v3.23.1
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows (amounts in thousands):
Successor
December 31,
2022		December 31,
2021
Deferred tax assets
Tax loss carryforwards$73,097 $32,983 
Capitalized research and development15,624 8,734 
Research and development credits7,174 6,967 
Other1,467 1,016 
Total deferred tax assets$97,362 $49,700 
Valuation allowance(93,850)(49,045)
Deferred tax assets, net of allowance (*)
$3,512 $655 
(*) Included in Other non-current assets in the Consolidated Balance Sheets as of the respective periods.
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighed the evidence based on its objectivity.
After consideration of the evidence, including the Company's history of cumulative net losses in the U.K., France and the USA, the Company has concluded that it is more likely than not that the Company will not realize the benefits of its U.K., and French deferred tax assets and accordingly the Company has provided a valuation allowance for the full amount of the net deferred tax assets in those territories. The Company has also concluded that it is more likely than not it will not realize the benefits of the deferred tax assets in its principal operating entity in the United States and has provided a valuation allowance for the full amount of the net deferred tax asset in that entity. The Company has considered the Company's history of cumulative net profits in its other operating entity in the United States, which carries out services for other entities in the group, estimated that entity’s future taxable income and concluded that it is more likely than not that the Company will realize the benefits of the deferred tax assets in that entity, and has not provided a valuation allowance against the net deferred tax assets in that entity. For the twelve months ended December 31, 2022, the valuation allowance increased by $44.8 million. For the period from January 30, 2021 to December 31, 2021, the valuation allowance increased by $30.5 million.

Components of the Company’s pre-tax loss are as follows (amounts in thousands):

Successor
Twelve months ended December 31, 2022Period from January 30, 2021 through December 31, 2021
Loss before tax:
UK$(173,476)$(331,423)
Non-UK(43,478)(49,534)
Total $(216,954)$(380,957)
The income tax (benefit) expense consists of the following (amounts in thousands):
Successor
December 31,
2022		December 31,
2021
Federal
Current$1,575 $581 
Deferred(2,464)(495)
State
Current534 188 
Deferred(392)(160)
Foreign
Current— — 
Deferred— — 
Income tax (benefit) expense$(747)$114 
A reconciliation of the United Kingdom (“UK”) income tax rate to the Company’s effective tax rate is as follows:

Successor
Twelve Months Ended
December 31, 2022		Period from January 30, 2021 through
December 31, 2021
Statutory tax rate benefit19 %19 %
Non-deductible write-off of in-process R&D— %(11)%
Other non-deductible expenses(3)%(2)%
Enhanced research and development expenses7 %3 %
Losses surrendered for tax incentive(7)%(5)%
Non-taxable research and development incentive1 %2 %
Research & development tax credits1 %— %
Change in tax rate2 %1 %
Effect of overseas tax rates3 %1 %
Change in valuation allowance(23)%(8)%
Effective income tax rate— %— %

The following table summarizes carryforwards of federal and local net operating losses (NOL) and research tax credits (amounts in thousands):

Successor
December 31,
2022		December 31,
2021
UK$225,662 $82,156 
US$48,523 $34,059 
France$25,474 $19,710 
Germany$— $11,062 

The Company will recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss.

UK income tax returns from 2021 remain open for examination and UK NOLs do not expire. In the US, income tax returns from 2019 and later remain open for examination and unutilized US NOLs and credit carryforwards are subject to examination until utilized. If not utilized prior to the specified dates, US federal NOLs totaling $3.2 million and a US R&D tax credit carryforward of $7.2 million would expire starting in 2036 and $41.3 million of US state NOLs would expire beginning in 2036. The NOL in France will not be utilized as Centessa’s French subsidiary, Pega-One, was sold on January 9, 2023.
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) provides for limitation on the use of net operating loss and research and development tax credit carryforwards following certain ownership changes (as defined in Code) that could limit the Company’s ability to utilize these carryforwards, in relation to its principal operating unit in the US. Pursuant to Section 382 of the Code, an ownership change occurs when the stock ownership of a 5% stockholder increases by more than 50% over a three-year testing period. The principal US operating unit may have experienced various ownership changes, as defined by the Code, as a result of past financings and may in the future experience an ownership change. Accordingly, the Company’s ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. The Company has not yet performed an Internal Revenue Code Section 382 study in connection with changes in control of its principal operating unit in the US.