Theravance Biopharma, Inc. Income Taxes Disclosure

13. Income Taxes

Theravance Biopharma was incorporated in the Cayman Islands in July 2013 under the name Theravance Biopharma, Inc. as a wholly-owned subsidiary of Innoviva, Inc. and began operations subsequent to a spin-off with wholly-owned subsidiaries in the Cayman Islands, US, United Kingdom, and Ireland. Effective July 1, 2015, Theravance Biopharma became an Irish tax resident, therefore, the income (loss) before income taxes of Theravance Biopharma, the parent company, were included in Ireland in the tables below.

The components of the income (loss) before income taxes from operations were as follows:

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The components of provision for income tax expense from operations were as follows:

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The provision for income tax expense was $23.4 million and $11.8 million for the year ended December 31, 2025 and 2024, respectively. The income tax expense for the year ended December 31, 2025 was primarily attributed to US federal tax on (i) the TRELEGY Royalty Sales Agreement and (ii) milestone income related to 2025 TRELEGY global net sales, as well as the Company’s uncertain tax positions, including interest on historical positions, offset by the realization of tax credits.

No provision for income taxes has been recognized on undistributed earnings of the Company’s foreign subsidiaries because it considers such earnings to be indefinitely reinvested. In the event of a distribution of these earnings in the form of dividends or otherwise, the Company may be liable for income taxes, subject to an adjustment, if any, for foreign tax credits and foreign withholdings taxes payable to certain foreign tax authorities. As of December 31, 2025, there were no undistributed earnings.

As a result of the Company becoming an Irish tax resident effective July 1, 2015, the tax rates reflect the Irish statutory rate of 25%. The Company adopted ASU 2023-09 in the current year on a prospective basis. The differences between the Irish statutory income tax rate for non-trading income and the Company’s effective tax rates from operations in the current year after the adoption of ASU 2023-09 were as follows:

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The differences between the Irish statutory income tax rate for non-trading income and the Company’s effective tax rates from operations in the prior year were as follows:

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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. Significant components of the Company’s deferred tax assets and liabilities were as follows:

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The Company follows the accounting guidance related to accounting for income taxes which requires that a company reduces its deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. During the year ended December 31, 2022, the Company concluded that the valuation allowance related to its US federal assets was no longer needed primarily due to the gain and forecasted future taxable income from the TRC Transaction, and as a result, the Company released its valuation allowance against deferred tax assets for US federal tax purposes in 2022 as it was more like than not able to fully utilize such attributes. As of December 31, 2025, the Company continues to maintain its position that a valuation allowance against deferred tax assets for US federal tax purposes is not needed, as it is more like than not able to fully utilize such attributes. As of December 31, 2025, the Company continues to maintain a full valuation allowance in other jurisdictions.

The valuation allowance increased from $435.5 million, as of December 31, 2024, to $436.3 million as of December 31, 2025, primarily as a result of activity in the foreign deferred tax assets, as well as the state deferred tax assets during 2025. Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that the deferred tax assets are recoverable. As required, the Company prepares its assessment of the realizability of deferred tax assets on a jurisdiction-by jurisdiction basis.

As of December 31, 2025, the Company has utilized all available US federal net operating loss carryforwards and federal general business credit carryforwards. As of December 31, 2025, the Company had state net operating loss carryforwards of $121.7 million which generally begin to expire in 2035 and state research and development credit carryforwards of $26.0 million to be carried forward indefinitely.

As of December 31, 2025, the Company had Irish net operating loss carryforwards of $1.19 billion and capital loss carryforwards of $69.1 million, both of which can be carried forward indefinitely. The Company has additional Irish tax attributes of $1.31 billion which primarily consist of unused capital allowances. Net operating losses and capital allowances can be used to offset future income from Irish entities and income related to intellectual property.

Utilization of federal and state net operating loss and tax credit carryforwards may be subject to an annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

The following represents a summary of the Company’s income taxes paid for the year ended December 31, 2025:

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Uncertain Tax Positions

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits were as follows:

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The total unrecognized tax benefits of $88.8 million and $83.7 million, as of December 31, 2025 and December 31, 2024, respectively, would reduce the effective tax rate in the period of recognition.

The Company records liabilities related to uncertain tax positions in accordance with the income tax guidance which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Resolution of one or more of these uncertain tax positions in any period may have a material impact on the results of operations for that period.

The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. The amount of tax expense related to interest was $5.5 million for the year ended December 31, 2025 and $5.6 million for the year ended December 31, 2024. The Company will continue to accrue interest on the respective uncertain tax positions in accordance with applicable rules. The Company has not recognized any penalties related to its uncertain tax positions.

While total unrecognized tax benefits were $88.8 million, the Company’s recorded liability for unrecognized tax benefits was $85.7 million as of December 31, 2025, which can be relieved only if (i) the contingency becomes legally extinguished through either payment to the taxing authority or expiration of the statute of limitations; (ii) the recognition of the benefits associated with the position meets the more likely than not threshold; or (iii) the liability becomes effectively settled through the examination process. The Company considers matters to be effectively settled

once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in its income tax expense (benefit) calculation.

The Company is subject to taxation in Ireland, the US, and various other jurisdictions. The tax years 2015 and forward remain open to examination in Ireland, tax years 2015 and forward remain open to examination in the US, and the tax years 2012 and forward remain open to examination in other jurisdictions.

The Company’s future income tax expense may be affected by such factors as changes in tax laws, regulations, its business, tax rates, interpretation of existing laws or regulations, the impact of accounting for share-based compensation, the impact of accounting for business combinations and other transactions, its international organization, shifts in the amount of income before tax earned in the US as compared with other regions in the world, and changes in overall levels of income before tax.