Note 20. Income Taxes

The income before income taxes includes the following components (in thousands):


	Years Ended December 31,
	2015		2014		2013
Domestic (U.S., state and local)	$	41,178	$	28,563	$	5,544
Foreign		48,805		48,596		45,781

Total income before income taxes	$	89,983	$	77,159	$	51,325

Significant components of the income tax provision are as follows (in thousands):


	Years Ended December 31,
	2015			2014			2013
Current:
U.S. federal	$	7,374		$	2,579		$	881
State and local		1,051			542			82
Foreign		10,446			11,382			13,464

Total current provision for income taxes		18,871			14,503			14,427

Deferred:
U.S. federal		3,873			5,437			866
State and local		(1,227	)		(446	)		—
Foreign		(131	)		(126	)		(1,228	)

Total deferred provision (benefit) for income taxes		2,515			4,865			(362	)

Total provision for income taxes	$	21,386		$	19,368		$	14,065

The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as follows (in thousands):


	Years Ended December 31,
	2015			2014			2013
Net operating loss and tax credit carryforwards	$	3,564		$	19,335		$	8,029
Accrued expenses/liabilities		2,856			(4,505	)		954
Depreciation and amortization		(2,231	)		(6,220	)		(5,030	)
Valuation allowance		(1,958	)		(3,706	)		(1,887	)
Deferred statutory income		266			(29	)		(2,425	)
Other		18			(10	)		(3	)

Total deferred provision (benefit) for income taxes	$	2,515		$	4,865		$	(362	)

The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s effective income tax provision is as follows (in thousands):


	Years Ended December 31,
	2015			2014			2013
Tax at U.S. federal statutory tax rate	$	31,494		$	27,005		$	17,964
State income taxes, net of federal tax benefit		(177	)		934			82
Foreign rate differential		(14,030	)		(13,164	)		(9,319	)
Tax holidays		(4,031	)		(2,749	)		(4,686	)
Permanent differences		11,737			10,170			9,051
Tax credits		(4,102	)		(4,894	)		(5,020	)
Foreign withholding and other taxes		2,321			2,541			4,643
Change in valuation allowance, net of related adjustments		(631	)		(7	)		1,354
Changes in uncertain tax positions		(1,858	)		(468	)		(4	)
Other		663			—			—

Total provision for income taxes	$	21,386		$	19,368		$	14,065

Withholding taxes on offshore cash movements assessed by certain foreign governments of $1.7 million, $1.8 million and $4.1 million were included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013, respectively.

Earnings associated with the investments in the Company’s foreign subsidiaries of $399.0 million at December 31, 2015 are considered to be indefinitely reinvested outside of the U.S. Therefore, a U.S. provision for income taxes on those earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740 “Income Taxes.” Determination of any unrecognized deferred tax liability related to these investments in foreign subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates.

The Company has been granted tax holidays in The Philippines, Colombia, Costa Rica and El Salvador. The tax holidays have various expiration dates ranging from 2016 through 2028. In some cases, the tax holidays expire without possibility of renewal. In other cases, the Company expects to renew these tax holidays, but there are no assurances from the respective foreign governments that they will renew them. This could potentially result in future adverse tax consequences in the local jurisdiction, the impact of which is not practicable to estimate due to the inherent complexity of estimating critical variables such as long-term future profitability, tax regulations and rates in the multi-national tax environment in which the Company operates. The Company’s tax holidays decreased the provision for income taxes by $4.0 million ($0.09 per diluted share), $2.7 million ($0.06 per diluted share) and $4.7 million ($0.11 per diluted share) for the years ended December 31, 2015, 2014 and 2013, respectively.

