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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Note 17. Income Taxes Earnings Before Income Taxes and Components of Income Tax Provision The U.S. and non-U.S. components of income (loss) from continuing operations before income taxes and our income tax expense (benefit) from continuing operations (in thousands):
|  | Year Ended December 31,
|  | 2021 |  | 2020 (1) |  | 2019 (1)
Income (loss) from continuing operations before income taxes: |  |  |  |  |  |
UK and Non-U.S. |  | $ | 22,094 |  |  | $ | (262,501) |  |  | $ | 26,104 |
U.S. |  | (146,566) |  |  | (85,521) |  |  | (214,482) |
|  | $ | (124,472) |  |  | $ | (348,022) |  |  | $ | (188,378) |
Total income tax expense (benefit) from continuing operations consisted of the following: |  |  |  |  |  |
Current: |  |  |  |  |  |
UK and Non-U.S. |  | $ | 4,296 |  |  | $ | 2,899 |  |  | $ | 1,112 |
U.S. |  | 4,050 |  |  | (41,010) |  |  | (4,988) |
|  | 8,346 |  |  | (38,111) |  |  | (3,876) |
Deferred: |  |  |  |  |  |
UK and Non-U.S. |  | 2,852 |  |  | 37,151 |  |  | (7,628) |
U.S. |  | — |  |  | — |  |  | (18,870) |
|  | 2,852 |  |  | 37,151 |  |  | (26,498) |
Total income tax expense (benefit) from continuing operations |  | $ | 11,198 |  |  | $ | (960) |  |  | $ | (30,374) |
(1)Income (loss) from continuing operations before income taxes and deferred income tax expense for UK and Non-U.S. for the years ended December 31, 2020 and 2019 have been revised. For further details refer to “Note 1. Nature of Operations.” Effective Income Tax Rate Reconciliation LivaNova PLC is resident in the UK for tax purposes. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries, and the income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary. As a result of the changes in the overall level of our income, the earnings mix in various jurisdictions and the changes in tax laws, our consolidated effective income tax rate may vary from one reporting period to another. The following table is a reconciliation of the statutory income tax rate to our effective income tax rate expressed as a percentage of income from continuing operations before income taxes:
|  | Year Ended December 31,
|  | 2021 |  | 2020 (1) |  | 2019 (1)
Statutory tax rate at UK Rate |  | 19.0 | % |  | 19.0 | % |  | 19.0 | %
Deferred tax valuation allowance |  | (47.7) |  |  | (34.9) |  |  | (17.3) |
Foreign tax rate differential |  | 7.1 |  |  | 6.6 |  |  | 6.4 |
U.S. state and local tax expense, net of federal benefit |  | (0.3) |  |  | 1.5 |  |  | 6.1 |
Effect of changes in tax rate |  | 18.9 |  |  | 2.2 |  |  | (3.1) |
Write-off/impairment of investments |  | (1.8) |  |  | 1.8 |  |  | (2.7) |
Reserve for uncertain tax positions |  | — |  |  | 0.8 |  |  | 2.5 |
Research and development tax credits |  | 0.3 |  |  | 0.9 |  |  | 2.2 |
UK CFC tax |  | — |  |  | — |  |  | 2.1 |
U.S. tax on non-U.S. operations |  | — |  |  | — |  |  | (1.6) |
Base erosion anti-abuse tax |  | (3.1) |  |  | (0.7) |  |  | 1.5 |
Exempt income |  | — |  |  | — |  |  | 1.2 |
Foreign tax withholding and credits |  | (0.2) |  |  | (0.2) |  |  | — |
CARES Act rate differential |  | — |  |  | 2.8 |  |  | — |
Disallowable professional fees |  | (1.5) |  |  | — |  |  | — |
Other, net |  | 0.3 |  |  | 0.5 |  |  | (0.2) |
Effective tax rate |  | (9.0) | % |  | 0.3 | % |  | 16.1 | %
