Income Taxes

The components of loss from continuing operations before provision for (benefit from) income taxes during the three years ended December 31, 2015 consisted of the following:



	2015			2014			2013
	(in thousands)
United States	$	(272,326	)	$	(645,465	)	$	(10,638	)
Foreign	(285,474		)	(89,410		)	(615,406		)
Loss from continuing operations before provision for (benefit from) income taxes	$	(557,800	)	$	(734,875	)	$	(626,044	)

The components of the provision for (benefit from) income taxes from continuing operations during the three years ended December 31, 2015 consisted of the following:



	2015			2014		2013
	(in thousands)
Current taxes:
United States	$	25,623		$	2,853	$	—
Foreign	831			2,457		1,085
State	3,629			1,366		4,080
Total current taxes	$	30,083		$	6,676	$	5,165
Deferred taxes:
United States	$	497		$	244	$	—
Foreign	(355		)	—		(127,587		)
State	156			38		—
Total deferred taxes	$	298		$	282	$	(127,587	)
Provision for (benefit from) income taxes	$	30,381		$	6,958	$	(122,422	)

The difference between the Company’s “expected” tax provision (benefit), as computed by applying the U.S. federal corporate tax rate of 35% to loss from continuing operations before provision for (benefit from) income taxes, and actual tax is reconciled as follows:



	2015			2014			2013
	(in thousands)
Loss from continuing operations before provision for (benefit from) income taxes	$	(557,800	)	$	(734,875	)	$	(626,044	)
Expected tax provision (benefit)	(195,230		)	(257,206		)	(219,115		)
State taxes, net of federal benefit	3,800			1,124			3,844
Foreign rate differential	47,402			39,335			79,799
Tax credits	(55,696		)	(33,788		)	(16,775		)
Unbenefitted operating losses (gains)	226,169			241,037			(29,900		)
Non-deductible expenses	5,817			18,756			9,614
Rate change	(1,224		)	(1,826		)	50,076
Other	(657		)	(474		)	35
Provision for (benefit from) income taxes	$	30,381		$	6,958		$	(122,422	)

The foreign rate differential in the tax rate reconciliation table reflects the effect of operations in jurisdictions with tax rates that are different from the United States. As set forth in the components of loss before provision for (benefit from) income taxes, the Company had losses in foreign jurisdictions in each year presented. Due to lower foreign tax rates, particularly in the United Kingdom, the Company’s tax benefit in foreign loss jurisdictions is less than the “expected” tax benefit that would have resulted from losses in these jurisdictions at corporate tax rates in the United States. The difference between the tax benefit at foreign corporate tax rates and the “expected” benefit based on corporate tax rates in the United States is reflected in the tax reconciliation table under the caption “foreign rate differential.”

The unbenefitted operating losses in the tax rate reconciliation table primarily reflect a change in the valuation allowance on deferred tax assets related to the United States, United Kingdom and Switzerland. In 2015 and 2014, the valuation allowance increased primarily due to an increase in the net operating loss in the United States with no benefit due to the uncertainty in the Company’s ability to use them in future periods. In the United Kingdom and Switzerland losses have been incurred that cannot be benefitted due to uncertainty in the Company’s ability to use them in future periods resulting in an unfavorable effect on the tax provision.

Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes were as follows:



	As of December 31,
	2015			2014
	(in thousands)
Deferred tax assets:
Net operating loss	$	1,250,642		$	996,172
Tax credit carryforwards	315,535			265,339
Intangible assets	14,673			3,174
Deferred revenues	9,341			15,771
Stock-based compensation	93,404			61,527
Inventories	5,913			13,395
Accrued expenses	27,236			37,699
Currency translation adjustment	222			—
Construction financing lease obligation	176,250			175,853
Gross deferred tax assets	1,893,216			1,568,930
Valuation allowance	(1,716,349		)	(1,409,936		)
Total deferred tax assets	176,867			158,994
Deferred tax liabilities:
Property and equipment	(175,424		)	(158,994		)
Acquired intangibles	(110,439		)	(11,544		)
Unrealized gain	$	(1,088	)	$	—
Net deferred tax liabilities	$	(110,084	)	$	(11,544	)

