INCOME TAXES

12 Months Ended

Dec. 30, 2023

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 30,		December 31,		December 25,
U.S. dollars in millions	2023		2022		2021
Income (loss) before taxes:
U.S	$	(13)	$	(49)	$	(96)
Non-U.S		29		17		39
Total income (loss) before income taxes	$	16	$	(32)	$	(57)

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 30, 2023, December 31, 2022, and December 25, 2021 was comprised of the following:

	Year ended
	December 30,		December 31,		December 25,
U.S. dollars in millions	2023		2022		2021
Current income taxes:
U.S	$	—	$	—	$	—
Non-U.S		(58)		(67)		(47)
Total current provision for income taxes		(58)		(67)		(47)

Deferred income taxes:
U.S.		(28)		(28)		(30)
Non-U.S.		43		45		59
Total deferred benefit (provision) for income taxes		15		17		29
Total benefit (provision) for income taxes	$	(43)	$	(50)	$	(18)

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 30,	December 31,	December 25,
	2023	2022	2021
	%
Statutory federal income tax rate	21.0	21.0	21.0
Increase (reduction) in rate resulting from:
Foreign rate differential	2.7	(1.2)	(1.9)
Technology incentives – current	(568.7)	312.7	183.1
Technology incentives – deferred	461.5	(230.6)	(116.4)
U.S. branch taxation of foreign operations	243.9	(127.3)	(54.4)
Changes in uncertain tax position, net	42.1	16.1	(0.3)
Share-based compensation related adjustments	(2.4)	(0.5)	(13.7)
Changes in valuation allowance	43.1	(151.9)	(50.0)
Non-deductible expenses and other	25.4	(6.5)	1.0
Withholding taxes, net of credit	—	12.1	—
Effective tax rate	268.6	(156.1)	(31.6)

In fiscal years ended 2023 and 2022, certain Israeli operations are taxable in the U.S. as branch activities due to restructuring activities prior to Mobileye IPO. 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 30, 2023, as compared to the year ended December 31, 2022, is primarily driven by the jurisdictional composition of our taxable earnings based on operational results and an 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 ILS 10 billion.

Deferred income taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and increase in unbenefited U.S. deferred tax assets subject to a valuation allowance.

Due to the fact that certain Israeli operations were taxable in the U.S. as branch activities, the Company recognized in the years ended December 30, 2023 and December 31, 2022 the tax effects of temporary differences between the carrying amount 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 30,		December 31,
U.S. dollars in millions	2023		2022
Deferred tax assets:
Share-based compensation	$	105	$	89
Provisions for employee benefits		8		7
Net operating losses carryforward		103		142
Research and development expenses		455		283
Operating lease liabilities		12		13
Foreign tax credit and deferrals		13		33
Intangible assets		179		147
Other		15		3
Gross deferred tax assets		890		717
Valuation allowance		(579)		(533)
Total deferred tax assets		311		184
Deferred tax liabilities:
Intangible assets		(126)		(161)
Goodwill		(322)		(172)
Right of use assets		(11)		(13)
Total deferred tax liabilities		(459)		(346)
Net deferred tax liabilities	$	(148)	$	(162)

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

	Year ended
	December 30,		December 31,		December 25,
U.S. dollars in millions	2023		2022		2021
Valuation allowance at beginning of year	$	533	$	229	$	—
Additions		—		—		185
Change in valuation allowance		46		304		44
Valuation allowance at end of year	$	579	$	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 30, 2023, 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 $139 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.

The Company has a non-U.S. net operating loss carryforward of $183 million as of December 30, 2023. 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.

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 30,		December 31,		December 25,
U.S. dollars in millions	2023		2022		2021
Balance at the beginning of the year	$	—	$	4	$	4
Changes in balances related to tax positions taken during current period		7		—		—
Settlements with taxing authorities		—		—		—
Lapse of statute of limitations		—		(4)		—
Balance at the end of the year	$	7	$	—	$	4

If the remaining balance of unrecognized tax benefits were recognized in a future period, it would result in a tax benefit of $7 million as of December 30, 2023. The balance of uncertain tax positions, which also includes accrued penalties and interest, is included in other long-term 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 2020 and 2018, respectively.