16. Income taxes and deferred taxes
The Group is subject to income taxes in Switzerland, Ireland and the United States.
The Company is subject in Switzerland to a municipal and cantonal income tax rate of 22.6% and to a federal tax rate of 8.5% on its profits after tax. It is entitled to carry forward any loss incurred for a period of seven years and can offset such losses carried forward against future taxes. In 2015, the Company was granted by the State Council of the Canton of Geneva an exemption of income and capital tax at municipal and cantonal levels for the period from 2013 until 2022. Because of this exemption, and the fact that the Company has incurred net losses since its inception, no income tax expense at the municipal, cantonal or federal levels was recorded in the Company for the years ended December 31, 2017 and 2016. Additionally, due to the uncertainty as to whether it will be able to use its net loss carryforwards for tax purposes in the future, no deferred taxes have been recognized on the balance sheet of the Company as of December 31, 2017 and December 31, 2016.
The following details the tax losses carry forwards of the Company and their respective expiring dates.
Expiring tax losses
|
|
|
As at December 31, |
|
|||||
|
in USD ‘000 |
|
2017 |
|
|
2016 |
|
||
|
2020 |
|
|
2,925 |
|
|
|
2,808 |
|
|
2021 |
|
|
11,587 |
|
|
|
11,123 |
|
|
2022 |
|
|
16,253 |
|
|
|
15,602 |
|
|
2023 |
|
|
28,631 |
|
|
|
27,484 |
|
|
2024 |
|
|
58,596 |
|
|
|
— |
|
|
Total unrecorded tax losses carry forwards |
|
|
117,992 |
|
|
|
57,017 |
|
The Company’s Irish subsidiary has no activity, and, therefore, no income tax expense was recorded in such entity for the years ended December 31, 2017 and 2016.
The Company’s U.S. subsidiary, ObsEva USA Inc., is a service organization for the Group and is therefore subject to taxes on the revenues generated from its services to the Group that are charged based upon the U.S. subsidiary’s cost plus arrangement with the Group. Because the U.S. subsidiary started operating in January 2017, no income tax expense was recorded in such entity for the year ended December 31, 2016. The profits of the U.S. subsidiary for the year ended December 31, 2017 were subject to a total U.S. income tax rate of 39.3% based on both the U.S. federal and Massachusetts state tax rates. The income tax for the year ended December 31, 2017 was USD 51 thousand. Additionally, due to the uncertainty as to whether ObsEva USA Inc. will be able to use a deferred tax asset for tax purposes in the future, no deferred taxes have been recognized on the balance sheet of the Group as of December 31, 2017 and December 31, 2016.
The following elements explain the difference between the income tax expense at the applicable Group tax rate and the effective income tax expense:
|
|
|
Year ended December 31, 2017 |
|
|||||||||
|
in USD ‘000 |
|
ObsEva SA |
|
|
ObsEva USA |
|
|
Total Group |
|
|||
|
Net loss before tax |
|
|
(65,397 |
) |
|
|
(1,478 |
) |
|
|
(66,875 |
) |
|
Statutory tax rate (blended at Group level) |
|
|
7.8 |
% |
|
|
39.3 |
% |
|
|
8.5 |
% |
|
Income tax credit at statutory tax rates |
|
|
(5,123 |
) |
|
|
(581 |
) |
|
|
(5,704 |
) |
|
Tax impact of permanent differences |
|
|
577 |
|
|
|
225 |
|
|
|
802 |
|
|
Temporary differences not recognized as deferred tax assets |
|
|
— |
|
|
|
407 |
|
|
|
407 |
|
|
Tax on losses not recognized as deferred tax assets |
|
|
4,546 |
|
|
|
— |
|
|
|
4,546 |
|
|
Effective income tax expense |
|
|
— |
|
|
|
51 |
|
|
|
51 |
|
|
Effective tax rate |
|
|
0 |
% |
|
|
3.5 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016 |
|
|||||||||
|
in USD ‘000 |
|
ObsEva SA |
|
|
ObsEva USA |
|
|
Total Group |
|
|||
|
Net loss before tax |
|
|
(30,202 |
) |
|
|
— |
|
|
|
(30,202 |
) |
|
Statutory tax rate (blended at Group level) |
|
|
7.8 |
% |
|
|
— |
|
|
|
7.8 |
% |
|
Income tax credit at statutory tax rates |
|
|
(2,366 |
) |
|
|
— |
|
|
|
(2,366 |
) |
|
Tax impact of permanent differences |
|
|
145 |
|
|
|
— |
|
|
|
145 |
|
|
Tax on losses not recognized as deferred tax assets |
|
|
2,221 |
|
|
|
— |
|
|
|
2,221 |
|
|
Effective income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Effective tax rate |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |