Income Taxes

9 Months Ended

Sep. 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 nine months ended September 30, 2022 is due to income subject to United Kingdom taxation and 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 benefit for the three and nine months ended September 30, 2022 was $177,358 and $174,717, respectively. The benefit for income taxes is primarily driven by the release of the valuation allowance on the Company’s UK deferred tax assets in the third quarter.

Management regularly reassesses the valuation allowance on the Company’s deferred income tax assets. Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that the Company will be able to recover its deferred tax assets. Such assessment is required on a jurisdiction-by-jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

In the third quarter of 2022, the Company assessed the valuation allowance on its UK deferred tax assets and considered positive evidence, including cumulative UK income in recent years, continued commercial execution of ARCALYST, and expectations regarding future probability. After assessing both the positive evidence and negative evidence, the Company determined it was more likely than not that its UK deferred tax assets would be realized in the future and released the associated valuation allowance as of September 30, 2022. This resulted in a benefit of $185,843. As of September 30, 2022, the Company maintained a full valuation allowance against its U.S. deferred tax assets. There are no material deferred tax assets in the jurisdictions outside Kiniksa US and Kiniksa UK.

The Company transferred all of its rights, title and interest in, among other things, certain contracts (including the Biogen Agreement), intellectual property rights, product filings and approvals and other information, plans and materials owned or controlled by the Company insofar as they related exclusively or primarily to vixarelimab to Kiniksa UK in July 2022 pursuant to an asset transfer agreement between the Company and Kiniksa UK for the consideration described therein.  The Company did not incur any material tax liabilities in connection with the transfer and Kiniksa UK received a stepped up basis in the property.