Deferred income taxes reflect the 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. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):


	December 31,
	2015			2014
Deferred tax assets:
Net operating loss and tax credit carryforwards	$	32,328		$	35,400
Valuation allowance		(30,065	)		(34,146	)
Accrued expenses		24,276			25,694
Deferred revenue		3,193			3,757
Depreciation and amortization		953			835
Other		54			—

		30,739			31,540

Deferred tax liabilities:
Depreciation and amortization		(19,826	)		(20,172	)
Deferred statutory income		(579	)		(772	)
Accrued liabilities		(1,104	)		(141	)
Other		(119	)		(1	)

		(21,628	)		(21,086	)

Net deferred tax assets	$	9,111		$	10,454


	December 31,
	2015			2014
Classified as follows:
Other current assets (Note 9)	$	12,009		$	13,703
Deferred charges and other assets (Note 13)		1,899			1,681
Current deferred income tax liabilities		(1,120	)		(144	)
Other long-term liabilities		(3,677	)		(4,786	)

Net deferred tax assets	$	9,111		$	10,454

There are approximately $153.5 million of income tax loss carryforwards as of December 31, 2015, with varying expiration dates, approximately $113.6 million relating to foreign operations and $39.9 million relating to U.S. state operations. With respect to foreign operations, $94.4 million of the net operating loss carryforwards have an indefinite expiration date and the remaining $19.2 million net operating loss carryforwards have varying expiration dates through December 2036. Regarding the U.S. state and foreign aforementioned tax loss carryforwards, no benefit has been recognized for $14.0 million and $104.0 million, respectively, as the Company does not anticipate that the losses will more likely than not be fully utilized.

The Company has accrued $8.1 million and $13.3 million as of December 31, 2015 and 2014, respectively, excluding penalties and interest, for the liability for unrecognized tax benefits. The decrease is primarily due to the recognition of $2.2 million of tax benefits resulting from the expiration of the statute of limitations, as previously mentioned, and the effects of foreign exchange rate adjustments. As of December 31, 2014, $2.7 million of unrecognized tax benefits were recorded to “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets in accordance with ASU 2013-11 “Income Taxes (Topic 740) – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The $8.1 million and the remaining $10.6 million of the unrecognized tax benefits at December 31, 2015 and 2014, respectively, are recorded in “Long-term income tax liabilities” in the accompanying Consolidated Balance Sheets. Had the Company recognized these tax benefits, approximately $8.1 million and $13.3 million, and the related interest and penalties, would have favorably impacted the effective tax rate in 2015 and 2014, respectively. The Company does not anticipate that any of the unrecognized tax benefits will be recognized in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company had $10.4 million and $10.1 million accrued for interest and penalties as of December 31, 2015 and 2014, respectively. Of the accrued interest and penalties at December 31, 2015 and 2014, $3.4 million and $3.3 million, respectively, relate to statutory penalties. The amount of interest and penalties, net, included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 was $0.3 million, $(0.5) million and $0.4 million, respectively.

The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):


	Years Ended December 31,
	2015			2014			2013
Gross unrecognized tax benefits as of January 1,	$	13,285		$	14,991		$	16,897
Decreases due to lapse in applicable statute of limitations		(2,206	)		—			(390	)
Foreign currency translation increases (decreases)		(2,963	)		(1,706	)		(1,516	)

Gross unrecognized tax benefits as of December 31,	$	8,116		$	13,285		$	14,991

The Company is currently under audit in several tax jurisdictions. The Company received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and the Company paid mandatory security deposits to Canada as part of this process. The total amount of deposits, net of the effects of foreign exchange rate adjustments, were $13.4 million and $15.9 million as of December 31, 2015 and 2014, respectively, and are included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. Although the outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved for these audits and that resolution is not expected to have a material impact on its financial condition and results of operations.

The significant tax jurisdictions currently under audit are as follows:


Tax Jurisdiction		Tax Year Ended
Canada		2003 to 2009

The Company and its subsidiaries file federal, state and local income tax returns as required in the U.S. and in various foreign tax jurisdictions. The following table presents the major tax jurisdictions and tax years that are open and subject to examination by the respective tax authorities as of December 31, 2015:


Tax Jurisdiction		Tax Year Ended
Canada		2003 to present
United States ⁽¹⁾		2012 to present

⁽¹⁾	The 2002 to 2011 tax years are open to the extent of the tax credit carryforward amounts.