v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The domestic and foreign components of pre-tax loss were as follows:
Year Ended December 31,
202220212020
(in thousands)
Domestic(1)
$(538,311)$364,989 $(320,757)
Foreign(1)
(862,386)(839,360)(605,428)
Loss before income taxes$(1,400,697)$(474,371)$(926,185)
(1)Includes the impact of intercompany charges to foreign affiliates for management fees and research and development cost sharing, inclusive of stock-based compensation.
The components of our income tax (benefit) expense were as follows:
Year Ended December 31,
202220212020
(in thousands)
Current:
Federal$— $— $— 
State10,704 919 1,035 
Foreign22,404 22,078 23,945 
Total current income tax expense (benefit)33,108 22,997 24,980 
Deferred:
Federal1,212 (6,295)(1,720)
State837 (445)(414)
Foreign(6,201)(2,673)(4,192)
Total deferred income tax expense (benefit)(4,152)(9,413)(6,326)
Income tax expense (benefit)$28,956 $13,584 $18,654 
The following is a reconciliation of the statutory federal income tax rate to our effective tax rate:
Year Ended December 31,
202220212020
Tax benefit (expense) computed at the federal statutory rate21.0 %21.0 %21.0 %
State tax benefit (expense), net of federal benefit(1)
2.9 31.5 8.3 
Change in valuation allowance(32.0)(246.3)(58.9)
Differences between U.S. and foreign tax rates on foreign income2.5 3.9 (1.4)
Stock-based compensation benefit(0.1)119.3 17.8 
U.S. federal research & development credit benefit5.0 36.7 8.4 
U.K. corporate rate increase— 39.8 4.3 
Acquisitions and divestitures(0.7)(8.0)(0.5)
Other benefits (expenses)(0.7)(0.8)(1.0)
Total income tax benefit (expense)(2.1)%(2.9)%(2.0)%
(1)Inclusive of state research and development credits.
The significant components of net deferred tax balances were as follows:
Year Ended December 31,
20222021
(in thousands)
Deferred tax assets:
Accrued expenses$37,731 $30,169 
Intangible assets177,762 183,441 
IRC 174 Capitalized R&D(1)
265,485 — 
Stock-based compensation102,364 61,885 
Loss carryforwards2,651,812 2,631,230 
Tax credit carryforwards824,220 715,844 
Lease liability98,668 93,312 
Other20,154 29,572 
Total deferred tax assets$4,178,196 $3,745,453 
Deferred tax liabilities:
Right-of-use asset(75,212)(75,782)
Investments(30,962)(66,792)
Other(17,309)(2,549)
Total deferred tax liabilities$(123,483)$(145,123)
Total net deferred tax assets before valuation allowance4,054,713 3,600,330 
Valuation allowance(4,060,943)(3,611,242)
Net deferred taxes$(6,230)$(10,912)
(1)An offsetting reduction is included in loss carryforwards as of December 31, 2022 as U.S. federal and state loss carryforwards were utilized to offset the increase in federal and state tax liability resulting from capitalization under Section 174 of the Internal Revenue Code.
On July 22, 2020 the U.K. Finance Act 2020 was enacted, increasing the U.K. tax rate from 17% to 19% effective April 1, 2020. On June 10, 2021, the U.K. Finance Act 2021 was enacted, further increasing the U.K. tax rate from 19% to 25% effective April 1, 2023. These changes to the U.K. tax rate resulted in an increase to our U.K. net deferred tax assets (before valuation allowance) of $188.9 million and $39.7 million for the period ending December 31, 2021 and 2020, respectively, both of which were fully offset by an increase in our valuation allowance.
As of December 31, 2022, we had an immaterial amount of unremitted earnings related to certain foreign subsidiaries. We intend to continue to reinvest these foreign earnings indefinitely and do not expect to incur any significant taxes related to such amounts.
As of December 31, 2022, we had accumulated U.S. federal and state net operating loss carryforwards of $7.4 billion and $4.6 billion, respectively. Of the $7.4 billion of federal net operating loss carryforwards, $1.2 billion was generated before January 1, 2018 and is subject to a 20-year carryforward period. The remaining $6.2 billion can be carried forward indefinitely but is subject to an 80% taxable income limitation. The pre-2018 federal and certain significant state net operating loss carryforwards will begin to expire in 2037 and 2031, respectively. As of December 31, 2022, we had $3.6 billion of U.K. net operating loss carryforwards that can be carried forward indefinitely; however, use of such carryforwards in a given year is generally limited to 50% of such year’s taxable income. As of December 31, 2022, we had accumulated U.S. federal and state research tax credits of $691.5 million and $430.7 million, respectively. The U.S. federal research tax credits will begin to expire in 2032. The U.S. state research tax credits do not expire.
We recognize valuation allowances on deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. We had valuation allowances against net deferred tax assets of $4.1 billion and $3.6 billion as of December 31, 2022 and 2021, respectively. In 2022, the increase in the valuation allowance was primarily attributable to a net increase in our deferred tax assets resulting from the loss from operations.
Uncertain Tax Positions
The following table summarizes the activity related to our gross unrecognized tax benefits during the years ended December 31, 2022 and 2021:
Year Ended December 31,
20222021
(in thousands)
Beginning balance of unrecognized tax benefits$469,573 $344,971 
Additions for current year tax positions47,366 119,938 
Additions for prior year tax positions115 180 
Reductions for prior year tax positions(3,569)(996)
Changes due to lapse of statute of limitations(1,887)(2,077)
Changes due to foreign currency translation adjustments(929)(357)
U.K. corporate rate increase— 7,914 
Ending balance of unrecognized tax benefits (excluding interest and penalties)$510,669 $469,573 
Interest and penalties associated with unrecognized tax benefits385 124 
Ending balance of unrecognized tax benefits (including interest and penalties)$511,054 $469,697 
The total amount of gross unrecognized tax benefits, including related interest and penalties, was $511.1 million and $469.7 million as of December 31, 2022 and 2021, respectively.
Substantially all of the unrecognized tax benefit was recorded as a reduction in our gross deferred tax assets, offset by a corresponding reduction in our valuation allowance. We have net unrecognized tax benefits of $21.7 million and $15.9 million included in other liabilities on our consolidated balance sheet as of December 31, 2022 and 2021, respectively. Assuming there continues to be a valuation allowance against deferred tax assets in future periods when gross unrecognized tax benefits are realized, this would result in a tax benefit of $21.7 million within our income tax provision at such time.
Our policy is to recognize interest and penalties associated with tax matters as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our consolidated balance sheet. During the year ended December 31, 2022, interest expense recorded related to uncertain tax positions was not material.
The income taxes we pay are subject to review by taxing jurisdictions globally. Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We believe that our estimate has adequately provided for these matters. However, our future results may include adjustments to estimates in the period the audits are resolved, which may impact our effective tax rate.
Tax years ending on or after December 31, 2012 are subject to examination in the U.S., and tax years ending on or after December 31, 2020 are subject to examination in the U.K. We are currently under examination by the U.S. Internal Revenue Service for the tax year ending December 31, 2018, and by the U.K. tax authorities for the tax year ending December 31, 2020.