INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

NOTE 8  INCOME TAXES

Loss before income taxes included in the consolidated statements of operations and comprehensive income (loss)

	Year ended
	December 31,		December 25,		December 26,
U.S. dollars in millions	2022		2021		2020
Income (loss) before taxes:
U.S	$	(49)	$	(96)	$	(77)
Non-U.S		17		39		(135)
Total income (loss) before income taxes	$	(32)	$	(57)	$	(212)

Benefit (provision) for income taxes included in the consolidated statements of operations and comprehensive income (loss)

Benefit (provision) for income taxes for the years ended December 31, 2022, December 25, 2021, and December 26, 2020 was comprised of the following:

	Year ended
	December 31,		December 25,		December 26,
U.S. dollars in millions	2022		2021		2020
Current income taxes:
U.S	$	—	$	—	$	—
Non-U.S		(67)		(47)		(37)
Total current provision for income taxes		(67)		(47)		(37)

Deferred income taxes:
U.S.		(28)		(30)		—
Non-U.S.		45		59		53
Total deferred benefit (provision) for income taxes		17		29		53
Total benefit (provision) for income taxes	$	(50)	$	(18)	$	16

Effective income tax rate reconciliation

The difference between the tax provision at the statutory federal income tax rate and the benefit (provision) for income taxes as a percentage of loss before income taxes (effective tax rate) for each year was as follows:

	Year ended
	December 31,	December 25,	December 26,
	2022	2021	2020
	%
Statutory federal income tax rate	21.0	21.0	21.0
Increase (reduction) in rate resulting from:
Foreign rate differential	(1.2)	(1.9)	0.5
Technology incentives – current	312.7	183.1	28.2
Technology incentives – deferred	(230.6)	(116.4)	(29.1)
U.S. branch taxation of foreign operations	(127.3)	(54.4)	—
Decrease (increase) in uncertain tax position, net	16.1	(0.3)	0.2
Share-based compensation related adjustments	(0.5)	(13.7)	(4.1)
Increase in valuation allowance	(151.9)	(50.0)	(7.7)
Non-deductible expenses and other	(6.5)	1.0	(1.5)
Withholding taxes, net of credit	12.1	—	—
Effective tax rate	(156.1)	(31.6)	7.5

In the year ended December 25, 2021, Mobileye’s Israeli operations became taxable in the U.S. as branch entities. In the year ended December 31, 2022, Moovit’s Israeli operations became taxable in the United States as a branch entity. As a result, these operations are taxed both in the U.S. and locally in Israel. For U.S. tax purposes, due to cumulative losses, deferred tax assets have not been benefited which results in a residual tax expense associated with a deferred tax liability recorded for goodwill.

The increase in the effective tax rate for the year ended December 31, 2022, as compared to the year ended December 25, 2021, is primarily driven by the increase in unbenefited U.S. deferred tax assets subject to a valuation allowance.

In Israel, the Company benefits from a reduced tax rate under the Special Preferred Technological Enterprise status under the Law for the Encouragement of Capital Investments, 1959, or the Investment Law.

Under the Investment Law, income derived by Preferred Companies from ‘Special Preferred Technological Enterprises’ (as defined in the 2017 Amendment), would be subject to 6% tax rate on income deriving from intellectual property, subject to a number of conditions being fulfilled, including a minimal amount or ratio of annual research and development expenditures and research and

development employees, as well as having at least 25% of annual income derived from exports. Special Preferred Technological Enterprise is defined as an enterprise which meets the aforementioned conditions and for which total consolidated revenue of its parent company and all subsidiaries are more than ILS10 billion.

Deferred income taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax liabilities and assets are classified as long term on the consolidated balance sheets.

Due to the fact that certain Israeli operations became taxable in the U.S. as branch activities, the Company recognized in the year ended December 31, 2022 and December 25, 2021 the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for U.S. income tax purposes which resulted in a net deferred tax liability after evaluation of deferred tax assets for realizability.