(1)Reconciliation amounts for the years ended December 31, 2020 and 2019 have been revised. For further details refer to “Note 1. Nature of Operations.” CARES Act On March 27, 2020, the U.S. enacted the CARES Act, which contains numerous income tax provisions and other stimulus measures. Of the tax measures that impact our income tax provision, the ability to carry back, U.S. tax net operating losses (“NOL”) generated in 2018, 2019, or 2020 to tax years with a higher statutory tax rate has the most significant impact. Based on our analysis as of December 31, 2021, we recorded an overall tax benefit of approximately $43.2 million with a permanent benefit of $9.6 million. This tax benefit reflects the carryback of all of the 2019 and a portion of the 2020 U.S. tax losses, inclusive of release of valuation allowance previously recorded on these losses. UK Tax Increase Due to the change in law effective April 1, 2023, which received royal assent in July 2021, and provided for the UK tax rate to increase to 25%, there was a revaluation to increase deferred taxes in 2021. Similarly, the UK valuation allowance was also increased by the revaluation. Deferred Income Tax Assets and Liabilities The significant components of our deferred tax assets and liabilities as of December 31, 2021 and 2020, are as follows (in thousands):
|  | 2021 |  | 2020 (1)
Deferred tax assets: |  |  |  |
Net operating loss carryforwards |  | $ | 152,491 |  |  | $ | 133,504 |
Tax credit carryforwards |  | 40,931 |  |  | 37,629 |
Interest expense carryforward |  | 65,141 |  |  | 43,155 |
Accruals and reserves |  | 36,796 |  |  | 25,589 |
Deferred compensation |  | 13,262 |  |  | 11,868 |
Inventories |  | 8,844 |  |  | 8,454 |
Other |  | 19,119 |  |  | 17,522 |
Gross deferred tax assets |  | 336,584 |  |  | 277,721 |
Valuation allowance |  | (244,978) |  |  | (186,425) |
Net deferred tax assets |  | 91,606 |  |  | 91,296 |
Deferred tax liabilities: |  |  |  |
Property, equipment & intangible assets |  | (70,573) |  |  | (54,326) |
Gain on sale of intellectual property |  | (26,564) |  |  | (41,069) |
Investments |  | — |  |  | — |
Other |  | — |  |  | — |
Gross deferred tax liabilities: |  | (97,137) |  |  | (95,395) |
Net deferred tax liabilities |  | $ | (5,531) |  |  | $ | (4,099) |
Reported on the consolidated balance sheet as (after valuation allowance and jurisdictional netting): |  |  |  |
Net deferred tax assets |  | $ | 2,197 |  |  | $ | 2,990 |
Net deferred tax liabilities |  | (7,728) |  |  | (7,089) |
Net deferred tax liabilities |  | $ | (5,531) |  |  | $ | (4,099) |
(1)Deferred tax assets for inventories, the valuation allowance and net deferred tax liabilities as of December 31, 2020 have been revised. For further details refer to “Note 1. Nature of Operations.” Net operating loss (“NOL”) and tax credit carryforwards as of December 31, 2021, which can be used to reduce our income tax payable in future years (in thousands):
Region |  | Gross Amount |  | Tax Benefit |  | Amount with No Expiration |  | Amount with Expiration |  | Carryforward Period
Europe NOL |  | $ | 395,393 |  |  | $ | 94,681 |  |  | $ | 94,621 |  |  | $ | 60 |  |  | 2026 | - | 2026
U.S. Federal NOL |  | 169,127 |  |  | 35,517 |  |  | 4,456 |  |  | 31,061 |  |  | 2023 | - | 2038
U.S. State NOL |  | 275,780 |  |  | 15,434 |  |  | 2,673 |  |  | 12,761 |  |  | 2022 | - | 2041
S. America & other regions NOL |  | 18,054 |  |  | 6,066 |  |  | 6,035 |  |  | 31 |  |  | 2029 | - | 2037
Far East NOL |  | 3,150 |  |  | 795 |  |  | 152 |  |  | 643 |  |  | 2025 | - | 2031
U.S. foreign tax credits |  | — |  |  | 15,850 |  |  | — |  |  | 15,850 |  |  | 2025 | - | 2029
U.S. tax credits |  | — |  |  | 16,623 |  |  | — |  |  | 16,623 |  |  | 2022 | - | 2041
U.S. State research & development tax credits |  | — |  |  | 6,499 |  |  | 1,068 |  |  | 5,431 |  |  | 2030 | - | 2041
Other non-U.S. tax credits |  | — |  |  | 1,959 |  |  | 824 |  |  | 1,135 |  |  | 2022 | - | 2034
|  | $ | 861,504 |  |  | $ | 193,424 |  |  | $ | 109,829 |  |  | $ | 83,595 |  |  |  |  |
