|12 Months Ended|
Dec. 31, 2016
|Income Tax Disclosure [Abstract]|
(Loss) before income taxes consists of the following:
The components of the provision (benefit) for income taxes are as follows:
The reconciliation of the federal statutory rate to Pieris’ effective tax rate is as follows:
The components of deferred tax assets and liabilities related to net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes purposes were as follows:
The Company operates in multiple countries. Accordingly, the Company files federal income tax returns as well as returns in multiple foreign jurisdictions. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Management believes it is more likely than not that the results of future operations will not generate sufficient taxable income in the U.S. or in its foreign jurisdictions to realize the full benefits of its deferred tax assets. As of December 31, 2016, we continue to maintain a full valuation allowance against all net deferred tax assets.
The increase in the valuation allowance of deferred tax assets of $5.9 million was primarily influenced by the operating losses generated in current tax year. The overall increase is offset to a lesser extent the impact of foreign currency translation.
As of December 31, 2016, the Company had net operating loss carryforwards for United States federal income tax purposes of $12.9 million and net operating loss carryforwards for state income tax purposes of $9.8 million. These tax loss carryforwards, originating subsequent to reverse merger, expire through 2036. In the United States, utilization of the NOL carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has not currently completed a study to assess whether an ownership change has occurred, or whether there have been multiple ownership changes since the Acquisition.
As of December 31, 2016, the Company had German corporate income tax and trade tax net operating loss carryforwards of approximately $66.3 million and $64.9 million respectively. Based on German tax law, the losses can be carried forward indefinitely. The operating loss carryforwards generated are subject to restrictions under German tax law. These regulations may limit the future use of operating loss carryforwards if there is a change in ownership. The Company files federal income tax returns as well as returns in multiple foreign jurisdictions. Tax years ended December 31, 2013 or later remain subject to examination by the German tax authorities.
As of December 31, 2016, the Company had Australia tax net operating loss carryforwards of approximately $0.3 million, originating subsequent to the reverse merger, can be carried forward indefinitely.
The Company revised the carrying value as of December 31, 2015 of its deferred tax asset for net operating loss carryforwards in foreign jurisdictions by $8.9 million. The increase in the deferred tax asset was offset by a corresponding increase in the Company’s valuation allowance. This adjustment is to accurately reflect the value of net operating losses that the Company believes it is entitled to benefit from to offset future income, if any, in foreign jurisdictions.
The Company accounts for uncertain tax positions pursuant to ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. If the tax position meets this threshold, the benefit to be recognized is measured at the largest amount of benefit that is more likely than not (determined by cumulative probability) of being realized upon ultimate settlement with the taxing authority. The Company recorded an uncertain tax position related to a prior year position, that if successfully challenged by tax authorities could result in the loss of certain tax attributes. The balance of uncertain tax positions will remain until such time that settlement is reached with the relevant tax authorities or should the statute of limitations expire. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2016 and December 31, 2015.
The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding the impact of interest and penalties, for the years ended December 31, 2016 and 2015:
The Company does not expect unrecognized tax benefits to change significantly over the next twelve months. The full amount of unrecognized tax benefits would impact the effective rate, subject to valuation allowance considerations, if recognized.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef