12.

Income taxes

The components of loss before income taxes are as follows for the years ended

December

31:

(in thousands)	201 6			201 5			201 4
Domestic (United Kingdom)	$	(730	)	$	1,400		$	(158	)
Foreign (United States)		(25,393	)		(25,732	)		(21,862	)
Loss before income taxes	$	(26,123	)	$	(24,332	)	$	(22,020	)

The components for the income tax benefit (expense) are as follows for the years ended

December

31:

(in thousands)	201 6			201 5			20 14
Current:
Federal	$	—		$	—		$	—
U.K.		—			—			—
Japan		(85	)		(116	)		(119	)
China		(12	)		—			—
State		(51	)		(30	)		(35	)
Total current provision		(148	)		(146	)		(154	)

Deferred:
Federal		752			—			—
U.K.		2,630			—			—
State		540			—			—
Total deferred benefit		3,922			—			—
Income tax benefit (expense)		3,774			(146	)		(154	)

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The Company’s effective income tax rate differs from the statutory domestic (United Kingdom) income tax rate as follows for the years ended

December

31:

	201 6			201 5			201 4
Income tax rate	20.0		%	20.3		%		21.5	%
U.K. research and development credit		1.8			1.3			1.7
Other		(2.1	)		(1.1	)		(1.2	)
Effect of foreign tax rate differential		16.8			10.7			17.9
Valuation allowance		(22.1	)		(31.7	)		(40.6	)
Effective income tax rate		14.4	%		(0.5	)%		(0.7	)%

The Company is headquartered in the United Kingdom and the effective U.K. corporate tax rate for the years ended

December

31,

2016,

2015,

and

2014

was

20.0%,

20.3%,

21.5%,

respectively. The U.S. federal corporate tax rate was

34%

for the years ended

December

31,

2016,

2015

and

2014.

The Company is subject to taxation in the U.S. and various state, local, and foreign jurisdictions. The Company remains subject to examination by various tax authorities for tax years

2013

through

2016

. With a few exceptions, the Company is no longer subject to examinations by tax authorities for the tax years

2012

and prior. However, net operating losses from the tax years

2012

and prior would be subject to examination if and when used in a future tax return to offset taxable income. The Company’s policy is to recognize income tax related penalties and interest, if any, in its provision for income taxes and, to the extent applicable, in the corresponding income tax assets and liabilities, including any amounts for uncertain tax positions.

The United Kingdom’s Summer Finance Bill, which was enacted on

September

15,

2016,

contained reductions in corporation tax to

19%

from

April

2017

and

17%

from

April

2020.

The Company has adopted a

17%

tax rate in respect of the deferred tax disclosures, reflecting the anticipated timing of the unwinding of the deferred tax balances.

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows for the years ended

December

31:

(in thousands)	201 6			201 5

Deferred tax assets:
Long term deferred tax assets:
U.S. federal net operating losses	$	42,165		$	32,095
State net operating loss (net of federal)		5,198			4,021
U.S. federal research and development credit		273			155
U.K. net operating loss		2,419			5,217
Share options		1,884			1,251
Accrued liabilities		526			177
State credits		85			—
Other		—			160
Total deferred tax assets		52,550			43,076
Valuation allowance		(46,473	)		(43,076	)
Total deferred tax assets	$	6,077		$	—

Deferred tax liabilities:
Long term deferred tax liabilities:
Other assets	$	(29	)	$	—
Intangible assets		(3,418	)		—
Total deferred tax liabilities	$	(3,447	)	$	—

For the years ended

December

31,

2016

and

2015,

the Company had United Kingdom Net Operating Losses (U.K. NOLs) of

$14.2

million and

$29.0

million, respectively. U.S. federal net operating loss carry forwards for the years ended

December

31,

2016

and

2015

were

$125.3

million and

$95.5

million, respectively. U.S. State net operating loss carryforwards for the years ended

December

31,

2016

and

2015

were

$112.5

million and

$85.8

million, respectively.

The U.S. federal and state net operating loss carryforwards begin to expire in

2027

and

2016,

respectively and the U.K. NOLs can be carried forward indefinitely.

For the year ended

December

31,

2016,

the Company recognized a deferred tax asset in the U.K. of

$2.6

million. The Company has determined that it is more likely than not that this asset will be realized in the future. The Company continues to record a full valuation allowance against all other net deferred tax assets since it is not more likely than not that these amounts will be realized.

The following table reflects the rollforward of the Company’s valuation allowance:

(in thousands)	201 6		201 5		201 4
Beginning of year (January 1)	$	43,076	$	35,361	$	26,413
Increase in valuation allowance		3,397		7,715		8,948
End of year (December 31)	$	46,473	$	43,076	$	35,361

The Company reviewed its historical tax filings and tax positions and has determined no material uncertain tax positions exist at

December

31,

2016

and

2015.

The Company continues to monitor its tax filings and positions.

The Company generates research and development credits in the United Kingdom which are refundable if a current year loss is incurred. In the United Kingdom for the year ended

December

31,

2016,

no amounts were reimbursed for research and development tax credits.