Income taxes

The Company is incorporated in Bermuda, which does not impose an income tax. OEH’s effective tax rate is significantly affected by its mix of income and loss in various jurisdictions as there is significant variation in the income tax rate imposed and also by the effect of losses in jurisdictions where the tax benefit is not recognized.

Accordingly, the income tax provision is attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax, and is impacted by the effect of valuation allowances and uncertain tax positions. The income tax provision is also affected by certain items that may occur in any given year, but are not consistent from year to year. Items which had the most significant impact on the tax rate include an income tax credit of $3,207,000 in the year ended December 31, 2013 (2012 - charge of $83,000) arising in respect of foreign exchange differences on the measurement of deferred taxes on temporary differences in subsidiaries operating in jurisdictions where the local currency differs from the functional currency.

The provision for income taxes consists of the following:



			Provision for income taxes
Year ended December 31, 2013	Pre-tax (loss)/ income $’000		Current $’000		Deferred $’000	Total $’000

Bermuda	(17,696	)	—		—	—
United States	(3,955	)	(369	)	100	(269	)
Rest of the world	6,659		17,538		359	17,897

	(14,992	)	17,169		459	17,628



			Provision for income taxes
Year ended December 31, 2012	Pre-tax (loss)/ income $’000		Current $’000	Deferred $’000		Total $’000

Bermuda	(8,244	)	—	—		—
United States	1,903		3,656	(647	)	3,009
Rest of the world	14,442		16,540	2,102		18,642

	8,101		20,196	1,455		21,651



			Provision for income taxes
Year ended December 31, 2011	Pre-tax (loss)/ income $’000		Current $’000	Deferred $’000		Total $’000

Bermuda	(23,436	)	—	—		—
United States	13,918		3,986	(561	)	3,425
Rest of the world	4,881		16,663	(477	)	16,186

	(4,637	)	20,649	(1,038	)	19,611

The reconciliation of earnings/(losses) before provision for income taxes and earnings from unconsolidated companies, net of tax at the statutory tax rate to the provision for income taxes is shown in the table below:



	2013		2012		2011
Year ended December 31,	$'000		$'000		$'000

Earnings/(losses) before provision for income taxes and earnings from unconsolidated companies, net of tax	(14,992	)	8,101		(4,637	)

Tax charge at statutory tax rate of Nil%⁽¹⁾	—		—		—

Exchange rate movements on deferred tax	(3,207	)	83		(2,094	)
Other permanent items	674		2,943		106
Change in valuation allowance	13,015		6,093		11,795
Difference in taxation rates	7,353		11,421		9,067
Change in provisions for uncertain tax positions	(1,788	)	(174	)	817
Change in tax rates	(276	)	600		(222	)
Deferred tax charge for derivatives	2,119		—		—
Other	(262	)	685		142

Provision for income taxes	17,628		21,651		19,611

⁽¹⁾ The Company is resident in Bermuda, which does not impose an income tax.

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 tax purposes. The following represents OEH’s net deferred tax liabilities:



	2013		2012		2011
Year ended December 31,	$’000		$’000		$’000

Operating loss carry-forwards	122,500		93,466		61,708
Pensions	321		1,899		2,161
Share-based compensation	3,146		2,813		1,647
Trademarks	5,075		5,563		3,868
Other	9,173		9,197		2,897
Less: Valuation allowance	(110,780	)	(97,376	)	(50,746	)

Net deferred tax assets	29,435		15,562		21,535

Other	(7,962	)	(5,267	)	(4,609	)
Property, plant and equipment	(183,174	)	(171,016	)	(172,643	)

Deferred tax liabilities	(191,136	)	(176,283	)	(177,252	)

Net deferred tax liabilities	(161,701	)	(160,721	)	(155,717	)

Current deferred tax assets are included in "Prepaid expenses and other" and current deferred tax liabilities are included in "Accrued liabilities" on the face of the consolidated balance sheets. Non-current deferred income taxes and deferred income taxes of consolidated variable interest entities are presented separately on the face of the consolidated balance sheets.

The gross amount of tax loss carry-forwards is $429,461,000 at December 31, 2013 (2012 - $350,926,000). Of this amount, $10,742,000 will expire in the five years ending December 31, 2018 and a further $121,144,000 will expire in the five years ending December 31, 2023. The remaining losses of $297,575,000 will expire after December 31, 2023 or have no expiry date. After weighing all positive and negative evidence, a valuation allowance has been provided against deferred tax assets where management believes it is more likely than not that the benefits associated with these assets will not be realized.