Significant components of the Company’s deferred tax assets and deferred tax liabilities were as follows:

	December 31,		December 25,
U.S. dollars in millions	2022		2021
Deferred tax assets:
Share-based compensation	$	89	$	80
Provisions for employee benefits		7		8
Net operating losses carryforward		142		198
Research and development expenses		283		105
Operating lease liabilities		13		—
Foreign tax credit and deferrals		33		—
Intangible assets		147		—
Other		3		—
Gross deferred tax assets		717		391
Valuation allowance		(533)		(229)
Total deferred tax assets		184		162
Deferred tax liabilities:
Intangible assets		(161)		(181)
Goodwill		(172)		(152)
Right of use assets		(13)		—
Total deferred tax liabilities		(346)		(333)
Net deferred tax liabilities	$	(162)	$	(171)

Changes in valuation allowance for deferred tax assets were as follows:

	Year ended
	December 31,		December 25,		December 26,
U.S. dollars in millions	2022		2021		2020
Valuation allowance at beginning of year	$	229	$	—	$	—
Additions		—		185		—
Change in valuation allowance		304		44		—
Valuation allowance at end of year	$	533	$	229	$	—

Realization of deferred tax assets is based on the Company’s judgment and various factors including reversal of deferred tax liabilities, the ability to generate future taxable income in jurisdictions where such assets have arisen, and potential tax planning strategies. A valuation allowance is recorded in order to reduce the deferred tax assets to the amount expected to be realized in the future. The valuation allowance for the years presented are primarily related to U.S. branch deferred tax assets not currently expected to be realized given that the Company has sustained recent losses based on the separate return method.

For purposes of these financial statements, the income tax expense and deferred tax balances have been prepared as if the Company filed income tax returns on the separate return method. As of December 31, 2022, the Company has U.S. net operating loss carryforwards of $144 million, subject to separate return limitation year rules, which were generated before the Company joined its Parent’s consolidated income tax return on July 17, 2021. The Company also has $352 million of separate return method net operating loss carryforwards that were generated after joining its Parent’s consolidated income tax filing group which have been utilized by its Parent. These net operating losses generated by the Company that have been utilized as part of the Parent consolidated income tax return filings but have not been utilized by the Company under the separate return method approach, have been reflected in these consolidated financial statements because the Company will recognize a benefit for the separate return method net operating losses when determined to be realizable, whether as a deduction against current taxable income in future periods or upon recognition of associated deferred tax assets based on valuation allowance assessments. The majority of the Company’s U.S. net operating losses were generated after January 1, 2018 and thus have an unlimited carry-forward period but are limited as a deduction to 80% of taxable income in any given year.

The Company has a non-U.S. net operating loss carryforward of $157 million for the year ended December 31, 2022. This net operating loss carryforward amount relates primarily to operations in Israel and has an indefinite carry-forward period.

The Company intends to indefinitely reinvest undistributed foreign earnings into foreign operations and expects future U.S. cash generated to be sufficient to meet future U.S. cash needs. Therefore, the Company has not provided for deferred income taxes on undistributed foreign earnings. In making this determination, the Company evaluates both near-term and long-term fiscal needs of its U.S. domestic operations and its foreign subsidiaries. The estimation of the unrecognized deferred tax liability on undistributed foreign earnings is not practicable for the consolidated balance sheets dates presented. The Company made a one-time dividend distribution of $336 million to its Parent as part of Mobileye IPO, which was subject to Israel withholding tax of $14 million.

Uncertain tax positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits related to uncertain tax positions was as follows:

	Year ended
	December 31,		December 25,		December 26,
U.S. dollars in millions	2022		2021		2020
Balance at the beginning of the year	$	4	$	4	$	5
Settlements with taxing authorities		—		—		(1)
Lapse of statute of limitations		(4)		—		—
Balance at the end of the year	$	—	$	4	$	4

As of December 31, 2022, the Company had no liabilities for uncertain tax positions. The December 25, 2021 balance of $4 million, plus accrued penalties and interest, is included in other current liabilities on the consolidated balance sheets. There are no material changes anticipated in the uncertain tax positions in the next twelve months.

The Company files income tax returns in the U.S., Israel, and in other certain foreign jurisdictions. The Company is no longer subject to U.S. and Israeli tax examinations for years prior to 2019 and 2017, respectively.