(11) Income Taxes

Interest and penalties related to any uncertain tax positions have historically been insignificant. The Company recognizes interest and penalties related to uncertain tax positions within the provision for income taxes. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized is nil as of December 31, 2017 and $1.5 million as of December 31, 2016.

The following is a reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015:

In thousands	2017			2016		2015
Beginning uncertain tax benefits	$	1,633		$	1,550	$	2,487
Prior year—increases		—			—		120
Prior year—decreases		(20	)		—		(762	)
Current year—increases		121			83		144
Current year—decreases for lapses in statutes of limitations		—			—		(439	)
Ending uncertain tax benefits	$	1,734		$	1,633	$	1,550

The Company files income tax returns in the United States, Ireland and United Kingdom, or UK. The Company remains subject to tax examinations in the following jurisdictions as of December 31, 2017:

Jurisdiction			Tax Years
United States—Federal			2013-2017
United States—State			2012-2017
Ireland			2013-2017
United Kingdom			2016-2017

The Company does not expect any gross liabilities to expire in 2018 based on statutory lapses.

The components of loss from operations before taxes were as follows for the years ended December 31, 2017, 2016 and 2015:

In thousands	2017			2016			2015
United States	$	(2,075	)	$	(8,115	)	$	(10,137	)
Ireland and United Kingdom		(52,743	)		(68,266	)		(108,153	)
	$	(54,818	)	$	(76,381	)	$	(118,290	)

The (provision for) benefit from income taxes shown in the accompanying consolidated statements of operations consists of the following for fiscal 2017, 2016 and 2015:

In thousands	2017			2016			2015
Current:
United States—Federal	$	1,769		$	1,033		$	1,053
United States—State		196			138			113
Total current	$	1,965		$	1,171		$	1,166
Deferred:
United States—Federal		5,760			(4,001	)		(3,343	)
United States—State		(487	)		(334	)		(605	)
Ireland and United Kingdom		(16,306	)		(143	)		(9,023	)
Change in valuation allowance		22,115			13,276			8,719
Total deferred	$	11,082		$	8,798		$	(4,252	)
Provision for (benefit from) income taxes	$	13,047		$	9,969		$	(3,086	)

The (provision for) benefit from income taxes differs from the amount computed by applying the statutory income tax rate to income before taxes due to the following for fiscal 2017, 2016 and 2015:

In thousands	2017			2016			2015
Benefits from taxes at statutory rate	$	(13,698	)	$	(19,039	)	$	(29,572	)
Rate differential		3,071			4,667			8,572
Change in valuation reserves		22,115			13,276			8,719
Derivative liabilities		—			(668	)		187
Gain on extinguishment of debt		—			—			(328	)
Nondeductible employee compensation		1,668			1,164			808
Stock option/RSU windfall		(1,182	)		—			—
Research and development credits		(1,177	)		(1,689	)		(1,284	)
Tax return to provision adjustments		5,788			4,524			2,248
U.S. rate change—tax reform		7,398			—			—
Cumulative translation adjustment		(12,554	)		7,385			7,811
Permanent and other		1,635			(1,573	)		(1,841	)
Non-deductible interest expense		(17	)		1,922			1,594
Provision for (benefit from) income taxes	$	13,047		$	9,969		$	(3,086	)

The Company is subject to a corporate tax rate in Ireland of 25% for non-trading activities and 12.5% for trading activities. For the years ended December 31, 2017, 2016, and 2015, the Company applied the statutory corporate tax rate of 25% for Amarin Corporation plc, reflecting the non-trading tax rate in Ireland. However, for Amarin Pharmaceuticals Ireland Limited, a wholly-owned subsidiary of Amarin Corporation plc, the Company applied the 12.5% Irish trading tax rate. In the table above, the Company used Amarin Corporation plc’s 25% tax rate as the starting point for the reconciliation since it is the parent entity of the business.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) that instituted fundamental changes to the taxation of multinational corporations. The Act includes changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The Act also includes a permanent reduction in the corporate tax rate to 21%, repeal of the corporate alternative minimum tax, expensing of capital investment, and limitation of the deduction of interest expense. Furthermore, as part of the transition to the new tax system, a one-time transition tax is imposed on a U.S. shareholder's historical undistributed earnings of foreign affiliates. Although the Act is generally effective January 1, 2018, U.S. GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date, which was December 22, 2017.

As a result of the financial reporting implications of the Act, the SEC provided guidance that allows the Company to record provisional amounts for those impacts, with the requirement that the accounting be completed in a period not to exceed one year from the date of enactment. As of December 31, 2017, the Company has recorded a provisional amount to account for the impact of tax effects of the Act related to the change in corporate tax rate from 34% to 21% and the changes to executive compensation deductibility. Given the complexity of the Act and anticipated guidance from the U.S. Treasury about implementing the Act, the Company’s analysis and accounting for the tax effects of the Act is preliminary. The amounts are provisional estimates, as the Company has not fully completed its analysis of certain other aspects of the Act that could result in adjustments. Upon completion of the analysis in 2018, these estimates may be adjusted through income tax expense in the consolidated statement of operations. The Company will disclose the impact to the provisional amounts in the reporting period in which the accounting period is completed, which will not exceed one year from the date of enactment. Any change is not expected to have an impact to the tax provision or consolidated financial statements.

