PROTHENA CORP PUBLIC LTD COPRTA
PROTHENA CORP PUBLIC LTD CO Income Taxes Disclosure
Income Taxes
The Company files its U.S. and Irish income tax returns and income taxes are presented in the Consolidated Financial Statements using the asset and liability method prescribed by the accounting guidance for income taxes.
Income (loss) before provision for income taxes by country for each of the fiscal periods presented is summarized as follows (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Ireland | $ | (191,818) | $ | (129,602) | $ | (153,920) | ||||||||||||||
| U.S. | (9,011) | 672 | (6,560) | |||||||||||||||||
Loss before provision for income taxes | $ | (200,829) | $ | (128,930) | $ | (160,480) | ||||||||||||||
Components of the provision for income taxes for each of the fiscal periods presented consisted of the following (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| U.S. Federal | $ | 9 | $ | 2,676 | $ | 2,200 | ||||||||||||||
| U.S. State | 15 | 50 | 37 | |||||||||||||||||
| Ireland | — | — | — | |||||||||||||||||
Total current provision for income taxes | $ | 24 | $ | 2,726 | $ | 2,237 | ||||||||||||||
| Deferred: | ||||||||||||||||||||
| U.S. Federal | $ | 43,047 | $ | (9,298) | $ | (15,647) | ||||||||||||||
| U.S. State | 192 | (48) | (42) | |||||||||||||||||
| Ireland | — | — | — | |||||||||||||||||
Total deferred provision for (benefit from) income taxes | $ | 43,239 | $ | (9,346) | $ | (15,689) | ||||||||||||||
Provision for (benefit from) income taxes | $ | 43,263 | $ | (6,620) | $ | (13,452) | ||||||||||||||
The Company recorded a net tax shortfall (windfall) from stock option exercises of nil, $1.0 million, and $(3.5) million for the years ended December 31, 2025, 2024 and 2023 respectively, all of which were recorded as part of its income tax provision in the Consolidated Statements of Operations.
The Company is domiciled in Ireland. The provision for income taxes differs from the statutory tax rate of 12.5% applicable to Ireland primarily due to Irish and U.S. net operating losses for which a tax provision benefit is not recognized, U.S. income taxed at different rates, and the recognition of a full valuation allowance against deferred tax assets. Following is a reconciliation between income taxes computed at the Irish statutory tax rate and the provision for (benefit from) income taxes for each of the fiscal periods presented (in thousands):
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||
Taxes at the Irish Statutory Rate | $ | (25,104) | 12.50 | % | $ | (16,116) | 12.50 | % | $ | (20,060) | 12.50 | % | ||||||||||||||||||||||||||
| Nontaxable or Nondeductible Items: | ||||||||||||||||||||||||||||||||||||||
| Share-Based Payments | 791 | (0.39) | % | 1,404 | (1.09) | % | 1,441 | (0.90) | % | |||||||||||||||||||||||||||||
| Income not subject to tax | — | — | % | (2,560) | 1.99 | % | — | — | % | |||||||||||||||||||||||||||||
| Other | 277 | (0.14) | % | 432 | (0.34) | % | — | — | % | |||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||
| Income tax at rates other than applicable statutory rate | (952) | 0.47 | % | 1,105 | (0.86) | % | 474 | (0.30) | % | |||||||||||||||||||||||||||||
| Changes in Valuation Allowance | 23,861 | (11.88) | % | 15,819 | (12.27) | % | 17,325 | (10.80) | % | |||||||||||||||||||||||||||||
| Foreign Tax Effects: | ||||||||||||||||||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||||||||||||||
| Share-Based Payments | 11,311 | (5.63) | % | 5,687 | (4.41) | % | (743) | 0.46 | % | |||||||||||||||||||||||||||||
| Cross-Border Tax Laws | — | — | % | (4,790) | 3.72 | % | (4,738) | 2.95 | % | |||||||||||||||||||||||||||||
Research and Development Credit | (1,638) | 0.82 | % | (5,780) | 4.48 | % | (4,802) | 2.99 | % | |||||||||||||||||||||||||||||
| Changes in Valuation Allowance | 35,641 | (17.75) | % | (1,928) | 1.50 | % | (1,410) | 0.88 | % | |||||||||||||||||||||||||||||
| Other | (924) | 0.46 | % | 107 | (0.08) | % | (939) | 0.59 | % | |||||||||||||||||||||||||||||
Provision for (benefit from) income taxes | $ | 43,263 | (21.54) | % | $ | (6,620) | 5.14 | % | $ | (13,452) | 8.37 | % | ||||||||||||||||||||||||||
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s net deferred tax assets as of December 31, 2025, and 2024 are as follows (in thousands):
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating loss carryforwards | $ | 203,434 | $ | 171,191 | ||||||||||
| Tax credits | 25,870 | 23,968 | ||||||||||||
Lease liabilities | 2,051 | 2,424 | ||||||||||||
| Accruals and other | 1,974 | 1,521 | ||||||||||||
| Capitalized R&D | 27,472 | 33,951 | ||||||||||||
| Share-based compensation | 7,956 | 11,810 | ||||||||||||
| Gross deferred tax assets | 268,757 | 244,865 | ||||||||||||
| Valuation allowance | (266,576) | (198,869) | ||||||||||||
| Net deferred tax assets | 2,181 | 45,996 | ||||||||||||
| Deferred tax liability: | ||||||||||||||
| Operating lease right-of-use assets | (1,989) | (2,393) | ||||||||||||
| Fixed Assets | (192) | (364) | ||||||||||||
| Net deferred tax assets | $ | — | $ | 43,239 | ||||||||||
The Company's deferred tax assets (“DTAs”) are composed primarily of its Irish subsidiaries' net operating loss carryforwards, federal net operating loss carryforwards and California net operating loss carryforwards available to reduce future taxable income of the Company's U.S. subsidiaries, federal and California tax credit carryforwards, capitalized R&D, share-based compensation, and other temporary differences.
