Income Taxes

6 Months Ended

Jun. 30, 2022

Income Taxes

Income Taxes

13.         Income Taxes

The Company is an exempted company incorporated under the laws of Bermuda. Under the current laws of Bermuda, income tax is not charged or levied on an exempted company’s income. As a result, the Company has not recorded any income tax benefits from losses incurred in Bermuda during each reporting period, and no net operating loss carryforwards will be available to the Company for those losses. The Company’s wholly owned U.S. subsidiaries, Kiniksa US and Primatope, are subject to federal and state income taxes in the United States. The Company’s wholly owned subsidiary Kiniksa UK, and its wholly owned subsidiaries, Kiniksa Germany, Kiniksa France, and Kiniksa Switzerland are subject to taxation in their respective countries. Certain of the Company’s subsidiaries, primarily Kiniksa US, operate under cost plus arrangements.

Although Bermuda has no corporate income tax the Company’s income tax rate for the three and six months ended June 30, 2022 is due to income subject to United States taxation under the Kiniksa US cost plus arrangements with the Company, and U.S. federal and state research tax credits (“R&D credits). Income tax provision for the three and six months ended June 30, 2022 was $716 and $2,641, respectively primarily related to the tax impact from the current tax expense. The current income tax expense is primarily a result of the taxable income earned by Kiniksa US under its cost plus arrangement and required capitalization of R&D expenses offset in part by tax benefits from the U.S. federal and state research and development credits, the Foreign Derived Intangible Income (“FDII”) deduction and share-based compensation taxable events.

Management examines all positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize existing deferred tax assets. The Company previously determined it was more likely than not that a majority of its net deferred tax assets would not be realized and concluded that a valuation allowance was required, which eliminated its net deferred tax assets recorded in its balance sheet. In the future, if the Company believes that it is more likely than not that it will realize the benefit of these deferred tax assets, it will adjust the valuation allowance and recognize an income tax benefit. As a result of the license agreement entered into with Genentech, Inc. and F. Hoffman-La Roche Ltd (collectively, “Genentech”) (Note 15), which is expected to close in September 2022 and result in significant book and taxable income, as well as continued commercial execution of ARCALYST, it is reasonably possible that the Company will release its valuation allowance on its UK and US deferred tax assets within one year. There are no material deferred tax assets in the jurisdictions outside Kiniksa US and Kiniksa UK.