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TAXES ON INCOME | 12 Months Ended
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Dec. 31, 2023
TAXES ON INCOME |
TAXES ON INCOME | NOTE 13 - TAXES ON INCOME
| a. | The Company
Protalix BioTherapeutics, Inc. is taxed according to U.S. tax laws. The Company’s income is taxed in the United States at a rate of up to 21%. The following table summarizes the Company’s taxes on income: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Year Ended
(U.S. dollars in thousands) | ​ | December 31, 2022 | ​ | December 31, 2023
Current taxes on income | ​ | $ | 530 | ​ | $ | 3,346
Deferred taxes on income | ​ |  | ​ | ​ | ​ | (3,092)
Total taxes on income | ​ | $ | 530 | ​ | $ | 254
​ The Company had an effective tax rate of 3% for the year ended December 31, 2023, compared to an effective tax rate of (4)% for the year ended December 31, 2022. For the year ended December 31, 2023, the difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% was the result of the provision for current taxes on income mainly derived from U.S. taxable GILTI income mainly in respect of milestone payments and Section 174 of the U.S. Tax Cuts and Jobs Act, which was enacted into law in December 2017 (the “TCJA”), partially offset by the release of the valuation allowance on net operating losses (NOLs) in the United States. Following the regulatory approvals for Elfabrio in May 2023, the receipt of the $20.0 million milestone payment and the launch of Elfabrio in the United States, the Company released the valuation allowance previously recorded on deferred tax assets in respect of its NOLs in the United States resulting in a net tax benefit of $3.1 million. The Company concluded that, based upon the preponderance of positive evidence over negative evidence and the anticipated ability to use the deferred tax assets, it was more likely than not that these deferred tax assets would be realizable due to forecasted profits. The Company considered the following: (i) cumulative profits for tax over the previous 12 quarters in its U.S. operations; (ii) the impact of Section 174 of the TCJA which requires the Company to capitalize and amortize its research and development expenses over 15 years; and (iii) its forecasted profits in the United States following the regulatory approvals of Elfabrio. The TCJA represents fundamental and dramatic modifications to the U.S. tax system. It contains several key tax provisions that impacted the Company including the reduction of the maximum U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Other significant changes under the TCJA includes, among others, a one-time repatriation tax on accumulated foreign earnings, a limitation of NOL deduction to 80% of taxable income, and indefinite carryover of post-2017 NOLs. The TCJA also repealed the corporate alternative minimum tax for tax years beginning after December 31, 2017. Losses generated prior to January 1, 2018 will still be subject to the 20-year carryforward limitation and the alternative minimum tax. Other impacts due to the TCJA included the repeal of the domestic manufacturing deduction, modification of taxation of controlled foreign corporations, a base erosion anti-abuse tax, modification of interest expense limitation rules, modification of limitation on deductibility of excessive executive compensation, and taxation of global intangible low-taxed income. Modification of interest expense limitation rules under the TCJA provides generally that for taxable years 2019-2022 interest expense deduction shall be limited to 30% of the EBITDA and for taxable years 2022 onwards to 30% of EBIT. Disallowed interest deduction may be carried forward indefinitely. The Company believes that any potential impact (if applicable) of this limitation will be offset by utilization of available NOLs. Section 174 of the TCJA requires taxpayers to capitalize and amortize research and development expenses for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022, and resulted in the capitalization of research and development costs of approximately $28.5 million and $14.4 million in 2022 and 2023, respectively. The Company will amortize these costs for tax purposes over 15 years for research and development performed outside the United States. The Company believes that all future profits of its subsidiaries will be indefinitely reinvested or that there is no expectation to distribute any taxable dividends from these subsidiaries. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is estimated as an immaterial amount. b. Protalix Ltd. The Company as a “foreign-investment company” measures its results for tax purposes in dollar based on Income Tax Regulations (Bookkeeping Principles of Foreign Invested Companies and of Certain Partnerships and the Determination of Their Taxable Income), 1986. The Israeli Subsidiary is taxed according to Israeli tax laws:
| 1. | Tax rates
The income of the Israeli Subsidiary, other than income from “Approved Enterprises,” is taxed in Israel at the regular corporate tax rates. The corporate tax rate was 23% for 2018 and thereafter. Capital gain on a sale of assets is subject to capital gain tax according to the corporate tax rate in effect in the year during which the assets are sold.
