Income Taxes

The Company determines the tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates its estimate of annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.

The Company recorded income tax expense of $3,560 and $5,895 for the three months ended March 31, 2017 and 2016, respectively. The effective tax rate decreased from 29.9% during the three months ended March 31, 2016 to 17.5% (including the impact of a discrete item of $2,057 recognized on adoption of ASU No. 2016-09) during the three months ended March 31, 2017. Other than the impact of the adoption of the accounting standard mentioned above, the decrease is primarily due to higher earnings from our foreign subsidiaries and lower domestic profit in the U.S.

The following table summarizes the activity related to the gross unrecognized tax benefits from January 1, 2017 through March 31, 2017:



Balance as of January 1, 2017	$	3,087
Increases related to prior year tax positions	—
Decreases related to prior year tax positions	—
Increases related to current year tax positions	—
Decreases related to current year tax positions	—
Effect of exchange rate changes	78
Balance as of March 31, 2017	$	3,165

The unrecognized tax benefits as of March 31, 2017 of $3,165, if recognized, would impact the effective tax rate.

During the three months ended March 31, 2017 and 2016, the Company has recognized interest of $51 and $50, respectively, which are included in the income tax expense in the unaudited consolidated statements of income. As of March 31, 2017 and December 31, 2016, the Company has accrued interest and penalties of $1,667 and $1,553, relating to unrecognized tax benefits.