Income Taxes

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



	Years Ended March 31,
	2019			2018			2017
Loss before income taxes:
United States	$	(11,246	)	$	(7,229	)	$	(2,924	)
Switzerland	(247,445		)	(129,261		)	(29,745		)
Bermuda	(14,357		)	(6,513		)	(50,845		)
Other⁽¹⁾	(27		)	(39		)	—
Total loss before income taxes	$	(273,075	)	$	(143,042	)	$	(83,514	)

Current taxes:
United States	$	473		$	13		$	125
Switzerland	—			—			—
Bermuda	—			—			—
Other⁽¹⁾	3			(8		)	9
Total current tax expense	476			5			134
Deferred taxes:
United States	—			208			(208		)
Switzerland	—			—			—
Bermuda	—			—			—
Other⁽¹⁾	—			—			—
Total deferred tax expense (benefit)	—			208			(208		)
Total income tax expense (benefit)	$	476		$	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,
	2019					2018					2017
Income tax benefit at Bermuda statutory rate	$	—		—	%	$	—		—	%	$	—		—	%
Foreign rate differential⁽²⁾	(31,252		)	11.44		(14,802		)	10.35		(7,592		)	9.09
Valuation allowance	32,335			(11.83	)	13,966			(9.77	)	7,378			(8.83	)
Tax reform	—			—		1,049			(0.73	)	—			—
Other	(607		)	0.22		—			—		140			(0.17	)
Total income tax expense (benefit)	$	476		(0.17	)%	$	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, 2019, 2018 and 2017 was (0.17)%, (0.15)% and 0.09%, 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.

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 as of March 31, 2019 and 2018 are as follows (in thousands):



	March 31,
	2019			2018
Deferred tax assets:
Research tax credits	$	7,224		$	2,948
Net operating losses⁽³⁾	38,194			16,045
Share-based compensation	6,106			2,380
Intangibles⁽⁴⁾	38,673			—
Other	2,539			169
Subtotal	92,736			21,542
Valuation allowance	(92,330		)	(21,367		)

Deferred tax liabilities:
Depreciation	(406		)	(175		)
Total deferred tax assets	$	—		$	—

(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.

(4) In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, or ASU 2016-16. ASU 2016-16 requires the income tax consequences of intra-entity transfers of assets, other than inventory, to be recognized when the transfer occurs. The new standard was effective for the Company on April 1, 2018 and was adopted using a modified retrospective approach. The adoption of this standard resulted in the recognition of a deferred tax asset of $38.7 million with a corresponding valuation allowance of $38.7 million.

As of March 31, 2019, the Company’s net operating losses in Switzerland, Ireland, and the United Kingdom were $376.2 million, $32 thousand, and $14.4 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, 2019, the Company has research and development credit carryforwards in the United States in the amount of $7.2 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 $92.3 million as of March 31, 2019 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, 2019.