | 2,571 |
Reductions related to prior periods tax positions |  |  | — |  |  | (821) |
Additions related to current period tax positions |  |  | 2,466 |  |  | 5,555 |
Reductions due to lapse of applicable statute of limitations |  |  | (130) |  |  | (81) |
Currency translation adjustment |  |  | (61) |  |  | — |
Balance at end of year |  | $ | 22,395 |  | $ | 18,022 |
Our policy is to recognize interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. During the years ended December 31, 2018, 2017 and 2016, we recorded interest and penalties as a component of income tax expense of $0.1 million, $0.3 million and $0.3 million, respectively. Due to NOL and tax credit carry forwards that remain unutilized, U.S. federal and state income tax returns remain subject to examination for three years after utilization of that year’s NOL carryforward. The earliest year which generated an NOL included in our current NOL carryforward is 2014 for U.S. federal tax purposes. All tax years for our foreign subsidiaries are open to audit in their respective jurisdictions.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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