Income Taxes

The loss before income taxes and the related tax expense (benefit) are as follows (in thousands):



	Years Ended March 31,						Period from February 2, 2016 (Date of Inception) to March 31,
	2018			2017			2016
Loss before income taxes:
United States	$	(7,229	)	$	(2,924	)	$	—
Switzerland	(129,261		)	(29,745		)	—
Bermuda	(6,513		)	(50,845		)	(1,657		)
Other⁽¹⁾	(39		)	—			—
Total loss before income taxes	$	(143,042	)	$	(83,514	)	$	(1,657	)

Current taxes:
United States	$	13		$	125		$	—
Switzerland	—			—			—
Bermuda	—			—			—
Other⁽¹⁾	(8		)	9			—
Total current tax expense	5			134			—
Deferred taxes:
United States	208			(208		)	—
Switzerland	—			—			—
Bermuda	—			—			—
Other⁽¹⁾	—			—			—
Total deferred tax benefit	208			(208		)	—
Total income tax expense (benefit)	$	213		$	(74	)	$	—


(1)	Primarily United States state and local, Ireland and United Kingdom activity.

A reconciliation of income tax expense (benefit) computed at the Bermuda statutory rate to income tax expense (benefit) reflected in the consolidated financial statements is as follows (dollars in thousands):



	Years Ended March, 31										Period from February 2, 2016 (Date of Inception) to March 31,
	2018					2017					2016
Income tax benefit at Bermuda statutory rate	$	—		—	%	$	—		—	%	$	—	—	%
Foreign rate differential⁽²⁾	(14,802		)	10.35		(7,592		)	9.09		—		—
Valuation allowance	13,966			(9.77	)	7,378			(8.83	)	—		—
Tax reform	1,049			(0.73	)	—			—		—		—
Other	—			—		140			(0.17	)	—		—
Total income tax expense (benefit)	$	213		(0.15	)%	$	(74	)	0.09	%	$	—	—	%


(2)	Primarily related to current tax on United States operations including permanent and temporary differences (e.g. research and development credits, etc.) as well as operations in Switzerland and the United Kingdom at rates different than the Bermuda rate.

The Company’s effective tax rate for the years ended March 31, 2018 and 2017 and for the period from February 2, 2016 (Date of Inception) to March 31, 2016 was (0.15)%, 0.09% and 0.00%, respectively, and is driven by the Company’s jurisdictional earnings by location and a valuation allowance that eliminates the Company’s global net deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Act, or the Act, was enacted, which introduced a comprehensive set of tax reform in the United States. The Act revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate from 35% to 21%, adopting a quasi-territorial income tax system and imposing a one-time transition tax on foreign unremitted earnings, and setting limitations on deductibility of certain costs (e.g., interest expense).

The effects of changes in tax laws are required to be recognized in the period in which the legislation is enacted in accordance with ASC 740, Accounting for Income Taxes. However, due to the complexity and significance of the Act’s provisions, the SEC staff issued Staff Accounting Bulletin No. 118, which allows companies to record the tax effects of the Act on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment.

The Act did not have a material impact on the Company’s consolidated financial statements since its global net deferred tax assets are fully offset by a valuation allowance and the Company does not have any off-shore earnings from which to record the mandatory transition tax. However, given the significant complexity of the Act, anticipated guidance from the U.S. Treasury about implementing the Act, and the potential for additional guidance from the SEC or the FASB related to the Act, these estimates may be adjusted during the measurement period. The provisional amounts were based on the Company’s present interpretations of the Act and currently available information, including assumptions and expectations about future events, such as its projected financial performance, and are subject to further refinement as additional information becomes available (such as potential new or interpretative guidance issued by the FASB or the Internal Revenue Service and other tax agencies) and further analyses are completed. The Company continues to analyze the changes in certain income tax deductions and gather additional data to compute the full impact on the Company’s current and deferred tax assets and liabilities (deferred tax assets and liabilities will be subject to a valuation allowance if adjusted).

As of March 31, 2018, the Company had an aggregate income tax receivable of $1.0 million from various federal, state, and local jurisdictions.

Deferred taxes reflect the tax effects of the differences between the amounts recorded as assets and liabilities for financial reporting purposes and the comparable amounts recorded for income tax purposes. Significant components of the deferred tax assets and liabilities at March 31, 2018 and 2017 are as follows (in thousands):



	March 31, 2018			March 31, 2017
Deferred tax assets:
Research tax credits	$	2,948		$	163
Net operating loss⁽³⁾	16,045			6,019
Share-based compensation	2,380			1,382
Other	169			300
Subtotal	21,542			7,864
Valuation allowance	(21,367		)	(7,401		)

Deferred tax liabilities:
Depreciation	(175		)	(255		)

Total deferred tax assets	$	—		$	208

(3)

The Company operates under a tax holiday in Switzerland which is effective through March 31, 2027. The tax holiday is conditional upon the Company meeting certain employment thresholds. The impact of this tax holiday did not impact the Company’s income tax expense for the period but has been accounted for in considering the tax effected net operating losses for this jurisdiction disclosed above.

As of March 31, 2018, the Company’s net operating losses in Switzerland, Ireland, and the United Kingdom were $155.5 million, $23 thousand, and $6.7 million, respectively. The Switzerland net operating losses will begin to expire on March 31, 2025. The net operating losses in Ireland and the United Kingdom can be carried forward indefinitely with annual usage limitations where applicable. As of March 31, 2018, the Company has research and development credit carryforwards in the United States in the amount of $2.9 million which will begin to expire on March 31, 2037.

The Company assesses the realizability of the deferred tax assets at each balance sheet date based on available positive and negative evidence in order to determine the amount which is more likely than not to be realized and records a valuation allowance as necessary. Due to the Company’s cumulative loss position which provides significant negative evidence difficult to overcome, the Company has recorded a valuation allowance of $21.4 million as of March 31, 2018 representing the portion of the deferred tax asset that is not more likely than not to be realized. The amount of the deferred tax asset considered realizable, could be adjusted for future factors that would impact the assessment of the objective and subjective evidence of the Company. The Company will continue to assess the realizability of deferred tax assets at each balance sheet date in order to determine the proper amount, if any, required for a valuation allowance.

There are outside basis differences related to the Company’s investment in subsidiaries for which no deferred taxes have been recorded as these would not be subject to tax on repatriation as Bermuda has no tax regime for Bermuda exempted limited companies, and the United Kingdom tax regime relating to company distributions generally provides for exemption from tax for most overseas profits, subject to certain exceptions.

The Company is subject to tax and will file income tax returns in the United Kingdom, Switzerland, Ireland, and the United States federal and certain state and local jurisdictions. The Company is subject to tax examinations for tax years ended March 31, 2017 and forward in all applicable income tax jurisdictions. Tax audits and examinations can involve complex issues, interpretations and judgments. The resolution of matters may span multiple years particularly if subject to litigation or negotiation. The Company believes it has appropriately recorded its tax position using reasonable estimates and assumptions, however the potential tax benefits may impact the results of operations or cash flows in the period of resolution, settlement or when the statutes of limitations expire. There are no uncertain tax benefits recorded as of March 31, 2018.