Monte Rosa Therapeutics, Inc. Income Taxes Disclosure

12. Income taxes

The Company has incurred net operating losses for all the periods presented. The Company has not reflected the benefit of any such net operating loss carryforwards, or NOLs, in the accompanying consolidated financial statements. Domestic and foreign components of net loss are as follows (in thousands):

The effective tax rate for the years ended December 31, 2025 and 2024 is different from the federal statutory rate primarily due to the valuation allowance against deferred tax assets as a result of insufficient sources of income. The reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The principal components of the Company’s deferred tax assets consisted of the following (in thousands):

The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research and developmental expenditures under Section 174 of the Internal Revenue Code. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all research and developmental expenditures that are paid or incurred in connection with their trade or business. Per the One Big Beautiful Bill Act, effective July 4, 2025, taxpayers are still required to capitalize foreign research and development expenditures over 15 years, but now have the opportunity to deduct domestic research and development expenditures under IRC 174A. The Company has elected to continue to amortize prior year domestic capitalized costs until the amortization of such costs is complete. For the year ended December 31, 2025, the Company did not capitalize any research and developmental expenditures for income tax purposes. As of December 31, 2024, the Company capitalized $11.5 million of research and developmental expenditures for income tax purposes.

The Company has incurred annual net operating losses in each year since inception. The Company has not reflected the benefit of any such NOLs in the consolidated financial statements. Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more likely than not that its net deferred tax assets will not be realized, and therefore, the net deferred tax assets are fully offset by a valuation allowance at December 31, 2025 and 2024. The Company increased its valuation allowance by $1.5 million for the year ended December 31, 2025 in order to maintain a full valuation allowance against its deferred tax assets.

As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the "change in valuation allowance" line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance (in thousands):

As of December 31, 2025, the Company had federal net operating loss carryforwards, or NOLs, of $10.0 million and federal tax credits of $5.5 million available to offset tax liabilities. The Company’s federal NOLs have an indefinite life and federal tax credit carryforwards begin to expire in 2040. The Company also had gross foreign NOLs of $374.5 million that begin to expire in 2026. The Company also had gross state NOLs of $26.0 million that began to expire in 2039. The Company also had gross state tax credits of $4.5 million which are available to offset state tax liabilities and begin to expire in 2026. Federal and state NOLs and tax credit carryforwards are also subject to annual limitations in the event that cumulative changes in the ownership interests of significant stockholders exceed 50% over a three-year period, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986. The Company completed an analysis as of December 31, 2023 and determined that an ownership change occurred on September 14, 2020 and October 30, 2023. As a result of these ownership changes, the utilization of the Company’s net operating loss carryforwards is subject to an annual limitation of

$0.3 million for attributes accumulated prior to September 14, 2020 and $0.8 million for the attributes generated prior to October 30, 2023, which is reflected in the numbers presented above.

The Company determines its uncertain tax positions based on whether and how much of a tax benefit taken by the Company in its tax filings is more likely than not to be sustained upon examination by the relevant income tax

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

The Company recognizes interest and penalties related to unrecognized tax benefits in U.S. federal, state, and foreign income tax expense. For the years ended December 31, 2025 and 2024, the Company did not have unrecognized tax benefits.

The Company files income tax returns in the U.S., Switzerland and Massachusetts. The Company is not currently under examination by any taxing authority for any open tax year. Due to NOLs, all years remain open for income tax examination. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or IRS, or state tax authorities to the extent utilized in a future period. No federal, foreign, or state tax audits are currently in process.