Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

The component of German and overseas income (loss) from continuing operations before income taxes is as follows (in thousands):

	Year Ended December 31,
	2021			2020
Germany	$	(89,061	)	$	(75,966	)
International		(47,540	)		(25,847	)
Total loss before income taxes and loss from equity method investments	$	(136,601	)	$	(101,813	)

The tax provision (benefits) for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2021			2020
Current income tax provision (benefit):
Germany	$	—		$	—
International		1,117			305
Total current income tax provision:	$	1,117		$	305
Deferred income tax provision (benefit):
Germany	$	—		$	—
International		(5,106	)		—
Total deferred income tax provision:		(5,106	)		—
Total income tax provision:	$	(3,989	)	$	305

The international current tax provision for December 31, 2021 and 2020 is primarily comprised of corporate income taxes incurred in the United States and the United Kingdom.

A reconciliation of the statutory income tax rate to the Company’s effective income tax rate for continuing operations is as follows (in thousands):

	Year Ended December 31,
	2021			2020
Loss before income taxes:
Germany	$	(89,061	)	$	(75,966	)
International		(47,540	)		(25,847	)
Total loss before income taxes:		(136,601	)		(101,813	)
German statutory rate		30.18	%		30.18	%
Expected income tax expense (benefit)		(41,220	)		(30,722	)
US state income taxes, net of US federal tax benefit and valuation allowance	$	132		$	74
International tax rate differential		4,222			2,304
Fair value adjustments		—			(247	)
IPR&D charges and acquisition adjustments		3,251			2,164
Effect of R&D credit incentives		(3	)		240
Fair value adjustments		2,934			(6,175	)
Effect of statutory to US GAAP accounting adjustments		(10,409	)
Compensation Expenses not deductible under IRC Section 162(m)		1,690
Expenses not deductible for tax purposes		612			(55	)
Effect of German participation exemption on outside basis differences		—			(5	)
Effect of non-deductible compensation in respect of convertible notes		—			18,558
Effect of conversion of convertible notes		—			4,846
Effect of share-based compensation expense		192			—
Other		(657	)		(1	)
Change in German and International valuation allowance		35,267			9,324
Total income tax expense	$	(3,989	)	$	305
Effective income tax rate:		2.92	%	(0.30)%

The Company is headquartered in Berlin, Germany and has subsidiaries in the United States, Australia, and the United Kingdom as well as minority investments in Canada, Germany, and the United Kingdom. The Company incurred tax losses in most jurisdictions, however, generated taxable profits in two of its United States subsidiaries and its United Kingdom subsidiary. The weighted-average combined German corporate income tax rate for the year ended December 31, 2020 and 2021 was 30.18% (inclusive a corporate income tax rate of 15.83% and trade tax rate of 14.35%). The weighted-average United States corporate income tax rate for year ended December 31, 2020 and 2021 was 21.00%. The weighted-average Australia corporate income tax rate for the year ended December 31, 2020 and 2021 was 27.50%. The weighted-average United Kingdom corporate income tax rate for the year ended December 31, 2021 was 19.00%.

Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes.

Significant components of deferred tax assets and deferred tax liabilities consisted of the following (in thousands):

	Year Ended December 31,
	2021			2020
Deferred tax assets:
German tax loss carryforward	$	31,149		$	5,956
International tax loss carryforward		8,618			6,321
Intangible assets		66			57
Share compensation		17,231			1,698
Other deductible timing differences		829			194
Total deferred tax assets, gross		57,893			14,226
Valuation allowance		(49,442	)		(14,174	)
Total deferred tax assets, net	$	8,451		$	52
Deferred tax liabilities:
Other taxable timing differences	$	(17	)	$	(51	)
Unrealized foreign exchange	$	(3,326	)	$	—
Outside basis differences in equity and other investments		(2	)		(1	)
Total deferred tax liabilities		(3,345	)		(52	)
Total deferred tax asset (liability)	$	5,106		$	—

The valuation allowance provided against net deferred tax assets as of December 31, 2020 and 2021 was $14.2 million and $49.4 million, respectively. The valuation allowance recorded at both periods was primarily related to German and international tax loss carryforwards and stock-based compensation timing differences that, in the judgement of management, are not more-likely-than-not, to be realized. Net deferred tax assets are recognized with regard to certain subsidiaries in the United States and United Kingdom, which generate taxable profits.

In assessing the realizability of deferred tax assets, management regularly considers whether it is more-likely-than-not that some or all of the recorded deferred tax assets will be realized. We recognize net deferred tax assets with regard to two subsidiaries in the United States and the United Kingdom for which sufficient positive evidence exists, including current and projected future taxable income, that we believe it is more-likely-than-not that such deferred tax assets will be realized. The future realization of deferred tax assets is subject to the existence of sufficient taxable income of the appropriate character (e.g., ordinary income or capital gain) as provided under the carryforward provisions of local tax law. Additionally, deferred tax assets with respect to tax losses in the United States may be subject to limitation as a result of ownership changes within the meaning of Section 382 of the Internal Revenue Code ("IRC"). Management considers the Company’s limited history and historical tax losses, future projected taxable income, including the character and jurisdiction of such income, the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), and tax-planning strategies in making this assessment. In the event that there is a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.

We note that a Section 382 analysis was undertaken in 2021, which determined that the tax loss carryforwards recorded by one United States subsidiary were able to be utilized in full, offsetting the entity's United States taxable income generated for the year ended December 31, 2021, subject to statutory limitations.

The Company has limited prior earnings history and, due to the early stages of its development and research activities, is expected to generate losses for the next several years in certain jurisdictions and cannot accurately estimate future profit projections beyond such time. As such, management believes that it is more likely than not that the Company will not realize the benefits of such tax loss carryforwards and deductible differences.

As of December 31, 2021 and 2020, the Company does not have any significant unremitted earnings in its international subsidiaries.

The Company’s gross tax loss carryforward for tax return purposes are as follows (in thousands):

	Year Ended December 31,
	2021		2020
Germany tax losses	$	103,232	$	19,738
International tax losses		31,875		21,425
Total	$	135,107	$	41,163

The Company's tax loss carryforwards have an indefinite carryforward period, however, for tax years 2021 and beyond, in the United States, utilization of certain tax losses may not exceed 80% of United States taxable income in any one year, computed without regard a deduction for tax losses utilized.

The Company's 2018 through 2020 tax returns are currently open to audit and have not been subject to audit in any prior year by any tax authority.

Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. As of December 31, 2020 and 2021, the Company had no unrecognized tax benefits.