Milestone Pharmaceuticals Inc. Income Taxes Disclosure

13. Income taxes

Upon adoption of ASU No. 2023-09, for the year ended December 31, 2025, the provision for income taxes differs from the expense that would be obtained by applying the Canadian federal statutory income tax rate as a result of the following:

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⁽¹⁾ We apply the federal tax rate of 15% which is the federal statutory rate of Canada of 38%, net of the general rate reduction of 10% and tax abatement of 13%.

⁽²⁾ We apply the provincial tax rate in Quebec of 11.5% to the net loss before income taxes attributable to the Canadian entity. Our provincial tax is Quebec only.

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For the year ended December 31, 2025, loss before income taxes was $20.4 million and $42.7 million for the Canadian and United States entities, respectively. For the year ended December 31, 2024, loss before income taxes was $20.8 million and $20.7 million for the Canadian and United States entities, respectively.

Prior to the adoption of ASU No. 2023-09, for the year ended December 31, 2024, the provision for income taxes differs from the expense that would be obtained by apply the Canadian statutory income tax rate as result of the following:

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⁽¹⁾ Our Canadian corporate tax rate is comprised of a basic Part I federal tax rate of 38%, net 15% after federal tax abatement and general tax reduction, plus the additional provincial tax of 11.5%.

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The Company has incurred Canadian federal and provincial net operating losses, or “NOLs,” from inception. As of December 31, 2025, the Company has NOL carry-forwards of approximately $230.7 million and $226.6 million, respectively, for Canadian federal and Québec purposes, available to reduce future taxable income, which expire beginning in 2026 through 2045. The Company also has scientific research and experimental development expenditures of approximately $32.7 million and $38.8 million, respectively, for Canadian federal and Québec income tax purposes, which have not been deducted. These expenditures are available to reduce future taxable income and have an unlimited carry-forward period. Research and development tax credits and expenditures are subject to verification by the tax authorities, and, accordingly, these amounts may vary.

The Company has incurred NOLs for U.S. tax purposes. As of December 31, 2025, the Company has carry-forwards of approximately $103.2 million related to U.S. NOLs that may be carried forward indefinitely and are available to reduce future taxable income.

Deferred income taxes reflect the net tax 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 net deferred tax assets have not been recognized in these financial statements because the criteria for recognition of these assets were not met.

The Company’s net deferred tax assets consist of the following for the years ended December 31:

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The Company files income tax returns in Canada and in the United States. The Company is subject to Canada Revenue Agency and Revenu Québec examination for fiscal years 2020 to 2025 due to unexpired statute of limitation periods and is subject to US Federal and state income tax examination for fiscal years 2022 to 2025.

On July 4, 2025, the President of the United States signed H.R. 1, the “One Big Beautiful Bill Act,” into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. These changes were reflected in the income tax provision for the period ended December 31, 2025, as enactment occurred after the balance sheet date. The Company has elected to continue capitalizing domestic R&D expenditures and will continue to amortize prior year R&D expenditures that were capitalized.