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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income/(loss) before income taxes consist of the following:
 Year ended December 31,
 202120202019
Domestic$43,759 $30,893 $(16,685)
Foreign102,802 84,436 99,785 
$146,561 $115,329 $83,100 
Income tax expense/(benefit) consists of the following:
 Year ended December 31,
 202120202019
Current provision:
Domestic$18,532 $7,946 $10,823 
Foreign33,644 14,983 16,694 
$52,176 $22,929 $27,517 
Deferred provision/(benefit):
Domestic$(15,954)$1,343 $(13,912)
Foreign(4,372)1,354 1,567 
$(20,326)$2,697 $(12,345)
Income tax expense$31,850 $25,626 $15,172 
Income taxes (deferred) recognized in AOCI were as follows:
Year ended December 31,
202120202019
Deferred taxes benefit / (expense) recognized on:
Unrealized gain on cash flow hedges$(2,308)$(1,663)$(1,564)
Reclassification adjustment for cash flow hedges1,530 (500)1,173 
Retirement benefits (incl. effects of tax rate changes)194 935 312 
Reclassification adjustment for retirement benefits(204)(127)16 
Foreign currency translation gain/(loss)3,016 1,946 (644)
Total income tax benefit / (expense) recognized in AOCI$2,228 $591 $(707)
The effective income tax rate differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes approximately as follows:
 Year ended December 31,
 202120202019
Expected tax expense$30,777 $24,219 $17,451 
Impact of tax holiday— (757)(5,920)
Foreign tax rate differential1,127 (1,991)1,660 
Deferred tax provision350 2,888 3,026 
Unrecognized tax benefits and interest161 6 174 
State taxes, net of Federal taxes4,968 3,242 2,137 
Non-deductible expenses3,165 1,467 1,329 
Excess tax benefit on stock-based compensation(3,651)(2,378)(2,306)
Research and development credits(1,727)(918)(1,650)
Prior period items(931)(182)(143)
Benefit on settlement of convertible notes(2,411)— — 
Others22 30 (586)
Tax expense$31,850 $25,626 $15,172 

The effective tax rate decreased from 22.2% during the year ended December 31, 2020 to 21.7% during the year ended December 31, 2021. The Company recorded income tax expense of $31,850 and $25,626 for the years ended December 31, 2021 and 2020, respectively. The increase in income tax expense was primarily as a result of higher profit during the year ended December 31, 2021, compared to the year ended December 31, 2020, increase in state taxes and increase in non-deductible expense during the year ended December 31, 2021, partially offset by (i) the recording of higher excess tax benefits related to stock awards of $3,651 pursuant to ASU No. 2016-09 during the year ended December 31, 2021, compared to $2,378 during the year ended December 31, 2020, and (ii) the recording of a one-time deferred tax benefit of $2,411 on settlement of the Notes during the year ended December 31, 2021.

During the year 2018, the Company made an election to change the tax status of most of its controlled foreign corporations (“CFC”) to disregarded entities for U.S. income tax purposes. As a result, the Company no longer has undistributed earnings in connection with these CFCs. The Transition Tax resulted in previously taxed income (“PTI”) which may be subject to withholding taxes and currency gains or losses upon repatriation. The Company periodically evaluates opportunities to repatriate PTI held by its foreign subsidiaries to fund its operations in the United States and other geographies, and as and when it decides to repatriate such PTI, it may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions. The Company has adopted an accounting policy to treat Global Intangible Low-Taxed Income (“GILTI”) as a period cost.
During the year ended December 31, 2021, the Company repatriated to the United States $66,000 (net of $3,494 withholding taxes) from India and $42,500 (net of $7,494 withholding taxes) from the Philippines. As of December 31, 2021, the Company’s deferred tax assets includes $10,988 of withholding taxes associated with these distributions. These distributions do not constitute a change in the Company’s permanent reinvestment assertion. The Company bases its decision to continue to indefinitely reinvest earnings in India and the Philippines on its estimate of the working capital required to support its operations in these geographies and periodically reviews its capital initiatives to support and expand the Company’s global operations, as well as whether there exists an economically viable rate of return on its investments made in India and the Philippines as compared to those made in the United States.
The Company has benefitted from a corporate tax holiday in the Philippines for our operations centers established there over the last several years. The tax holiday expired for few of the Company’s operations centers in the last few years and will expire for other operations centers by year 2022, which may lead to an increase in the Company’s overall tax rate. Following the expiry of the tax exemption, income generated from operations centers in the Philippines will be taxed at the prevailing annual tax rate, which is currently 5.0% on gross income.
The diluted earnings per share effect of the tax holiday is nil, $0.02 and $0.17 for the years ended December 31, 2021, 2020 and 2019, respectively.
The components of the deferred tax balances as of December 31, 2021 and 2020 are as follows:
 As of
 December 31, 2021December 31, 2020
Deferred tax assets:
Tax credit carryforward$16,236 $— 
Depreciation and amortization expense10,722 9,710 
Stock-based compensation10,760 9,383 
Accrued employee costs and other expenses13,264 12,208 
Net operating loss carryforwards2,057 2,042 
Unrealized exchange loss408 391 
Deferred rent4,454 4,782 
Others642 281 
$58,543 $38,797 
Valuation allowance(188)(188)
Deferred tax assets$58,355 $38,609 
Deferred tax liabilities:
Unrealized exchange gain$5,840 $2,668 
Intangible assets28,119 19,720 
Unamortized discount on convertible notes— 2,753 
Others3,957 6,566 
      Deferred tax liabilities$37,916 $31,707 
Net deferred tax assets$20,439 $6,902 
Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying values of assets and liabilities and their respective tax bases and operating loss carry forwards. As of December 31, 2021 and 2020, the Company performed an analysis of the deferred tax asset valuation allowance for its net operating loss carryforwards for its domestic and foreign entities. Based on this analysis, the Company continues to carry a valuation allowance of $188 on the deferred tax assets on certain net operating loss carryforwards, as of December 31, 2021 and 2020.
The Company’s income tax expense also includes the impact of provisions established for uncertain income tax positions determined in accordance with ASC 740. Tax exposures can involve complex issues and may require an extended resolution period. Although the Company believes that it has adequately reserved for its uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters differs from the amounts recorded, such differences will impact the income tax expense in the period in which such determination is made.
The following table summarizes the activity related to the unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019.
202120202019
Balance as of January 1$907 $1,047 $804 
Decreases/(increases) related to prior year tax positions(12)— 69 
Decreases related to prior year tax positions— (324)(156)
Increases related to current year tax positions173 184 330 
Balance as of December 31$1,068 $907 $1,047 
The unrecognized tax benefits as of December 31, 2021 of $1,068, if recognized, would impact the effective tax rate.
As of December 31, 2021 and 2020, the Company has not accrued interest and penalties relating to unrecognized tax benefits.