UroGen Pharma Ltd. Income Taxes Disclosure

NOTE 17 – INCOME TAXES

 

The Company is taxed under Israeli tax laws:

 

Corporate tax rate

 

The applicable Israeli tax rate relevant to the Company for 2023 and thereafter is 23%.

 

For financial reporting purposes, the expense for current income taxes consists of the following (in thousands):

 

		2024				2023
Current taxes:
U.S. Federal		$	2,206			$	2,937
U.S. State			626				983
Total current taxes		$	2,832			$	3,920

 

Deferred income taxes:

 

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 and its subsidiary deferred tax assets are as follows (in thousands):

 

		December 31,
		2024				2023
In respect of:
Net operating loss carryforward		$	122,944			$	103,566
Research and development expenses			26,231				22,451
Stock-based compensation			12,441				11,953
Accrued expenses			2,371				2,310
Interest expense			2,630				1,345
In-process research and development			815				1,102
Lease Liabilities			683				283
Issuance costs			221				—
Other			988				877
Total deferred tax assets			169,324				143,887
Less—valuation allowance			(168,555	)			(143,566	)
Deferred tax assets, net of valuation allowance			769				321
Right-of-use asset			(725	)			(276	)
Depreciation of fixed assets			(44	)			(45	)
Total deferred tax liabilities			(769	)			(321	)
Net deferred tax assets		$	—			$	—

 

The change in valuation allowance for the years ended December 31, 2024 and 2023 were as follows (in thousands):

 

		2024				2023
Balance at the beginning of the year		$	(143,566	)		$	(129,601	)
Changes during the year			(24,989	)			(13,965	)
Balance at the end of the year		$	(168,555	)		$	(143,566	)

 

The main reconciling items between the statutory tax rates of the Company and the effective rate are nondeductible expenses related to financing on the prepaid forward obligation and share-based compensation, the provision for a full valuation allowance in respect of tax benefits from carryforward tax losses due to the uncertainty of the realization of such tax benefits, utilization of tax credits and expense related to uncertain tax positions. A reconciliation of the Company’s statutory tax rate to effective tax is as follows (in thousands, except statutory rate):

 

		December 31,
		2024				2023
Pretax loss		$	(124,042	)		$	(98,324	)
Statutory rate			23	%			23	%
Income tax expense/(benefit) at statutory rate			(28,530	)			(22,615	)
Additional tax (tax saving) in respect of:
Non-deductible expenses			6,929				5,704
R&D and orphan drug credits			(510	)			(1,197	)
Different tax rate of foreign subsidiaries			(669	)			(689	)
Uncertain tax positions			597				176
Change in valuation allowance(1)			24,989				22,898
Other			26				(358	)
Income tax expense		$	2,832			$	3,920

 

 

⁽¹⁾ In the course of preparing the 2022 tax returns, adjustments were made for certain nondeductible amounts, reducing net operating loss carryforward and reflected as a change in valuation allowance of approximately $8.9 million in 2023.

   

Pretax loss for December 31, 2024 and 2023 includes pretax loss from foreign (United States) jurisdictions of $11.0 million and $17.9 million, respectively.

 

The Internal Revenue Code of 1986, as amended (the “Code”), contains provisions that may limit our use of federal net operating loss carryforwards if significant changes occur in the constructive stock ownership of UroGen Pharma, Inc. In the event it has had an “ownership change” within the meaning of Section 382 of the Code, utilization of its net operating loss carryforwards could be restricted under Section 382 of the Code and similar state provisions. Such limitations could result in the expiration of the net operating carryforwards incurred before 2018 before their utilization. 

 

Losses for tax purposes carried forward to future years

 

As of December 31, 2024 and 2023, the Company had approximately $533.9 million and $452.0 million of carryforward tax losses, prior to tax effecting, respectively, available to reduce future taxable income without limitation of use. The Company's carryforward tax losses relate to losses generated in Israel and can be carried forward indefinitely.

 

Uncertain tax positions

 

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

 

		2024				2023
Unrecognized tax benefits at the beginning of the year		$	1,974			$	1,974
Gross increases — tax positions in current period			—				—
Gross increases — tax positions in prior period			—				—
Unrecognized tax benefits at the end of the year		$	1,974			$	1,974

 

 

The liability for uncertain tax positions of $3.8 million as of December 31, 2024 is related to transfer pricing between affiliated entities. The uncertain tax positions liability on the consolidated balance sheets includes $1.8 million and $1.2 million of accrued interest and penalties related to unrecognized tax benefits at December 31, 2024 and December 31, 2023, respectively. The Company recognizes interest accrued and penalties related to uncertain tax positions as a component of income tax expense. If recognized, balances of uncertain tax positions as of December 31, 2024 would result in incremental net operating loss carryforwards, which would be expected to require a full valuation allowance based on present circumstances, therefore, the uncertain tax positions will not impact the effective tax rate.

 

The Company operates on a global basis and is subject to tax laws and regulations in the United States and Israel. The estimate of the Company’s tax liabilities relating to uncertain tax positions requires management to assess uncertainties and to make judgments about the application of complex tax laws and regulations, expectations regarding the outcome of tax authority examinations, as well as the ultimate measurement of potential liabilities.

 

The uncertain tax positions are reviewed quarterly and adjusted as events occur that could affect potential liabilities for additional taxes, including lapsing of applicable statutes of limitations, correspondence with tax authorities, proposed assessments by tax authorities, identification of new issues, and issuance of new legislation or regulations. The Company recognizes its gross uncertain tax positions as a long-term liabilities. The Company believes that adequate amounts of tax have been provided in income tax expense for any adjustments that may result from its uncertain tax positions. Approximately $1.4 million of the liability for uncertain tax positions relate to tax years for which the statute of limitations will expire within the next 12 months. Based upon the information currently available, the Company  does not reasonably expect any other changes in its existing uncertain tax positions in the next 12 months.

 

The Company has received final tax assessments up to and including its 2017 tax year in Israel and 2020 in the US.