Income Taxes

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our income tax provision was $54.8 million and $3.5 million in the three and six months ended June 30, 2020, respectively, compared to an income tax benefit of $78.7 million and $49.5 million for the same periods in 2019. The effective tax rates were 31.9% and (9.2)% in the three and six months ended June 30, 2020, respectively, compared to (42.7)% and (16.5)% for the same periods in 2019. The income tax benefit for the three and six months ended June 30, 2019 included a discrete tax benefit of $112.3 million resulting from an intra-entity intellectual property asset transfer. The tax benefit, which represents a deferred future benefit, was recorded as a deferred tax asset. The increase in the effective tax rates for the three and six months ended June 30, 2020 compared to the same periods in 2019 was primarily due to the impact of the intra-entity intellectual property asset transfer. Excluding this effect, the increase in the effective tax rate for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to the impact of the disallowance of certain interest deductions and provision for a proposed settlement reached with the French tax authorities in respect of an ongoing tax audit discussed in more detail below. The decrease in the effective tax rate for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to the impact of the defibrotide acquired IPR&D asset impairment charge and the impact of the acquired IPR&D expense related to the PharmaMar transaction, partially offset by the impact of the disallowance of certain interest deductions and provision for the proposed settlement reached with the French tax authorities. The effective tax rate for the three months ended June 30, 2020 was higher than the Irish statutory rate of 12.5% primarily due to the impact of the disallowance of certain interest deductions and provision for the proposed settlement reached with the French tax authorities. The effective tax rate for the six months ended June 30, 2020 was lower than the Irish statutory rate of 12.5% primarily due to the impact of the defibrotide acquired IPR&D asset impairment charge and the impact of the acquired IPR&D expense related to the PharmaMar transaction, partially offset by the impact of certain interest disallowance provision and provision for the proposed settlement reached with the French tax authorities. We do not provide for Irish income taxes on undistributed earnings of our foreign operations that are intended to be indefinitely reinvested in our foreign subsidiaries.

Our net deferred tax asset is comprised primarily of U.S. federal and state tax credits, U.S. federal and state and foreign net operating loss carryforwards and other temporary differences, and is net of deferred tax liabilities related to acquired intangible assets. We maintain a valuation allowance against certain foreign and U.S. deferred tax assets. Each reporting period, we evaluate the need for a valuation allowance on our deferred tax assets by jurisdiction and adjust our estimates as more information becomes available.

We are required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. As a result, we have recorded an unrecognized tax benefit for certain tax benefits which we judge may not be sustained upon examination. Our most significant tax jurisdictions are Ireland and the U.S. (both at the federal level and in various state jurisdictions). For Ireland we are no longer subject to income tax audits by taxing authorities for the years prior to 2015. The U.S. jurisdictions generally have statute of limitations three to four years from the later of the return due date or the date when the return was filed. However, in the U.S. (at the federal level and in most states), carryforward tax attributes that were generated in 2015 and earlier may still be adjusted upon examination by the tax authorities. Certain of our subsidiaries are currently under examination by the French tax authorities for the years ended December 31, 2012, 2013, 2015, 2016 and 2017. In December 2015, we received proposed tax assessment notices, and, in October 2018 and December 2019, we received revised tax assessment notices from the French tax authorities for 2012 and 2013 and in December 2018 and September 2019, we received a proposed tax assessment notice for 2015, 2016 and 2017, relating to certain transfer pricing adjustments.  The notices propose additional French tax of approximately $41.9 million for 2012 and 2013 and approximately $12.0 million for 2015, 2016 and 2017 including interest and penalties through the respective dates of the proposed assessments, translated at the foreign exchange rate as of June 30, 2020. Due to the subjective nature of the transfer pricing issues involved, in May 2020, the Company reached an agreement in principle to settle the audits for all open years with the French tax authorities. The settlement would require the Company to pay incremental taxes, interest and penalties of $17.7 million, translated at the foreign exchange rate as of June 30, 2020. The settlement, which is subject to formal finalization and documentation with the French tax authorities, was accrued as of June 30, 2020 and the income tax expense for the three and six months ended June 30, 2020 includes the impact of the settlement. Certain of our Italian subsidiaries are currently under examination by the Italian tax authorities for the year ended December 31, 2017.