We review the realizability of our deferred tax assets by jurisdiction regularly. As of December 31, 2021 and 2020, we had valuation allowances of $245.0 million and $188.1 million, respectively. These valuation allowances were primarily related to continuing operations and are a result of significant negative evidence in the form of cumulative losses in certain jurisdictions, including the extended impact of COVID-19 globally. No provision has been made for income taxes on undistributed earnings of foreign subsidiaries as of December 31, 2021 because it is our intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries. In the event of the distribution of those earnings in the form of dividends, a sale of the subsidiaries, or certain other transactions, we may be liable for income taxes and withholding taxes. As of December 31, 2021, it was not practicable to determine the exact amount of the deferred tax liability related to those investments. Uncertain Income Tax Positions The following is a roll-forward of our total gross unrecognized tax benefit (in thousands):
|  | Year Ended December 31,
|  | 2021 |  | 2020 |  | 2019
Balance at beginning of year |  | $ | 3,433 |  |  | $ | 15,995 |  |  | $ | 22,883 |
Increases: |  |  |  |  |  |
Tax positions related to current year |  | — |  |  | — |  |  | 176 |
Decreases: |  |  |  |  |  |
Tax positions related to prior years for settlement with tax authorities |  | (1,434) |  |  | (13,989) |  |  | (2,104) |
Tax positions related to prior years for lapses of statute of limitations |  | — |  |  | — |  |  | (4,632) |
Impact of foreign currency exchange rates |  | (258) |  |  | 1,427 |  |  | (328) |
Balance at end of year |  | $ | 1,741 |  |  | $ | 3,433 |  |  | $ | 15,995 |
The $1.4 million decrease in the 2021 tax positions related to prior years for settlements with tax authorities reflects a settlement of the Germany tax audit for the years 2014-2018. The $14.0 million decrease in the 2020 tax positions related to prior years for settlements with tax authorities reflects a decrease of $13.3 million due to the settlement of the outstanding Cobe tax litigation in Italy. Unrecognized tax benefits of $11.4 million at December 31, 2019, respectively, included in the table above are presented in the balance sheet as a reduction to the related deferred tax assets for net operating loss carryforwards. Accrued interest and penalties totaled $0.2 million, $0.4 million and $5.7 million as of December 31, 2021, 2020 and 2019, respectively, and were included in other long-term liabilities on our consolidated balance sheets. We operate in multiple jurisdictions with complex legal and tax regulatory environments and our tax returns are periodically audited or subjected to review by tax authorities. We monitor tax law changes and the potential impact to our results of operations. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of our tax positions in order to determine the appropriateness of our reserves for uncertain tax positions. However, there can be no assurance that we will accurately predict the outcome of these audits and the actual outcome of an audit could have a material impact on our consolidated results of income, financial position or cash flows. If all of our unrecognized tax benefits as of December 31, 2021 were recognized, $1.7 million would impact our effective tax rate. We believe it is reasonably possible that, within the next twelve months, due to the settlement of uncertain tax positions with various tax authorities and the expiration of statutes of limitations, unrecognized tax benefits should decrease by up to approximately $0.6 million. We record accrued interest and penalties related to unrecognized tax benefits in interest expense and foreign exchange and other gains/(losses), respectively, on our consolidated statements of income (loss). The major jurisdictions where we are subject to income tax examinations are as follows:
Jurisdiction |  | Earliest Year Open
U.S. - federal and state |  | 2015
Italy |  | 2015
Germany |  | 2019
England and Wales |  | 2020
Canada |  | 2017

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