Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

16. INCOME TAXES

The Company’s (benefit) provision for income taxes consists of the following:

	Year Ended December 31,
(In thousands)	2022			2021			2020
Current income tax provision:
U.S. federal	$	18,105		$	2,700		$	2,943
U.S. state		5,653			1,079			1,396
Rest of world		—			3			—
Deferred income tax (benefit) provision:
U.S. federal		(28,123	)		5,908			9,876
U.S. state		(4,672	)		(827	)		109
Ireland		—			—			—
Total tax (benefit) provision	$	(9,037	)	$	8,863		$	14,324

The income tax benefit in 2022 was primarily due to an enhanced foreign derived intangible income deduction as a result of a change to Section 174 of the Tax Cuts and Jobs Act in relation to capitalization and amortization of R&D expenses. The income tax provisions in 2021 and 2020 were primarily due to U.S. federal and state taxes on income earned in the U.S. and the tax impact of employee equity activity.

No provision for income tax has been provided on undistributed earnings of the Company’s foreign subsidiaries because such earnings are indefinitely reinvested in the foreign operations. Cumulative unremitted earnings of U.S. subsidiaries totaled approximately $812.8 million at December 31, 2022. In the event of a repatriation of those earnings in the form of dividends or otherwise, the Company may be liable for income taxes, subject to adjustment, if any, for foreign tax credits and foreign withholding taxes payable to foreign tax authorities. The Company estimates that approximately $55.0 million of income taxes would be payable on the repatriation of the unremitted earnings to Ireland.

The distribution of the Company’s loss before income taxes by geographical area consists of the following:

	Year Ended December 31,
(In thousands)	2022			2021			2020
Ireland	$	(183,828	)	$	(54,070	)	$	(138,070	)
U.S.		16,524			14,764			41,599
Rest of world		—			—			(66	)
Loss before income taxes	$	(167,304	)	$	(39,306	)	$	(96,537	)

The components of the Company’s net deferred tax assets consist of the following:

	December 31,			December 31,
(In thousands)	2022			2021
Deferred tax assets:
NOL carryforwards	$	238,128		$	222,508
Research and development expenses		66,464			—
Accrued expenses and reserves		55,755			52,308
Share-based compensation		41,075			40,455
Tax credits		22,932			58,704
Other		9,993			7,758
Less: valuation allowance		(271,517	)		(249,112	)
Total deferred tax assets		162,830			132,621
Deferred tax liabilities:
Property, plant and equipment		(46,274	)		(50,187	)
Other		(1,502	)		(1,150	)
Total deferred tax liabilities		(47,776	)		(51,337	)
Net deferred tax assets	$	115,054		$	81,284

The activity in the valuation allowance associated with deferred taxes consists of the following:

(In thousands)	Balance at Beginning of Period			(Additions) / Reductions (1)			Balance at End of Period
Deferred tax asset valuation allowance for the year ended December 31, 2020	$	(242,059	)	$	(11,590	)	$	(253,649	)
Deferred tax asset valuation allowance for the year ended December 31, 2021	$	(253,649	)	$	4,537		$	(249,112	)
Deferred tax asset valuation allowance for the year ended December 31, 2022	$	(249,112	)	$	(22,405	)	$	(271,517	)

(1) The (additions)/reductions in each of the periods presented relate primarily to Irish NOLs.

At December 31, 2022, the Company maintained a valuation allowance of $25.7 million against certain U.S. state deferred tax assets and $245.8 million against certain Irish deferred tax assets as the Company has determined that it is more-likely-than-not that these net deferred tax assets will not be realized. If the Company demonstrates consistent profitability in the future, the evaluation of the recoverability of these deferred tax assets could change and the remaining valuation allowances could be released in part or in whole. If the Company incurs losses in the U.S. in the future, the evaluation of the recoverability of the U.S. deferred tax assets could change and a valuation allowance against the U.S. deferred tax assets may be required in part or in whole.

As of December 31, 2022, the Company had $1.7 billion of Irish NOL carryforwards, $1

5.1 million of U.S. federal NOL carryforwards, $43.2 million of state NOL carryforwards, $5.7 million of federal R&D credits and $29.0 million of state tax credits which will either expire on various dates through 2042 or can be carried forward indefinitely. These loss and credit carryforwards are available to reduce certain future Irish and foreign taxable income and tax. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. These loss and credit carryforwards, which may be utilized in a future period, may be subject to limitations based upon changes in the ownership of the Company's ordinary shares. Included within these loss and credit carryforwards are $15.1 million of U.S. federal NOL carryforwards and $6.8 million of state NOL carryforwards, acquired as part of the acquisition of Rodin, each of which are subject to a $0.5 million annual limitation.

