XML 41 R16.htm IDEA: XBRL DOCUMENT v3.21.1
Income Taxes
 12 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The loss before income taxes and the related tax expense are as follows (in thousands):
Year Ended March 31,
202120202019
(Loss) income before income taxes:
United States$(40,663)$(29,509)$(11,246)
Switzerland(201,673)(239,666)(247,445)
Bermuda(12,310)(19,054)(14,357)
Other(1)
(152)1 (27)
Total loss before income taxes$(254,798)$(288,228)$(273,075)
Current taxes:
United States$335 $758 $473 
Switzerland— — — 
Bermuda1 — — 
Other(1)
— 3 3 
Total current tax expense336 761 476 
Deferred taxes:
United States— — — 
Switzerland— — — 
Bermuda— — — 
Other(1)
— — — 
Total deferred tax expense— — — 
Total income tax expense$336 $761 $476 
(1) Primarily United States state and local, Ireland and United Kingdom activity.
A reconciliation of income tax expense computed at the Bermuda statutory rate to income tax expense reflected in the consolidated statements of operations is as follows (dollars in thousands):
Year Ended March 31,
202120202019
Income tax expense at Bermuda statutory rate$— — %$— — %$— — %
Foreign rate differential(1)
(37,622)14.77 (40,056)13.90 (31,252)11.44 
Impact of changes in enacted income tax rates— — (27,150)9.42 — — 
Currency remeasurement effects on Swiss deferred tax assets(13,742)5.39 — — — — 
Officer’s non-deductible share-based compensation9,590 (3.76)— — — — 
R&D tax credits (net of uncertain tax positions)(3,771)1.48 (1,208)0.42 — — 
Share-based compensation deferral adjustment(4,364)1.71 4,089 (1.42)— — 
Valuation allowance50,333 (19.75)65,193 (22.62)32,335 (11.83)
Other(88)0.03 (107)0.04 (607)0.22 
Total income tax expense $336 (0.13)%$761 (0.26)%$476 (0.17)%
(1) Primarily related to current tax on United States operations including permanent differences 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, 2021, 2020 and 2019 was (0.13)%. (0.26)%, and (0.17)%, 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, 2021 and 2020 are as follows (in thousands):
March 31,
20212020
Deferred tax assets:
Research tax credits$9,967 $6,521 
Net operating losses119,701 84,694 
Share-based compensation12,649 8,573 
Intangibles58,830 52,922 
Lease liability2,317 2,633 
Other7,080 4,936 
Subtotal210,544 160,279 
Valuation allowance(207,858)(157,525)
Deferred tax liabilities:
Depreciation(651)(409)
Right-of-use assets(2,035)(2,345)
Total deferred tax assets$— $— 
As of March 31, 2021, the Company’s net operating losses in Switzerland, Ireland, and the United Kingdom were $876.0 million, $0.2 million, and $31.0 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, 2021, the Company has research and development credit carryforwards in the United States in the amount of $7.7 million which will begin to expire on March 31, 2038 and in California in the amount of $2.3 million which can be carried forward indefinitely.
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 which is difficult to overcome, the Company has recorded a valuation allowance of $207.9 million as of March 31, 2021 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 U.S. tax attributes may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986 (the “Code”), and similar state provisions if the Company experiences one or more ownership changes, which would limit the amount of the tax attributes that can be utilized to offset future taxable income. In general, an ownership change as defined by Section 382, results from the transactions increasing ownership of certain stockholders or public groups in the stock of the corporation of more than 50 percentage points over a three-year period. If a change in ownership occurs in the future, the R&D credit carryforwards could be eliminated or restricted. The Company experienced an ownership change for the purposes of Section 382 and 383 of the Code in December 2019 as a result of the Sumitomo-Roivant Transaction (see Note 6(A)). The ownership change did not result in the forfeiture of any credits generated prior to this date. If a change in ownership occurs in the future, the tax attributes could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.
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, 2018 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.
Activity related to unrecognized tax benefits for the years ended March 31, 2021, 2020, and 2019 is as follows (in thousands):
Year Ended March 31,
202120202019
Beginning of period balance$3,177 $— $— 
Gross increases — prior period tax positions— 2,067 — 
Gross decreases — prior period tax positions(128)— — 
Gross increases — current period tax positions1,355 1,110 — 
End of period balance$4,404 $3,177 $— 
During the tax year ended March 31, 2021, the Company’s unrecognized tax benefits increased by $1.2 million, primarily associated with the Company’s U.S. Federal and California R&D tax credits. During the tax year ended March 31, 2020, the Company’s unrecognized tax benefits increased by $3.2 million, primarily associated with the Company’s U.S. Federal and California R&D tax credits. As of March 31, 2021, the Company had unrecognized tax benefits of $4.4 million that if recognized would have an immaterial effect on the Company’s effective tax rate. The Company does not expect that there will be a significant change in the unrecognized tax benefits over the next twelve months. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the effective tax rate. The Company had no accrual for interest or penalties on its consolidated balance sheets at March 31, 2021 and 2020, and had not recognized interest and/or penalties in its consolidated statements of operations for any of the years ended March 31, 2021, 2020 and 2019.
In response to the COVID-19 pandemic, many governments have enacted measures to provide aid and economic stimulus. These measures include deferring the due dates of tax payments and other changes to income and non-income-based-tax laws as well as providing direct government assistance through grants and forgivable loans. On March 27, 2020, the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic and the negative impacts that it is having on the global economy and U.S. companies. The CARES Act includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company implemented certain provisions of the CARES Act, such as deferring employer payroll taxes through the end of calendar year 2020. As of March 31, 2021, the Company has deferred $1.8 million of employer payroll taxes, of which 50% are required to be deposited by December 2021 and the remaining 50% by December 2022. The current portion of the deferred payroll tax liability of $0.9 million is included in accrued expenses and other current liabilities and the non-current portion of the deferred payroll tax liability of $0.9 million is included in other liabilities on the accompanying consolidated balance sheets.