Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The U.S. and foreign components of loss before provision for income taxes for the years ended December 31, 2022, 2021, and 2020 are as follows (in thousands):

  December 31,
  2022 2021 2020
U.S. $ (202,192) $ (207,744) $ (105,738)
Foreign (154,539) (6,971) (102,931)
Loss before income taxes $ (356,731) $ (214,715) $ (208,669)
 
The components of the provision for income taxes for the years ended December 31, 2022, 2021, and 2020 are as follows (in thousands):
 
  December 31,
  2022 2021 2020
Current
Federal $ —  $ —  $ — 
State 385  31  38 
Foreign 1,752  178  26 
Total current tax expense $ 2,137  $ 209  $ 64 
Deferred
Federal $ —  $ —  $ — 
State —  —  — 
Foreign (127) —  — 
Total deferred tax expense —  —  — 
Total provision for income taxes $ 2,010  $ 209  $ 64 

In general, it is the Company’s practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2022, we have not made a provision for the U.S. or additional foreign withholding taxes. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2022, 2021, and 2020:
 
  December 31,
  2022 2021 2020
Federal statutory income tax rate 21.0% 21.0% 21.0%
Mark-to-market adjustments of Earnout and Earn Back Shares 7.9% 5.0% 0.0%
Executive compensation (0.3)% (4.3)% 0.0%
Goodwill Impairment (7.7)% 0.0% 0.0%
Valuation allowance (14.5)% (22.7)% (22.9)%
Other (7.0)% 0.9% 1.9%
Effective income tax rate (0.6)% (0.1)% 0.0%

The effective tax rate is different than the U.S. statutory federal tax rate primarily due to foreign and state taxes, transaction costs, mark-to-market adjustments, non-deductible goodwill impairment, and changes in the Company's valuation allowance.
Deferred income taxes for the years ended December 31, 2022 and 2021 consist of the following (in thousands):
 
  December 31,
  2022 2021
Deferred tax assets
Net operating losses $ 287,256  $ 284,411 
Stock Based Compensation —  — 
Fixed Assets 21,037  — 
Other 55,761  22,994 
Total deferred tax assets $ 364,054  $ 307,405 
Deferred tax liabilities
Property and equipment, net $ —  $ (7,780)
Other (3,210) (759)
Total deferred tax liabilities $ (3,210) $ (8,539)
Less: Valuation allowance (360,717) (298,866)
Net deferred tax assets $ 127  $ — 

We have incurred net operating losses in most jurisdictions from inception; we did not record an income tax benefit for our incurred losses for the years ended December 31, 2022 and 2021, due to uncertainty regarding utilization of our net operating carryforwards and due to our history of losses. As of December 31, 2022, the Company has recorded a full valuation allowance against its U.S. deferred tax assets, including federal and state NOLs, and the majority of our foreign deferred tax assets. The Company analyzed all sources of available income and determined there is not sufficient evidence to support the realizability of its deferred tax assets with the exception of a few jurisdictions. The Company does not believe it is more likely than not to realize the benefits of the deferred assets. As of December 31, 2022, the Company had a valuation allowance of $284.4 million against its U.S. deferred tax assets and a valuation allowance of $76.3 million against its foreign deferred tax assets. The Company will continue to assess the realizability of its deferred tax assets in future reporting periods and reduce the valuation allowance at such time as management believes it is more likely than not that the deferred tax assets will be realized.

As of December 31, 2022, the Company had U.S. federal net operating loss carryforwards of approximately $1.9 million, which expire if unused in 2037, and approximately $905.7 million with an indefinite carryforward period. As of December 31, 2022, the Company had U.S. state net operating loss carryforwards of approximately $580.1 million, which begin to expire in 2037. As of December 31, 2022, the Company has foreign net operating loss carryforwards of approximately $257.2 million in various jurisdictions with various expirations.

As of December 31, 2022, the Company has U.S. federal research tax credit carryforwards of approximately $6.3 million, which begin to expire if unused in 2037. As of December 31, 2022, the Company has California research tax credit carryforwards of approximately $7.1 million, which do not expire.

Utilization of the net operating loss and research and development carryforwards are subject to an annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986 (as amended, the “Code”), as well as similar state and foreign provisions. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any limitation may result in expiration of all or a portion of the net operating loss carryforwards before utilization. Since the Company’s initial public offering, ownership changes have occurred that have triggered annual limitation.

The Company and its subsidiaries file tax returns in the United States (federal and state) and various foreign jurisdictions. All tax periods for all jurisdictions since the Company’s inception in 2017 through 2021 are currently subject to income tax examination.
 
The following table reflects changes in gross unrecognized tax benefits (in thousands):
 
  December 31,
  2022 2021
Unrecognized tax benefits at beginning of year $ 12,458  $ 13,993 
Gross increases—current year positions —  4,842 
Gross increases—prior year positions 25  — 
Gross decreases—prior year positions —  (6,377)
Unrecognized tax benefits at end of year $ 12,483  $ 12,458 

As of December 31, 2022, none of the Company's unrecognized tax benefits, if recognized, would impact the effective tax rate for positions that would not be offset with the valuation allowance. The Company does not expect any material changes to its unrecognized tax benefits within the next 12 months.

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expect future tax consequences of events that have been recognized in the Company’s consolidated financial statements. In estimating future tax consequences, generally all expected future tax events other than enactments or changes in the tax law rates are considered.

The Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the tax authorities based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense if incurred. As of December 31, 2022 and 2021, there were no accrued interest or penalties recorded in the financial statements. In the event that the Company does recognize interest and penalties related to unrecognized tax benefits, these amounts would be recorded within interest expense, net and other expenses, net, respectively, within the consolidated statements of operations. Accrued interest and penalties are included on the related liability lines within the consolidated balance sheets.

As of December 31, 2022, the open tax years for the Company’s major tax jurisdictions are as follows:
 
Jurisdiction Tax Years
U.S. Federal 2017-2021
U.S. State 2017-2021
Netherlands 2018-2021
In response to the Coronavirus pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020.  The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.  Under the CARES Act, the Company deferred $1.8 million in payroll taxes for the period ended December 31, 2020. During 2021, the Company repaid $0.9 million of the total amount deferred and the remaining balance was repaid during 2022. The Company continues to examine the elements of the CARES Act and the impact it may have on its financial position, results of operations and cash flows.