The Company presents its deferred tax assets and deferred tax liabilities gross on its consolidated balance sheets. As of December 31, 2015, $110.4 million of the deferred tax liabilities are attributable to the Company’s collaborations with BioAxone and Parion. As of December 31, 2014, $11.5 million of the deferred tax liabilities are attributable to the Company’s collaboration with BioAxone.

For federal income tax purposes, as of December 31, 2015, the Company has net operating loss carryforwards of approximately $4.2 billion and tax credits of $217.5 million, which may be used to offset future federal income and tax liability, respectively. Approximately $1.1 billion of the federal net operating loss carryforward will result in an increase to additional paid-in capital if and when these carryforwards are used to reduce income taxes payable.

For state income tax purposes, the Company has net operating loss carryforwards of approximately $1.0 billion and tax credits of $97.3 million, which may be used to offset future state income and tax liability, respectively. Approximately $195.1 million of the state net operating loss carryforward will result in an increase to additional paid-in capital if and when these carryforwards are used to reduce state income taxes payable.

These federal and state operating loss carryforwards and tax credits expire at various dates through 2035. After consideration of all the evidence, both positive and negative, the Company continues to maintain a valuation allowance for the majority of the 2015 deferred tax asset because it is more likely than not that the deferred tax asset will not be realized. In future periods, if management determines that it is more likely than not that the deferred tax asset will be realized, (i) the valuation allowance would be decreased, (ii) a portion or all of the deferred tax asset would be reflected on the Company’s consolidated balance sheet and (iii) the Company would record non-cash benefits in its consolidated statements of operations related to the reflection of the deferred tax asset on its consolidated balance sheets.

The valuation allowance increased by $306.4 million from December 31, 2014 to December 31, 2015 primarily due to an increase in net operating losses and credits.

Unrecognized tax benefits during the two years ended December 31, 2015 consisted of the following:



	2015			2014
	(in thousands)
Unrecognized tax benefits beginning of year	$	880		$	2,024
Decrease for prior period positions	—			(27		)
Decrease due to settlements and payments	(455		)	(1,117		)
Unrecognized tax benefits end of year	$	425		$	880

The Company had gross unrecognized tax benefits of $0.4 million and $0.9 million, respectively, as of December 31, 2015 and 2014. At December 31, 2015, $0.4 million represented the amount of unrecognized tax benefits that, if recognized, would result in a reduction of the Company’s effective tax rate. The Company recognizes interest and penalties related to income taxes as a component of income tax expense. As of December 31, 2015, no interest and penalties have been accrued. In 2016, it is reasonably possible that the Company will reduce the balance of its unrecognized tax benefits by approximately $0.4 million due to the application of statute of limitations and settlements with taxing authorities, all of which would reduce the Company’s effective tax rate.

The Company files United States federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the United States before 2011 or any other major taxing jurisdiction for years before 2010, except where the Company has net operating losses or tax credit carryforwards that originate before 2010. The Company currently is under examination by Revenue Quebec for the year ended December 31, 2013 and the Internal Revenue Service, Delaware, Pennsylvania and Texas for the various periods between December 31, 2011 and December 31, 2013. No adjustments have been reported. The Company is not under examination by any other jurisdictions for any tax year. The Company concluded audits with the Canada Revenue Agency and Revenue Quebec during 2014, and Massachusetts and New York during 2015, with no material adjustments.

At December 31, 2015, foreign earnings, which were not significant, have been retained indefinitely by foreign subsidiary companies for reinvestment; therefore, no provision has been made for income taxes that would be payable upon the distribution of such earnings, and it would not be practicable to determine the amount of the related unrecognized deferred income tax liability. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to U.S. federal income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries.