12. Income taxes

During the years ended December 31, 2019, 2018 and 2017, the Company recorded no income tax benefits for the net operating losses incurred in each year, due to its uncertainty of realizing a benefit from those items. The Company's losses before income taxes were generated in the United States and Austria.

For financial reporting purposes, losses before income taxes for the years ended December 31, 2019, 2018 and 2017 consisted of the following (in thousands):


	Year ended December 31,
	2019		2018		2017
United States	$	(7,886)	$	(604)	$	(121)
Foreign (Austria)		(35,151)		(15,609)		(12,598)
Net loss before tax	$	(43,037)	$	(16,213)	$	(12,719)

The Company's worldwide effective tax rate for the years ended December 31, 2019, 2018 and 2017 was 0.0%, (0.1)% and 0.0%, respectively. The tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income earned in those jurisdictions, which is expected to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. The following items had the most significant impact on the difference between the statutory U.S. federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017 and the effective tax rate:


	Year ended December 31,
	2019			2018			2017
U.S. federal statutory income tax rate		(21.0)	%		(21.0)	%		(35.0)	%
State income taxes, net of federal benefit		—			—			—
Foreign tax rate differential(1)		(4.0)			(4.0)			10.0
Not taxable government grants(2)		(5.4)			(7.5)			(3.0)
Stock-based compensation(3)		(0.3)			(4.6)			(3.5)
other		(0.3)			(0.5)			—
Change in deferred tax asset valuation allowance(4)		31.0			37.5			31.5
Effective income tax rate		—	%		(0.1)	%		—	%

(1) The 4% increase for the years ended December 31, 2019 and 2018, respectively, and the 10% reduction for the year ended December 31, 2017 resulted from tax rate differences between U.S. and non-U.S. jurisdictions. Net loss before tax was principally generated in Austria, where the statutory tax rate is 25%.

(2) For the years ended December 31, 2019, 2018 and 2017, 5.4%, 7.5% and 3.0% increase, respectively, resulted from non-taxable research subsidies received from Austrian government agencies.

(3) For the years ended December 31, 2019, 2018 and 2017, 0.3% increase, 4.6% increase and 3.5% increase, respectively, resulted from non-taxable Stock-based compensation expense.

(4) For the years ended December 31, 2019, 2018 and 2017, 31.0% reduction, 37.5% reduction and 31.5% reduction, respectively, resulted from changes in valuation allowance on deferred tax assets. Deferred tax assets will only be recovered when the generation of future taxable income is more likely than not. Due to the nature of the Company's research activities and the inherent uncertainties the deferred tax assets have been fully impaired.

Components of the net deferred tax assets or liabilities as of the years ended December 31, 2019 and 2018 consisted of the following (in thousands):


	Year ended December 31,
	2019		2018
Deferred tax assets:
Net operating loss carryforwards	$	29,180	$	19,011
Credit carryforwards		180		—
Accrued expenses and other		669		94
Stock-based compensation		2,717		51
Operating lease liabilities		1,740		—
Other liabilities		132		—
Total deferred tax assets		34,618		19,156
Valuation allowance		(32,583)		(19,156)
Total deferred tax assets		2,035		—

Deferred tax liabilities:
Operating lease right of use asset		(1,808)		—
Finance lease right of use asset		(227)		—
Total deferred tax liabilities		(2,035)		—

Net deferred tax assets	$	—	$	—

As of December 31, 2019, 2018 and 2017, the Company had Austrian net operating loss carryforwards of $112.3 million, $76.0 million and $55.2 million, respectively, with no expiry date. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company's history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2019, 2018 and 2017. Management reevaluates the positive and negative evidence at each reporting period.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of losses is no longer present and additional weight may be given to subjective evidence. The tax years in which the tax carryforwards were generated may still be adjusted upon examination by the tax authorities. As of December 31, 2019, there were no pending income tax examinations.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2019, 2018 and 2017 related primarily to the increases in net operating loss carryforwards as follows (in thousands):


	Year ended December 31,
	2019		2018		2017
Valuation allowance at beginning of period	$	(19,156)	$	(13,789)	$	(8,378)
Increases		(13,427)		(5,367)		(5,411)
Valuation allowance at end of period	$	(32,583)	$	(19,156)	$	(13,789)

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("Tax Reform Legislation" or "TCJA"), which made significant changes to U.S. federal income tax code, including a reduction of the statutory corporate tax rate from 35% to 21%, effective on January 1, 2018. This new legislation also eliminated or reduced certain corporate income tax deductions as well as introduced new provisions that taxed certain foreign income not previously taxed in the United States. The TCJA also includes a provision for a tax on all previously undistributed earnings of U.S. companies located in foreign jurisdictions. Undistributed earnings in the form of cash and cash equivalents is taxed at a rate of 15.5% and all other earnings are taxed at a rate of 8.0%. This tax is payable over 8 years and will not accrue interest.

The Tax Reform Legislation introduced section 951A, a new tax on so-called "global intangible low-taxed income," or "GILTI". GILTI applies to income of a controlled foreign corporation ("CFC") that is not otherwise subpart F income, and consists of the excess "tested income" over a 10% return on the CFC's "qualified business asset investment," or "QBAI". QBAI is the total tax basis of the CFC's depreciable, tangible property used in the production of tested income. The full amount of GILTI is included in taxable income. The GILTI inclusion is then reduced by 50% (reduced to 37.5% after 2025). However, that reduction in GILTI may be limited based on the level of U.S. taxable income. A limited allowance for foreign tax credits is allowed that would reduce the U.S. tax cost. GILTI foreign tax credits can only reduce U.S. taxes owed on GILTI and are not eligible for carryforward. The Company's Austrian subsidiary falls under the category of a CFC and due to the nature of its business model as a technology company, there may not be a material amount of tangible assets if this subsidiary starts to generate profits. GILTI taxation therefore may be applicable.

Due to its loss making situation, the Company has established a full valuation allowance against its deferred tax assets as of December 31, 2019, 2018 and 2017 and the changes under the Tax Reform Legislation therefore did not have an effect on its deferred tax assets and liabilities and deferred tax asset valuation allowances in the period the tax regimen change was enacted.

The Company files income tax returns in the U.S. federal jurisdiction as well as in New York. The tax year 2018 remains open to examination by the jurisdictions in which the Company is subject to tax. Furthermore, the Company files income tax returns in Austria. The tax years 2015 to 2018 remain open to examination by the jurisdictions in which the Company is subject to tax.

The Company evaluates tax positions for recognition using a more likely than not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. As of December 31, 2019, the Company had no unrecognized income tax benefits that would affect the Company’s effective tax rate if recognized.