On December 22, 2017, the Tax Cuts and Jobs Act (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 in November 2, 2017 or December 31, 2017. Because the Company has a

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.

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 other areas of the TCJA and believe its analysis to be completed. 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, 2020, the Company had federal net operating loss ("NOL") carry-forwards of approximately $207,768, 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, 2020, the Company had NOL carry-forwards for state and foreign income tax purposes of approximately $146,121 and $1,321, respectively. State NOL carry-forwards of $129,143 expire starting 2027 and the remainder do not expire. Foreign NOL carry-forwards do not expire. In addition, as of December 31, 2020, the Company had federal research credit, retention credit, foreign tax credit and Ireland Employment credit carryforwards of approximately $1,412, $24, $190 and $16, 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 annual limitation may result in the expiration of net operating losses and credits before utilization and in the event we have a change of ownership, utilization of the carryforwards could be restricted.


	Year ended
	December 31,
	2020		2019		2018
Current:
Domestic:
Federal	$	90	$	665	$	—
State	128		13		169
Foreign	8,854		1,619		1,498
Total current income tax	$	9,072	$	2,297	$	1,667

Deferred:
Federal	$	8	$	—	$	—
State	1		—		—
Foreign	(969)		91		(1,254)
Total deferred income tax	$	(960)	$	91	$	(1,254)
Income tax expense	$	8,112	$	2,388	$	413

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; however, for foreign jurisdictions, a net deferred tax asset of $1,131 is recorded as of December 31, 2020. 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. The Company reevaluates the judgements surrounding its estimates and makes adjustments as appropriate each reporting period.


	December 31,
	2020		2019
Deferred tax assets:
Carry forward losses and credits	$	53,221	$	36,092
Deferred revenues	13,054		13,953
Accrued payroll, commissions, vacation	3,808		2,666
Equity compensation	10,348		6,220
Allowance for doubtful accounts	1,287		978
Accrued severance pay	312		340
Operating lease liability	11,302		12,244
Other	963		532
Deferred tax assets before valuation allowance	94,295		73,025
Valuation allowance	(77,542)		(62,379)
Deferred tax assets	$	16,753	$	10,646

Deferred tax liability:
Accrued compensation and other accrued expense	$	(48)	$	(187)
Operating lease right-of-use asset	(8,780)		(10,291)
Convertible senior notes, net	(6,797)		—
Deferred tax liability	$	(15,625)	$	(10,478)
Net deferred tax asset	$	1,128	$	168

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,
	2020			2019			2018
Loss before taxes, as reported in the consolidated statements of operations	$	(85,898)		$	(76,376)		$	(28,165)
Statutory tax rate	21		%	21		%	21		%

Theoretical tax benefits on the above amount at the US statutory tax rate	$	(18,039)		$	(16,039)		$	(5,915)
Income tax at rate other than the U.S. statutory tax rate	4,845			(2,508)			692
Tax advances and non-deductible expenses including equity based compensation expenses	934			(115)			(7,623)
Operating losses and other temporary differences for which valuation allowance was provided	22,189			22,818			15,826
State tax	(2,872)			(3,436)			(1,221)
Impact of rate change	—			401			—
Change in tax reserve for uncertain tax positions	1,489			1,247			(1,728)
Other individually immaterial income tax items	(434)			20			382
Actual tax expense	$	8,112		$	2,388		$	413


Gross unrecognized tax benefits as of January 1, 2019	$	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
Increase in tax position for current year	1,787
Increase in tax position for prior years	979
Decrease in tax position for prior years	(171)
Decrease for lapse of statute of limitations/settlements	(1,106)
Gross unrecognized tax benefits as of December 31, 2020	$	4,690

There was $4,690 of unrecognized income tax benefits that, if recognized, approximately $4,407 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 $538 as of December 31, 2020.

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

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, if any, of foreign subsidiaries are immaterial for all periods presented. Because the Company’s non-U.S. subsidiary earnings have previously been included in the computation of the one-time Transition Tax on foreign earnings required by the TCJA and throughout the years have been included in the GILTI computations, 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, 2020, the Company's 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 Authority initiated a withholding tax audit on VSL for the years 2015-2017. During 2020, the Israeli Tax Authority initiated an income tax audit on VSL for the tax 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.