INCOME TAXES

6 Months Ended

Jul. 01, 2023

INCOME TAXES

INCOME TAXES

NOTE 6 - 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 tax paying components to which such income relates.

The income tax provision included in these condensed consolidated financial statements has been calculated using the separate return method, as if the Company had filed its own tax returns. Net operating losses generated by the Company that have been utilized as part of the Parent’s consolidated income tax return filings but have not been utilized by the Company under the separate return method approach, have been reflected in these condensed 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.

Any differences between taxes currently payable to the Company’s Parent under the Tax Sharing Agreement and the current tax provision computed on a separate return basis, is reflected as adjustments to additional paid-in capital (see also Note 2). The adjustment to additional paid-in capital for the three and six months ended July 1, 2023 was an increase of $5 million and $0 million, respectively, based on estimates of forecasted 2023 US taxes payable under the separate return method for those periods. The adjustment to additional paid-in capital for the three and six months ended July 2, 2022 was an aggregate decrease of $7 million, because amounts payable under the Tax Sharing Agreement in respect of the three and six months periods, exceeded the amounts calculated under the separate return method.

The tax expense for the three and six months ended July 1, 2023 and July 2, 2022, was unfavorably impacted by a valuation allowance for certain jurisdictions. A withholding tax expense of $14 million related to a dividend distribution between entities within the Mobileye Group was recorded in the six months ended July 2, 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.