| 2. | The Law for the Encouragement of Capital Investments, 1959 (the “Encouragement of Capital Investments Law”)
Under the Encouragement of Capital Investments Law, including Amendment No. 60 to the Encouragement of Capital Investments Law as published in April 2005, by virtue of the “Approved Enterprise” or “Benefited Enterprise” status the Israeli Subsidiary is entitled to various tax benefits as follows: a. Reduced tax rates Income derived from the Approved Enterprise during a 10-year period commencing upon the year in which the enterprise first realizes taxable income is tax exempt, provided that the maximum period to which it is restricted by the Encouragement of Capital Investments Law has not elapsed. The Israeli Subsidiary has an “Approved Enterprise” plan since 2004 and “Benefited Enterprise” plan since 2009. The period of benefits in respect of the main enterprise of the Company has not yet commenced. The period during which the Company is entitled to benefits in connection with the Benefited Enterprise expired in 2022. If the Israeli Subsidiary subsequently pays a dividend out of income derived from the “Approved Enterprise” or “Benefited Enterprise” during the tax exemption period, it will be subject to tax on the gross amount distributed (including the company tax on these amounts), at the rate which would have been applicable if such income not been exempted. b. Accelerated depreciation The Israeli Subsidiary is entitled to claim accelerated depreciation, as provided by Israeli law, in the first five years of operation of each asset, in respect of buildings, machinery and equipment used by the Approved Enterprise and the Benefited Enterprise. c. Conditions for entitlement to the benefits The Israeli Subsidiary’s entitlement to the benefits described above is subject to its fulfillment of conditions stipulated by the law, rules and regulations published thereunder, and the instruments of approval for the specific investment in an approved enterprise. Failure by the Israeli Subsidiary to comply with these conditions may result in the cancellation of the benefits, in whole or in part, and the Subsidiary may be required to refund the amount of the benefits with interest. The Israeli Subsidiary received a final implementation approval with respect to its “Approved Enterprise” from the Investment Center. d. Amendment of the Law for the Encouragement of Capital Investments, 1959 In recent years, several amendments have been made to the Encouragement of Capital Investments Law which have enabled new alternative benefit tracks, subject to certain conditions. The Encouragement of Capital Investments Law was amended as part of the Economic Policy Law for the years 2011-2012 (amendment 68 to the Encouragement of Capital Investments Law), which was passed by the Israeli Knesset on December 29, 2010. The amendment sets alternative benefit tracks to those currently in effect under the provisions of the Encouragement of Capital Investments Law. On December 29, 2016, Amendment 73 to the Encouragement of Capital Investments Law was published. This amendment sets new benefit tracks, inter alia, “Preferred Technological Enterprise” and “Special Preferred Technological Enterprise” (the “Capital Investments Law Amendment”). To date, the Company has elected not to have the Capital Investments Law Amendment apply to the Company. c. Tax losses carried forward to future years As of December 31, 2023 and 2022, the Company had aggregate NOL carry-forwards equal to approximately $234.8 million and $247.4 million, respectively, that are available to reduce future taxable income as follows:
| 1. | The Company
The Company’s carry-forward NOLs, equal to approximately $24.4 million and $26.7 million as of December 31, 2023 and 2022, respectively, may be restricted under Section 382 of the Internal Revenue Code (“IRC”). IRC Section 382 applies whenever a corporation with NOL experiences an ownership change. As a result of IRC Section 382, the taxable income for any post change year that may be offset by a pre-change NOL may not exceed the general IRC Section 382 limitation, which is the fair market value of the pre-change entity multiplied by the IRC long-term tax exempt rate. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considered all available evidence, including past operating results, the most recent projections for taxable income, and prudent and feasible tax planning strategies. The Company reassesses its valuation allowance periodically and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.
| 2. | Protalix Ltd.
