INCOME TAXES

9 Months Ended

Oct. 01, 2022

INCOME TAXES

INCOME TAXES

NOTE 5 - INCOME TAXES

The Company’s quarterly benefit (provision) for income taxes and the estimates of its annual effective tax rate, are subject to fluctuation due to several factors, principally including variability in overall pre-tax income and the mix of paying for certain components to which such income relates.

The income tax provision included in these condensed combined financial statements has been calculated using the separate return method, as if the Company had filed its own tax returns. This method can limit the Company’s ability to benefit from losses that may have been used by Intel in its consolidated tax returns. The Company has entered into a tax sharing agreement with Intel, which establishes the amount of cash payable to Intel for our share of the tax liability owed on a consolidated tax filing basis with Intel. To the extent the tax sharing agreement and the separate return method differ, and the liability to Intel is higher or lower than the amount that would have been payable if the Company had filed its own tax returns, an adjustment to the net parent investment balance is recorded within equity. The adjustment to the net parent investment for the nine months ended October 1, 2022 was an aggregate decrease in net parent investment of $16 million because amounts payable under the tax sharing agreement in respect of the nine-month period exceeded amounts calculated under the separate return method.

The tax expense for the nine months ended October 1, 2022, was unfavorably impacted by an accrued withholding tax expense and valuation allowances for certain jurisdictions. A withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group (see Note 4 regarding a dividend distribution to Intel) was recorded in the nine months ended October 1, 2022. As the Company has jurisdictions that have sustained recent losses based on the separate return method, a valuation allowance is required for deferred tax assets for which no benefit can be currently realized. The Company also estimates cash taxes for these jurisdictions this year due to unfavorable timing adjustments based upon tax law.