NOTE 9:—TAXES ON INCOME


a.	Tax rates applicable to the Company:
	1.	Taxable income of the Company is subject to the Israeli corporate tax of 25% for 2016.
	2.	In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018
b.	Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law"):

On April 1, 2005, an amendment to the Law came into effect ("the Amendment") and has significantly changed the provisions of the Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise's income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.

During 2013, the Company elected 2012 as a "Year of Election" to receive "Beneficiary Enterprise" status.

Under the Law and its Amendment, the Company is entitled to various tax benefits, defined by this law, under the "Alternative Benefits" track as a Beneficiary Enterprise.

Pursuant to the beneficiary program, the Company is entitled to a tax benefit period of seven to ten years on income derived from this program as follows: the Company is fully tax exempt for a period of the first two years and for the remaining five to eight subsequent years is subject to tax at a rate of 10% -25% (based on the percentage of foreign ownership of the Company).

The benefit period begins in the year in which taxable income is first earned, limited to 12 years from the Year of Election.

If dividends are distributed out of tax exempt profits, the Company will then become liable for tax at the rate applicable to its profits from the Beneficiary Enterprise in the year in which the income was earned, as if it had not chosen the alternative track of benefits.

The dividend recipient is subject to withholding tax at the rate of 15% applicable to dividends from Beneficiary enterprises, if the dividend is distributed during the tax benefits period or within twelve years thereafter. This limitation does not apply to a foreign investors' company. The Company currently has no plans to distribute dividends and intends to retain future earnings to finance the development of its business.

The above benefits are conditioned upon the fulfillment of the conditions stipulated by the Law and regulations published thereunder, including certain restrictions on manufacturing outside of Israel. In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including interest and linked to changes in the Israeli CPI.

As a result of the amendment, tax-exempt income generated under the provisions of the Law will subject the Company to taxes upon distribution or liquidation and the Company may be required to record a deferred tax liability with respect to such tax-exempt income.

Through December 31, 2016 and 2015, the Company had not generated income under the provision of the Law.

Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendments 68 and 71):

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which prescribes, among others, amendments in the Law. The Amendment became effective as of January 1, 2011. According to the Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire privileged income under its status as a privileged company with a privileged enterprise. Commencing from the 2011 tax year, the Company can elect (without possibility of reversal) to apply the Amendment in a certain tax year and from that year and thereafter, it will be subject to the amended tax rates. According to the Amendment, the tax rate on preferred income from a preferred enterprise in 2014 and thereafter will be 16% (in development area A—9%). The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at a rate of 20%. The Company estimates that the effect of the change in tax rates will not have a material impact on the consolidated financial statements.


c.	Losses for tax purposes:

The Company has accumulated net operating losses for Israeli income tax purposes as of December 31, 2016 of approximately $57,805. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.


b.	Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows:

	December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	13,295		$	10,881
Research and development credits		4,885			6,088
Accrued social benefits and other		29			44
Issuance cost related to IPO		430			937

Deferred tax assets before valuation allowance		18,639			17,950
Valuation allowance		(18,639	)		(17,950	)

Net deferred tax asset	$	—		$	—

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance at December 31, 2016 and 2015.


d.	Loss (income) before taxes on income consists of the following:

	December 31,
	2016			2015
Domestic	$	25,815		$	24,864
Foreign		(318	)		(267	)

	$	25,497		$	24,597

e.The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.

f.Uncertain tax positions:

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

	December 31,
	2016		2015
Unrecognized tax benefits, beginning of year	$	258	$	208
Increase in unrecognized tax benefits for current year		—		50

	$	258	$	258

As of December 31, 2016, the Company is subject to Israeli income tax audits for the tax years 2013 through 2016 and Inc. and Holdings are subject to U.S. federal income tax audits for the tax years of 2013 through 2016.


g.	Taxes on income for the year ended December 31, 2016 are comprised mainly of taxes incurred as a result of the implementation of the cost plus services agreement with Inc. and Holdings.