Income Taxes

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the three months ended March 31, 2024, the Company’s provision for income taxes and effective tax rate were $6.2 million and (8.2)%, respectively, as compared to $0.7 million and (7.1)%, respectively, for the three months ended March 31, 2023. For the three months ended March 31, 2024, the period-over-period change in the provision for income taxes was primarily related to changes in the jurisdictional mix of income.

The Company recorded deferred tax assets for (i) its outside basis difference in its investment in Amneal on May 4, 2018, (ii) the net operating loss of Impax Laboratories, Inc., which was acquired by the Company in 2018, from January 1, 2018 through May 4, 2018, (iii) certain federal and state credits, and (iv) interest carryforwards of Impax that were attributable to the Company.

The Company records its valuation allowances against its deferred tax assets (“DTAs”) when it is more likely than not that all or a portion of a DTA will not be realized. The Company routinely evaluates the realizability of its DTAs by assessing the likelihood that its DTAs will be recovered based on all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, estimates of future taxable income, tax planning strategies and results of operations. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, the Company considers its historical results and incorporates certain assumptions, including projected new product launches, revenue growth, and operating margins, among others.

The Company established a valuation allowance on its DTAs based upon all available objective and verifiable evidence, both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. Since first establishing a valuation allowance, the Company has generated cumulative consolidated three-year pre-tax losses through March 31, 2024. As a result of the losses through March 31, 2024, the Company determined that it is more likely than not that it will not realize the benefits of its gross DTAs and therefore maintained its valuation allowance. As of March 31, 2024 and December 31, 2023, this valuation allowance was $566.0 million and $566.5 million, respectively, and reduced the carrying value of these gross DTAs to zero.

In 2018, the Company entered into a tax receivable agreement (“TRA”) for which it was generally required to pay the holders of Amneal common units on a one-to-one basis, 85% of the applicable tax savings, if any, in U.S. federal and state income tax that it is deemed to realize as a result of certain tax attributes of their Amneal common units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal common units for shares of Class A common stock of the Company prior to the Reorganization (as defined in Note 1. Nature of Operations in our 2023 Annual Report on Form 10-K) and (ii) tax benefits attributable to payments made under the TRA. In conjunction with the valuation allowance recorded on the DTAs, the Company reversed the accrued TRA liability of $192.8 million during 2019. As part of the Reorganization, the TRA was amended to reduce the Company’s future obligation to pay 85% of the tax benefits subject to the TRA to 75% of such realized benefits. This agreement will not cause the acceleration of payments under the TRA.

As noted above, the Company has determined it is more-likely-than-not it will be unable to utilize its DTAs subject to the TRA; therefore, as of March 31, 2024 and December 31, 2023, the Company has not recognized the contingent liability under the TRA related to the tax savings it may realize from common units sold or exchanged. If utilization of these DTAs becomes more-likely-than-not in the future, at such time, these TRA liabilities (which amounted to approximately $185.0 million at March 31, 2024 and December 31, 2023) will be recorded through charges in the Company’s consolidated statements of operations.

The timing and amount of any payments under the TRA may vary depending on the timing of the Company’s taxable income and the tax rate in effect at the time of realization of the Company’s taxable income. Under certain conditions, such as a change of control or other early termination event, the Company could be obligated to make TRA payments in advance of tax benefits being realized. Payments could also be in excess of the tax savings that the Company may ultimately realize.

Although the DTAs were not determined to be realizable as of March 31, 2024 and December 31, 2023, the Company assessed that a TRA liability of $5.7 million and $3.8 million at those dates, respectively, had become probable. For the three months ended March 31, 2024 and 2023, the Company recorded expenses associated with the TRA of $1.9 million and $0.8 million, respectively. In future periods, the Company will continue to evaluate whether any future TRA payments become probable and can be estimated and, if so, an estimate of payment will be accrued.

Any future recognition of these TRA liabilities will be recorded through charges in the Company’s consolidated statements of operations. However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA in excess of the $5.7 million accrued as of March 31, 2024. Should the Company determine that a DTA with a

valuation allowance is realizable in a subsequent period, the related valuation allowance will be reversed and, if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.

The Company continuously monitors government proposals to make changes to tax laws, including proposed legislation in certain foreign jurisdictions resulting from the adoption of the Organization for Economic Cooperation and Development (“OECD”) policies (refer to Note 7. Income Taxes in the Company’s 2023 Annual Report on Form 10-K). The OECD has issued a two-pillar approach to global taxation, focusing on global profit allocation and a global minimum tax rate of at least 15%. Legislation for the “Pillar Two” proposal, applying to the Company, has been enacted in Ireland, and it is effective with the financial year beginning on January 1, 2024. As the tax rates the other jurisdictions in which the Company operates exceed 15%, the Company does not believe there is any potential additional exposure besides in Ireland.

Since Pillar Two taxes are an alternative minimum tax, deferred taxes will not need to be recorded or remeasured as a result of Pillar Two taxes. Instead, Pillar Two taxes will be expensed as incurred. For interim tax provision purposes, the Pillar Two tax related to Ireland taxes is included in the calculation of the Company’s provision for income taxes.