A deferred tax liability of $1,509,000 (2012 - $Nil) has been recognized in respect of income taxes and foreign withholding taxes on the excess of the amount for financial reporting purposes over the tax basis of the investments in foreign joint ventures. Except for earnings that are currently distributed, income taxes and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. The cumulative amount of such unremitted earnings is approximately $970,000,000 at December 31, 2013 (2012 - $1,075,000,000). The determination of the additional deferred taxes that have not been provided is not practical.

OEH’s 2013 tax provision of $17,628,000 (2012 - $21,651,000; 2011 - $19,611,000) included a benefit of $1,593,000 (2012 - benefit of $174,000; 2011 - benefit of $3,439,000) in respect of the provision for uncertain tax positions, of which a benefit of $1,654,000 (2012 - charge of $121,000; 2011 - benefit of $2,058,000) related to the potential interest and penalty costs associated with the uncertain tax positions.

The 2013 provision for income taxes included a deferred tax provision of $13,015,000 in respect of valuation allowances due to a change in judgment concerning OEH’s ability to realize loss carry-forwards and other deferred tax assets in certain jurisdictions compared to a $6,093,000 provision in 2012.

At December 31, 2013, the total amounts of unrecognized tax benefits included the following:



	Total		Principal		Interest		Penalties
Year ended December 31, 2013	$’000		$’000		$’000		$’000

Balance, January 1, 2013	4,581		2,874		1,174		533
Additional uncertain tax provision identified during the year	2,720		2,716		(4	)	8
Increase to uncertain tax provision on prior year positions	737		559		138		40
Uncertain tax provisions paid during the year	(737	)	(559	)	(138	)	(40	)
Decrease to uncertain tax provisions on prior year positions	(3,924	)	(2,302	)	(1,127	)	(495	)
Decreases as a result of expiration of the statute of limitations	(387	)	(351	)	(36	)	—
Foreign exchange	(2	)	(2	)	—		—

Balance at December 31, 2013	2,988		2,935		7		46

At December 31, 2013, OEH recognized a $2,988,000 liability in respect of its uncertain tax positions. Of the unrecognized tax benefit at December 31, 2013, if recognized, $2,054,000 would affect the effective tax rate.

At December 31, 2012, the total amounts of unrecognized tax benefits included the following:



	Total		Principal		Interest		Penalties
Year ended December 31, 2012	$’000		$’000		$’000		$’000

Balance at January 1, 2012	4,755		3,169		1,148		438
Additional uncertain tax provision identified during the year	403		401		2		—
Increase to uncertain tax provision on prior year positions	444		151		168		125
Uncertain tax provisions paid during the year	—		—		—		—
Decrease to uncertain tax provisions on prior year positions	—		—		—		—
Decreases as a result of expiration of the statute of limitations	(686	)	(622	)	(64	)	—
Foreign exchange	(335	)	(225	)	(80	)	(30	)

Balance at December 31, 2012	4,581		2,874		1,174		533

At December 31, 2012, OEH recognized a $4,581,000 liability in respect of its uncertain tax positions. The entire balance of unrecognized tax benefit at December 31, 2012, if recognized, would affect the effective tax rate.

At December 31, 2011, the total amounts of unrecognized tax benefits included the following:



	Total		Principal		Interest		Penalties
Year ended December 31, 2011	$’000		$’000		$’000		$’000

Balance, January 1, 2011	8,194		4,550		1,627		2,017
Additional uncertain tax provision identified during the year	—		—		—		—
Increase to uncertain tax provision on prior year positions	817		600		132		85
Uncertain tax provisions paid during the year	(642	)	(306	)	(192	)	(144	)
Decrease to uncertain tax provisions on prior year positions	(3,178	)	(1,500	)	(358	)	(1,320	)
Decreases as a result of expiration of the statute of limitations	—		—		—		—
Foreign exchange	(436	)	(175	)	(61	)	(200	)

Balance, December 31, 2011	4,755		3,169		1,148		438

At December 31, 2011, OEH recognized a $4,755,000 liability in respect of its uncertain tax positions. The entire balance of unrecognized tax benefit at December 31, 2011, if recognized, would affect the effective tax rate.

Certain subsidiaries of the Company are subject to taxation in the United States and various states and other non-U.S. jurisdictions. As of December 31, 2013, all tax years after 2003 are open to examination by the tax authorities.

OEH believes that it is reasonably possible that within the next 12 months the uncertain tax provision will decrease by approximately $20,000 as a result of expiration of uncertain tax positions in certain jurisdictions in which OEH operates. These amounts relate

primarily to transfer pricing inquiries with the tax authorities.