A reconciliation of the Company’s statutory tax rate to its effective tax rate is as follows:

	Year Ended December 31,
(In thousands, except percentage amounts)	2022				2021				2020
Statutory tax rate		12.5		%		12.5		%		12.5		%
Loss before income taxes at statutory rate	$	(20,913	)		$	(4,913	)		$	(12,067	)
Share-based compensation		4,461				7,841				8,972
Foreign rate differential(1)		(2,122	)			5,811				7,798
Change in valuation allowance		21,455				(4,537	)			11,590
Intercompany amounts(2)		(1,694	)			10,707				6,234
Irish rate differential(3)		4,926				1,817				2,511
Uncertain tax positions		602				704				811
Non-deductible lobbying expenses		775				637				683
U.S. state income taxes, net of U.S. federal benefit		598				248				1,298
In-process R&D(4)		—				2,724				332
Foreign derived intangible income		(10,405	)			(3,875	)			(3,125	)
R&D credit		(7,863	)			(8,488	)			(11,198	)
Other permanent items(5)		1,143				187				485
Income tax (benefit) provision	$	(9,037	)		$	8,863			$	14,324
Effective tax rate		5.4		%		(22.5	)	%		(14.8	)	%

(1) Represents income or losses of U.S. subsidiaries, subject to tax at a rate other than the Irish statutory rate.

(2) Intercompany amounts include cross-territory eliminations, the pre-tax effect of which has been eliminated in arriving at the Company's consolidated loss before taxes.

(3) Represents income or losses of Irish companies subject to tax at a rate other than the Irish statutory rate.

(4) Represents the tax effect of the research and development expense recorded in connection with the acquisition of Rodin.

(5) Other permanent items include, but are not limited to, non-deductible meals and entertainment expenses and non-deductible compensation of senior officers of the Company.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Unrecognized
(In thousands)	Tax Benefits
Balance, December 31, 2019	$	6,857
Additions based on tax positions related to prior periods		15
Additions based on tax positions related to the current period		796
Balance, December 31, 2020	$	7,668
Reductions based on tax positions related to prior periods		(27	)
Additions based on tax positions related to the current period		731
Balance, December 31, 2021	$	8,372
Reductions based on the lapse of applicable statues of limitations		(438	)
Additions based on tax positions related to prior periods		449
Additions based on tax positions related to the current period		590
Balance, December 31, 2022	$	8,973

The unrecognized tax benefits at December 31, 2022, if recognized, would affect the Company's effective tax rate. The Company does not anticipate that the amount of existing unrecognized tax benefits will materially increase or decrease within the next 12 months. The Company has elected to include interest and penalties related to uncertain tax positions as a component of its provision for taxes. For the years ended December 31, 2022, 2021 and 2020, the Company's accrued interest and penalties related to uncertain tax positions were not material.

The Company’s major taxing jurisdictions include Ireland and the U.S. (federal and state). These jurisdictions have varying statutes of limitations. In the U.S., the 2019 through 2022 fiscal years remain subject to examination by the respective tax authorities, however, some states have longer statutes of limitations and additional fiscal years remain subject to examination. In Ireland, the 2018 through 2022 fiscal years remain subject to examination by the Irish tax authorities. Additionally, because of the Company’s Irish and U.S. loss carryforwards and credit carryforwards, certain tax returns from fiscal years 2002 onward may also be examined. These years generally remain open for three to four years after the loss carryforwards and credit carryforwards have been utilized.

The years ended December 31, 2018 and 2017 for Alkermes Finance S.à.r.l, a former indirect subsidiary of Alkermes plc that was liquidated during the year ended December 31, 2020, are currently under examination by the Tax Authorities in Luxembourg (the “LTA”). In November 2022, the Company received a notice of assessment in the amount of €2.2 million for the year ended December 31, 2017 from the LTA. The Company disagrees with this assessment and believes this assessment to be incorrect. The Company will timely appeal the notice of assessment and pursue available administrative and judicial avenues as may be necessary or appropriate. As of December 31, 2022, the Company had not received a notice of assessment from the LTA in relation to the year ended December 31, 2018.