As of each reporting date, the Company considers new evidence that could affect the future realization of DTAs by jurisdiction. Valuation allowances are established if there is uncertainty that a portion or all of the DTAs will not be realized. The ultimate realization of a DTA is dependent upon the generation of future taxable income of the proper character in appropriate jurisdictions to obtain benefit from the reversal of temporary differences and net operating loss carryforwards.
Management performs an assessment of its DTA each period. Based upon the weight of available evidence, including the outcome of the Phase 3 AFFIRM-AL clinical trial for birtamimab and the announced corporate restructuring, including a substantial workforce reduction, management believes that it is not more likely than not the Company will realize the benefits of its federal DTAs. Accordingly, the Company recorded an expense to establish a valuation allowance of $43.2 million in the year ended December 31, 2025. The Company had a full valuation allowance against its federal, state and Irish DTAs as of December 31, 2025.
For the year ended December 31, 2025, the Company recorded a decrease in DTA of $43.2 million, primarily due to the recognition of full valuation allowance. For the year ended December 31, 2024, the Company recorded an increase in DTA of $9.3 million, primarily due to Section 174 R&D Capitalization requirements of $8.9 million.
As of December 31, 2025, certain of the Company’s Irish entities had trading loss carryovers of $1.4 billion and non-trading loss carryovers of $25.7 million, each of which can be carried forward indefinitely. Trading losses are available against income from the same trade/trades while non-trading losses (excess management expenses) are available against future profits in the company in which they arise. In addition, as of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $14.1 million and $211.0 million, respectively, which are available to reduce future taxable income, if any, for the Company’s U.S. subsidiary. The federal net operating loss has an indefinite carryforward period but is limited to offset 80% of taxable income in the year utilized. If not utilized, the state net operating loss carryforward begins expiring in 2032.
The Company also has federal and California research and development credit carryforwards of $19.8 million and $22.0 million, respectively, at December 31, 2025. The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credit carryforwards in the event that there is a change in ownership as provided by Section 382 of the Internal Revenue Code and similar state provisions. Such a limitation could result in the
expiration of the net operating loss carryforwards and tax credits before utilization, which could result in increased future tax liabilities. The federal research and development credit carryforwards will expire starting in 2042 if not utilized. The California tax credits can be carried forward indefinitely.
The Company's U.S. subsidiaries' cash balances at December 31, 2025, are committed for its working capital needs and are considered to be indefinitely invested. As such, no provision for income tax has been recognized on undistributed earnings of the Company’s U.S. subsidiaries. The determination of a hypothetical unrecognized deferred tax liability as of December 31, 2025 is not practicable because of the complexity and variety of assumptions necessary to compute the tax.
On July 4, 2025, the U.S. enacted tax reform legislation through the One Big Beautiful Bill Act. As a result of the enactment of the legislation, the Company recorded $0.4 million of tax benefit for year ended December 31, 2025, primarily related to changes in the capitalization requirements of U.S. research and development activities.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
| 2025 | 2024 | ||||||||||
| Gross Unrecognized Tax Benefits at January 1 | $ | 15,427 | $ | 13,354 | |||||||
| Additions for tax positions taken in the current year | 1,101 | 2,201 | |||||||||
| Reductions for tax positions taken in the prior year | (619) | (128) | |||||||||
| Gross Unrecognized Tax Benefits at December 31 | $ | 15,909 | $ | 15,427 | |||||||
If recognized, none of the Company's unrecognized tax benefits as of December 31, 2025, would reduce its annual effective tax rate, primarily due to corresponding adjustments to its deferred tax valuation allowance. As of December 31, 2025, the Company has not recorded a liability for potential interest or penalties.
The Company is subject to reviews and audits by the U.S. Internal Revenue Service (“IRS”), the Irish Revenue Commissioners, and other taxing authorities from time to time. The IRS concluded its examination of the Company’s U.S. subsidiaries for tax year 2021, with no adjustments arising. There were no other ongoing income tax audits as of December 31, 2025. The Company periodically reviews its uncertain tax positions. The Company’s assessment is based on many factors, including any ongoing IRS audits. For the year ended December 31, 2025, the Company’s assessment did not result in a material change in unrecognized tax benefits. The tax years 2013 to 2025 remain subject to examination by the U.S taxing authorities and the tax years 2020 to 2025 remain subject to examination by the Irish taxing authorities as of December 31, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2018 | Mar 15, 2019 | |
| 2017 | Feb 26, 2018 | |
| 2016 | Feb 27, 2017 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.