On December 22, 2017, the TCJA was signed into law. The TCJA makes broad and complex changes to the Code that impact the Company's provision for income taxes. The changes include, but are not limited to:

•Taxation of GILTI earned by foreign subsidiaries beginning after December 31, 2017. The GILTI tax imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations.

The Deemed Repatriation Transition Tax is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. Because the Company has a net cumulative deficit on the E&P of its foreign subsidiaries, it should not be subject to the Deemed Repatriation Transition Tax.

Certain income (i.e., GILTI) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder, over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.

In January 2018, the FASB issued Staff Q&A Topic 740, No. 5, “Accounting for Global Intangible Low Taxed Income.” Pursuant to that guidance the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a component of current income tax expense when incurred or to factor such amounts into the Company’s measurement of its deferred tax expense. The Company has made an accounting policy election to treat GILTI as a component of current income tax expense.

In March 2018, FASB issued Accounting Standards Update No. 2018-05, "Income Taxes Topic (740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118" ("ASU 2018-05") to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA.

As of December 31, 2018, the Company's analysis for the Transition Tax has been filed with its December 31, 2017 tax return, and the Company considered its accounting for this area of the TCJA to be complete as of such date and did not make any measurement-period adjustments related to it. In addition, the Company recognizes its accounting for changes in the US federal rate and deferred tax impact for the rate change to be complete. The Company also accounted for the tax impact related to others areas of the TCJA and believe its analysis to be completed consistent with the guidance in ASU 2018-05. The Company recognizes that the IRS is continuing to publish and finalize ongoing guidance which may modify accounting interpretation for the TCJA, the Company would look to account for these impacts in the period of such change is enacted.

As of December 31, 2019, the Company had federal net operating loss ("NOL") carry-forwards of approximately $137,833, of which approximately $22,907 expire starting in 2032 and the remainder do not expire and can only be used to offset 80% of taxable income. As of December 31, 2019, the Company had NOL carry-forwards for state and foreign income tax purposes of approximately $105,082 and $773, respectively. If not utilized, these carryforwards will expire starting in 2020 and indefinitely for state and foreign tax purposes, respectively. In addition, as of December 31, 2019, the Company had federal research credit, retention credit, foreign tax credit and Ireland Employment credit carryforwards of approximately $1,412, $24, $190 and $43, respectively. If not utilized, the federal tax carryforwards will begin to expire in 2033, 2032 and 2026, respectively. Ireland has no expiration on the employment credit.

A U.S. corporation's ability to utilize its federal and state NOL and tax credit carryforwards to offset its taxable income is limited under Section 382 of the Code if the corporation undergoes an ownership change (within the meaning of Code Section 382). In general, an “ownership change” occurs whenever the percentage of the stock of a corporation owned by “5-percent shareholders” (within the meaning of Code Section 382) increases by more than 50 percentage points over the lowest percentage of the stock of such corporation owned by such “5-percent shareholders” at any time over the testing period.

An ownership change under Code Section 382 would establish an annual limitation to the amount of NOL and tax credit carryforwards the Company could utilize to offset its taxable income or income tax in any single year. The Company performed a Section 382 analysis (the “Analysis”) which concluded that its ability to utilize its NOL and tax credit carryforwards is subject to an annual limitation as it underwent a section 382 ownership change during 2017. The Analysis further concluded that the Company's NOL carryforwards should be available for utilization by the Company before they expire, starting in 2032. As of December 31, 2017, the Company's U.S. federal NOL carryforwards were $22,907.



	Year ended
	December 31,
	2019		2018			2017
Current:
Domestic:
Federal	$	665	$	—		$	(92	)
State	13		169			191
Foreign	1,619		1,498			2,516
Total current income tax	$	2,297	$	1,667		$	2,615

Deferred:
Foreign	$	91	$	(1,254	)	$	172
Total deferred income tax	$	91	$	(1,254	)	$	172
Income tax expense	$	2,388	$	413		$	2,787

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets are derived from its U.S. NOL carry-forwards and other temporary differences.

ASC 740 requires an assessment of both positive and negative evidence concerning the realizability of our deferred tax assets in each jurisdiction. After considering evidence such as current and cumulative financial reporting incomes, the expected sources of future taxable income and tax planning strategies, the Company's management concluded that a valuation allowance is required for US, state and Israel deferred tax assets. Future changes in these factors, including the Company's anticipated results, could have a significant impact on the realization of the deferred tax assets which would result in an increase or decrease to the valuation allowance and a corresponding charge to income tax expense.