The primary impact of the Act on the Company relates to the re-measurement of deferred tax assets and liabilities resulting from the change in the corporate tax rate from 34% to 21%. At the date of enactment, the Company had net deferred tax assets for the excess of the net tax value over the book basis of its U.S. assets and liabilities which will generate future tax deductions in excess of book expense. As a result of the Act, future tax deductions will result in a decreased reduction in tax expense. Consequently, the Company reduced the amount of the U.S. subsidiary’s net deferred tax assets as of the date of enactment and recorded a non-cash charge of $2.4 million in the provision for income taxes for the year ended December 31, 2017 due to the decrease in the corporate tax rate. In addition, based on the Company’s evaluation of available evidence, the Company recognized non-cash tax expense during the year ended December 31, 2017 of $8.7 million related to the recording of additional valuation allowance to reduce the deferred tax assets on the balance sheet to zero as the Company concluded that it is not more likely than not that certain of the deferred tax benefits resulting from deferred tax assets generated from the U.S. subsidiary operations will be realized.

In April 2016, the Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting which changes the accounting for certain aspects of share-based payments to employees. One aspect of the standard requires that excess tax benefits and deficiencies that arise upon vesting or exercise of share-based payments be recognized as an income tax benefit and expense in the income statement. Previously, such amounts were recognized as an increase and decrease in additional paid-in capital. This aspect of the standard was adopted prospectively, and accordingly the provisions for income taxes for the years ended December 31, 2017 and 2016 includes $1.3 million of excess tax benefits and $0.4 million of excess tax deficiencies, respectively, arising from share-based payments during the period of adoption. Additionally, the new standard requires that historical excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes should be recognized on a modified retrospective basis as a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption. Consequently, the Company recognized deferred tax assets of approximately $1.6 million relating to excess tax benefits on stock-based compensation outstanding as of December 31, 2015, with a corresponding cumulative-effect adjustment to accumulated deficit.

The income tax effect of each type of temporary difference comprising the net deferred tax asset as of December 31, 2017 and 2016 is as follows:

In thousands	December 31, 2017			December 31, 2016
Deferred tax assets:
Net operating losses	$	110,715		$	95,181
Stock-based compensation		12,446			16,894
Tax credits		6,378			6,893
Other reserves and accrued liabilities		3,587			3,193
Gross deferred tax assets		133,126			122,161
Less: valuation allowance		(131,389	)		(109,274	)
Total deferred tax assets		1,737			12,887
Deferred tax liabilities:
Depreciation and amortization		(1,145	)		(1,050	)
Other liabilities		(592	)		(755	)
Total deferred tax liabilities		(1,737	)		(1,805	)
Net deferred tax assets	$	—		$	11,082

The Company assesses whether it is more-likely-than-not that the Company will realize its deferred tax assets. The Company determined that it was more-likely-than-not that the Irish, UK, and Israeli net operating losses and the related U.S. deferred tax assets, consisting primarily of stock-based compensation and R&D tax credits, would not be realized in future periods and a full valuation allowance has been recorded as of the current period.

The following table reflects the activity in the valuation allowance for the years ended December 31, 2017 and 2016:

In thousands	2017		2016
Beginning valuation allowance	$	109,274	$	95,999
Increase as reflected in income tax expense		11,466		17,951
Cumulative translation adjustment		10,649		(4,676	)
Ending valuation allowance	$	131,389	$	109,274

During 2017, the Company recorded adjustments to its deferred tax accounts related to the impact of foreign exchange rate changes and to reconcile the financial statement accounts to the amounts expected to result in future income and deductions under local law, primarily as it relates to Irish net operating losses and deferred taxes for stock compensation. These adjustments were fully offset with valuation allowances based on the Company’s position with respect to the realizability of its recorded deferred tax assets in non-U.S. entities.

The Company has combined Irish, UK, and Israeli net operating loss carryforwards of $710.4 million, which do not expire. The total net operating loss carryforwards increased by approximately $109.2 million from the prior year primarily as a result of current year losses generated by the Company’s Irish subsidiaries. In addition, the Company has U.S. Federal tax credit carryforwards of $6.0 million and state tax credit carryforwards of $1.9 million. These amounts exclude the impact of any unrecognized tax benefits and valuation allowances. These carryforwards, which will expire between 2024 and 2036, may be used to offset future taxable income.

As of December 31, 2017, earnings of $8.0 million have been retained indefinitely for reinvestment by foreign subsidiary or there is an expectation that any reinvestment can be recovered tax-free without significant cost, and the entity expects to ultimately use that means of recovery for domestic subsidiary companies; 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.

The Company's and its subsidiaries' income tax returns are periodically examined by various taxing authorities. The Company is currently under audit by the United States Internal Revenue Service (IRS) for the years 2013 to 2014. Although the outcome of tax audits is always uncertain and could result in significant cash tax payments, the Company does not believe the outcome of these audits will have a material adverse effect on the Company's consolidated financial position or results of operations.