Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The domestic and international components of income (loss) before income taxes are presented as follows:
Years Ended December 31,
2021 2020 2019
(in thousands)
Domestic $ (31,975) $ (112,778) $ (61,893)
Foreign 79,845  (2,074) 29,409 
Income (loss) before income taxes $ 47,870  $ (114,852) $ (32,484)
The income tax provision (benefit) consists of the following:
Years Ended December 31,
2021 2020 2019
(in thousands)
Current:
Federal $ 498  $ (176) $ 1,604 
State 84  12  16 
Foreign 7,630  2,687  1,560 
Total current 8,212  2,523  3,180 
Deferred:
Federal 5,108  (18,595) (13,793)
State (4,506) (705) (1,829)
Foreign 484  8,025  1,095 
Change in valuation allowance (3,397) (7,507) (1,239)
Total deferred (2,311) (18,782) (15,766)
Total income tax provision (benefit) $ 5,901  $ (16,259) $ (12,586)
The actual income tax provision (benefit) differs from the amount computed using the federal statutory rate as follows:
Years Ended December 31,
2021 2020 2019
(in thousands)
Provision (benefit) at statutory rate $ 10,071  $ (24,119) $ (6,821)
State income taxes (net of federal benefit) 62  9  11 
Research and development credits (10,441) (6,521) (7,815)
Foreign rate differential (10,063) 2,354  (4,489)
Stock compensation 4,029  5,425  (2,750)
Foreign income inclusion 14,119  1,446  3,936 
Provision to return (263) (286) 1,887 
Uncertain tax positions 1,072  222  1,244 
Permanent and other 726  131  716 
Foreign unremitted earnings (59) (233) (103)
Transaction costs 45  883  — 
Attribute expirations —  11,937  2,837 
Valuation allowance (3,397) (7,507) (1,239)
Total income tax provision (benefit) $ 5,901  $ (16,259) $ (12,586)
The components of the deferred income tax assets are as follows:
December 31,
2021 2020
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $ 46,062  $ 65,790 
Research and development credits 88,778  79,019 
Foreign tax credits 7,695  5,728 
Accrued expenses and other 2,748  5,941 
Lease obligation 1,041  1,731 
Accrued compensation 5,057  4,442 
Stock-based compensation 8,014  5,415 
159,395  168,066 
Less valuation allowance (68,151) (71,811)
91,244  96,255 
Deferred tax liabilities:
Fixed assets (701) (42)
Leased right-of-use assets (735) (1,099)
Intangible assets (640) (9,049)
Pension liability (792) — 
Net deferred tax assets $ 88,376  $ 86,065 
At December 31, 2021, the Company had federal, state and foreign tax net operating loss carryforwards of approximately $187.9 million, $79.8 million and $0, respectively. The federal and state tax loss carryforwards will begin to expire in 2024 and 2029, and foreign tax loss will not expire, unless previously utilized.
At December 31, 2021, the Company had federal, state and foreign tax credit carryforwards of approximately $56.7 million, $95.6 million and $1.8 million, respectively. The federal and foreign tax credit carryforwards will begin to expire in
2022 and 2026, respectively, unless previously utilized. The state tax credit carryforwards do not expire. The Company also has foreign incentive deductions of approximately $6.7 million that do not expire.
The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. The Company believes it is more likely than not to realize certain federal and foreign deferred assets. The Company continues to maintain a valuation allowance on its state deferred taxes, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax-free jurisdictions in which it operates.
The Company recorded an income tax provision of $5.9 million in the year ended December 31, 2021 and an income tax benefit of $16.3 million in the year ended December 31, 2020.
The difference between the Company’s effective tax rate and the 21.0% United States federal statutory rate for the year ended December 31, 2021 resulted primarily from a tax on global intangible low-taxed income (“GILTI”) and non-deductible foreign stock-based compensation, offset by a benefit related to research and development tax credits, foreign earnings taxed at rates other than the federal statutory rate and the effect of a release of valuation allowance against certain Singapore deferred tax assets pertaining to usage of net operating losses.

The difference between the Company’s effective tax rate and the 21.0% United States federal statutory rate for the year ended December 31, 2020 resulted primarily from foreign earnings taxed at rates other than the federal statutory rate, a benefit related to release of uncertain tax positions under ASC 740-10, and excess tax benefits related to stock-based compensation.

Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are de-recognized in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.

During the year ended December 31, 2021, the Company’s unrecognized tax benefits increased by $1.9 million. At December 31, 2021, the Company’s unrecognized tax benefits totaled $65.7 million, $55.9 million of which, if recognized at a time when the valuation allowance no longer exists, would affect the effective tax rate. The unrecognized tax benefits are not expected to materially change in next 12 months. At December 31, 2021, the Company had accrued approximately $0.5 million of interest and penalties. The total amounts of interest and penalties recognized for the years ended December 31, 2021, 2020 and 2019 were not material.
The following table summarizes the changes to the unrecognized tax benefits during 2021, 2020, and 2019:
(in thousands)
Balance as of December 31, 2018 $ 61,470 
Additions based on tax positions related to the current year 1,678 
Decreases based on tax positions of prior year (1,121)
Balance as of December 31, 2019 62,027 
Additions based on tax positions related to the current year 1,506 
Additions related to acquisitions 1,154 
Decreases based on tax positions of prior year (922)
Balance as of December 31, 2020 63,765 
Additions based on tax positions related to the current year 3,366 
Additions related to acquisitions 241 
Decreases based on tax positions of prior year (1,688)
Balance as of December 31, 2021 $ 65,684 

The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At December 31, 2021, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2018, 2017, and 2016, respectively.
The Company’s subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2022 and may be extended through March 2027, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. Due to the valuation allowance in Singapore in 2020 and prior, the incentive did not have a material impact on the Company's income tax provision in 2020 and 2019. Due to the valuation allowance release in 2021 and the Company's use of loss carry forwards, the Company recorded a tax benefit in the current year at the incentive rate, net of any expected tax payable. Without the incentive rate, deferred taxes and the valuation allowance release would have provided an overall tax benefit, net of any current period payable.