At December 31, 2023 and 2022, the Israeli Subsidiary had approximately $210.4 million and $220.7 million, respectively, of carry-forward NOLs that are available to reduce future taxable income with no limited period of use. d. Deferred income taxes: The components of the Company’s net deferred tax assets at December 31, 2022 and 2023 were as follows:
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31,
(U.S. dollars in thousands) |  | 2022 |  | 2023
In respect of: |  | ​ |  |  | ​ |
Research and development expenses | ​ | $ | 6,568 | ​ | $ | 4,625
Other timing differences | ​ |  | (2,115) | ​ |  | (1,387)
Net operating loss carry forwards | ​ |  | 54,097 | ​ |  | 51,472
Valuation allowance | ​ |  | (58,550) | ​ |  | (51,618)
​ | ​ |  | - | ​ |  | 3,092
​ Deferred taxes are computed using the tax rates expected to be in effect when those differences reverse. e. Reconciliation of the theoretical tax expense to actual tax expense A reconciliation of the statutory U.S. federal income tax rate of 21% in 2023, 2022 and 2021 to the effective income tax rate is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Year Ended December 31,
(U.S. dollars in thousands) |  | 2021 |  | 2022 |  | 2023
Tax computed at the statutory U.S. income tax rate |  | $ | (5,792) |  | $ | (3,023) |  | $ | 1,799
Differences in tax rate | ​ | ​ | - | ​ | ​ | 1,512 | ​ | ​ | (899)
Statutorily non-deductible expenses | ​ | ​ | - | ​ | ​ | 2,979 | ​ | ​ | 1,684
Change in Valuation allowances | ​ | ​ | 5,792 | ​ | ​ | (2,970) | ​ | ​ | (6,932)
Utilization of carry-forward losses and other temporary items without deferred taxes recognition | ​ | ​ | - | ​ | ​ | 2,032 | ​ | ​ | 3,602
Withholding tax | ​ | ​ | - | ​ | ​ | - | ​ | ​ | 1,000
​ | ​ | $ | - | ​ | $ | 530 | ​ | $ | 254
​ f. Valuation allowance roll-forward The following table presents the change in the Company’s valuation allowance during the periods presented: ​
​ | ​ | ​ | ​
(U.S. dollars in thousands) | ​ | ​ | ​
Balance at December 31, 2021 | ​ | $ | (61,520)
Additions to valuation allowance | ​ | ​ | —
Reductions to valuation allowance | ​ | ​ | 2,970
Balance at December 31, 2022 | ​ | $ | (58,550)
​ | ​ | ​ | ​
Balance at December 31, 2022 | ​ | $ | (58,550)
Additions to valuation allowance | ​ | ​ | (728)
Reductions to valuation allowance | ​ | ​ | 7,660
Balance at December 31, 2023 | ​ | $ | (51,618)
​ g. Uncertain tax position Provisions of ASC 740-10, Income Taxes, clarify whether to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. A reconciliation of the beginning and ending amount of unrecognized tax benefits, is as follows: ​
​ | ​ | ​ | ​
(U.S. dollars in thousands) | ​ | ​ | ​
Balance at December 31, 2021 | ​ | $ | -
Increase for tax position related to current year | ​ | ​ | 530
Balance at December 31, 2022 | ​ | $ | 530
​ | ​ | ​ | ​
Balance at December 31, 2022 | ​ | $ | 530
Increase for tax position related to current year | ​ | ​ | 275
Balance at December 31, 2023 | ​ | $ | 805
​ h. Tax assessments In accordance with the Income Tax Ordinance, as of December 31, 2023, all of Protalix Ltd.’s tax assessments through tax year 2018 are considered final. A summary of open tax years by major jurisdiction is presented below:
​ | ​ | ​
Jurisdiction: |  | Years:
Israel |  | 2019-2023
United States (*) |  | 2020-2023
​
(*) | Includes federal, state and local (or similar provincial jurisdictions) tax positions.

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