	December 31,
	2019			2018
Deferred tax assets:
Carry forward losses and credits	$	36,092		$	15,547
Deferred revenues	13,953			13,995
Accrued payroll, commissions, vacation	2,666			1,912
Equity compensation	6,220			5,737
Allowance for doubtful accounts	978			940
Accrued severance pay	340			297
Operating lease liability	12,244			—
Other	532			1,346
Deferred tax assets before valuation allowance	73,025			39,774
Valuation allowance	(62,379		)	(39,365		)
Deferred tax assets	$	10,646		$	409

Deferred tax liability:
Accrued compensation and other accrued expense	$	(187	)	$	(272	)
Operating lease right-of-use asset	$	(10,291	)	$	—
Deferred tax liability	$	(10,478	)	$	(272	)
Net deferred tax asset	$	168		$	137

A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense as reported in the consolidated statements of operations is as follows:



	Year ended December 31,
	2019			2018			2017
Loss before taxes, as reported in the consolidated statements of operations	$	(76,376	)	$	(28,165	)	$	(11,057	)
Statutory tax rate	21		%	21		%	34		%

Theoretical tax benefits on the above amount at the US statutory tax rate	$	(16,039	)	$	(5,915	)	$	(3,759	)
Income tax at rate other than the U.S. statutory tax rate	(2,508		)	692			(1,047		)
Tax advances and non-deductible expenses including equity based compensation expenses	(115		)	(7,623		)	3,123
Operating losses and other temporary differences for which valuation allowance was provided	22,818			15,826			(8,623		)
Research and Development Tax Credit	—			—			1,126
State tax	(3,436		)	(1,221		)	(601		)
Impact of rate change	401			—			10,920
Change in tax reserve for uncertain tax positions	1,247			(1,728		)	1,576
Other individually immaterial income tax items	20			382			72
Actual tax expense	$	2,388		$	413		$	2,787



Gross unrecognized tax benefits as of January 1, 2018	$	3,682
Increase in tax position for current year	169
Increase in tax position for prior years	241
Decrease in tax position for prior years	(720		)
Decrease for lapse of statute of limitations/settlements	(1,418		)
Gross unrecognized tax benefits as of December 31, 2018	$	1,954
Increase in tax position for current year	1,545
Increase in tax position for prior years	387
Decrease for lapse of statute of limitations/settlements	(685		)
Gross unrecognized tax benefits as of December 31, 2019	$	3,201

There was $3,201 of unrecognized income tax benefits that, if recognized, approximately $2,678 would impact the effective tax rate in the period in which each of the benefits is recognized. The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations. The total amount of penalties and interest is approximately $170 as of December 31, 2019.

The benefits available to a Beneficiary Enterprise relate only to taxable income attributable to the specific investment program and are conditioned upon terms stipulated in the Investment Law and the related regulations and the criteria set forth in the applicable certificate of approval (for a Beneficiary Enterprise). If VSL does not fulfill these conditions, in whole or in part, the benefits can be cancelled, and VSL may be required to refund the benefits, in an amount linked to the Israeli consumer price index plus interest.

The Office of the Chief Scientist at Israel’s Ministry of Industry, Trade and Labor approved the Israeli subsidiary as an R&D-incentive enterprise for a foreign resident company in accordance with the Encouragement of Capital Investments (Consolidated Version) Law.

If cash dividends are distributed out of tax exempt profits in a manner other than upon complete liquidation, VSL will then become liable for tax at the rate of 10%-25% (depending on the level of foreign investments in VSL) in respect of the amount distributed.

In general, it is the Company’s practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. Undistributed earnings of foreign subsidiaries are immaterial for all periods presented. Because the Company’s non-U.S. subsidiary earnings have previously been subject to the one-time Transition Tax on foreign earnings required by the TCJA, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of its foreign investments would generally be limited to foreign withholding taxes and/or U.S. state income taxes.

The Company was audited by the Internal Revenue Service for tax year 2016. As of December 31, 2019, our federal returns for the years ended 2010 through the current period and most state returns for the years ended 2009 through the current period are still open to examination due to the Company's net carry-over unused operating losses and tax credit attributable to those years.

During 2019, the Israeli Tax Authorities initiated a withholding tax audit on VSL for the years 2015-2017, and the French Tax Authority initiated a tax audit on VSF for the years 2016-2018. The Company believes it has valid arguments to support its positions and intends to defend against any tax assessment. The Company has recorded a provision with respect to its uncertain tax positions in accordance with ASC 740.