10. INCOME TAXES

Income before provision for income taxes shown below was based on the geographic location to which such income was attributed as follows:

	Year Ended December 31,
	2013		2012		2011
Income before income tax expense:
Domestic	$	7,001	$	9,291	$	2,872
Foreign		69,769		56,572		49,920
Total	$	76,770		65,863	$	52,792

	Year Ended December 31,
	2013			2012			2011
Income tax expense/ (benefit) consists of:
Current
Federal	$	6,150		$	6,881		$	4,878
State		310			319			389
Foreign		8,275			7,969			2,483
Deferred
Federal		(668	)		(625	)		(1,629	)
State		14			24			(72	)
Foreign		695			(3,189	)		2,390
Total	$	14,776		$	11,379		$	8,439

Deferred tax assets and liabilities are provided for the effects of temporary differences between the tax basis of an asset and liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.

The components of the Company’s deferred tax assets and liabilities were as follows:

	December 31, 2013		December 31, 2012
Deferred tax assets:
Fixed assets	$	732	$	703
Intangible assets		4,532		4,737
Accrued expenses		3,488		4,042
Deferred revenue		2,050		1,583
Stock-based compensation		407		413
Valuation allowance		—		(489	)
Restricted stock options		1,336		1,616
Other assets		680		1,214
Deferred tax assets		13,225		13,819
Deferred tax liabilities:
Fixed assets		804		742
Accrued revenue and expenses		846		737
Deferred intercompany gain		405		405
Equity compensation		1,593		2,431
Other liabilities		254		—
Deferred tax liability		3,902		4,315
Net deferred tax asset	$	9,323	$	9,504

At December 31, 2013, the Company had current and non-current deferred tax assets of $5,392 and $4,557, respectively, and current and non-current tax liabilities of $275 and $351, respectively. At December 31, 2012, the Company had current and non-current deferred tax assets of $6,593 and $6,093, respectively and current and non-current tax liabilities of $491 and $2,691, respectively.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the amount of tax holiday the company can use in Hungary before the credit expires in that jurisdiction in 2015. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2013, no valuation allowance is required to record the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

At December 31, 2013, the Company had utilized all of its federal net operating losses. No provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. As of December 31, 2013, certain subsidiaries had approximately $249.6 million of undistributed earnings that we intend to permanently reinvest. A liability could arise if our intention to permanently reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.

The provision for income taxes differs from the amount of income tax determined by applying the applicable US statutory federal income tax rate to pretax income as follows:

	Year Ended December 31,
	2013			2012			2011
Statutory federal tax	$	26,102		$	22,393		$	18,482
Increase/ (decrease) in taxes resulting from:
State taxes, net of federal benefit		368			280			266
Provision adjustment for current year uncertain tax position		—			—			178
Effect of permanent differences		2,524			2,177			2,816
Stock-based compensation		1,948			1,165			—
Rate differential between U.S. and foreign		(17,279	)		(14,472	)		(13,297	)
Change in foreign tax rate		(59	)		148			(22	)
Change in valuation allowance		489			(489	)		—
Other		683			177			16
Income tax expense	$	14,776		$	11,379		$	8,439

The growth in the permanent differences in the year ended December 31, 2012 related to goodwill impairment loss and increases in non-deductible expenses incurred by foreign subsidiaries.

On September 22, 2005, the president of Belarus signed the decree “On the High-Technologies Park” (the “Decree”). The Decree is aimed at boosting the country’s high-technology sector. The Decree stipulates that member technology companies have a 100% exemption from Belarusian income tax of 18% effective July 1, 2006. The Decree is in effect for a period of 15 years from date of signing.

The Company’s subsidiary in Hungary benefits from a tax credit of 10% of annual qualified salaries, taken over a four-year period, for up to 70% of the total tax due for that period. The Company has been able to take the full 70% credit for 2008 - 2013. The Hungarian tax authorities repealed the tax credit beginning with 2012. Credits earned in years prior to 2012, will be allowed until fully utilized. The Company anticipates full utilization up to the 70% limit until 2014, with full phase out in 2015.

The aggregate dollar benefits derived from these tax holidays approximated $9.7 million, $8.5 million and $21.0 million for the years ended December 31, 2013, 2012 and 2011, respectively. The decrease in aggregate dollar benefits derived from these tax holidays in 2013, as compared to 2012, was primarily due to a decrease in statutory tax rate in Belarus. The benefit the tax holiday had on diluted net income per share approximated $0.20, $0.19 and $0.49 for the years ended December 31, 2013, 2012 and 2011, respectively.

The liability for unrecognized tax benefits is included in income tax liability within the consolidated balance sheets at December 31, 2013 and 2012. At December 31, 2013 and 2012, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state tax positions) was $1,271 and $1,271, respectively, (excluding penalties and interest of $189 and $125, respectively). Of this total, $1,328 and $1,354, respectively, (net of the federal benefit on state tax issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $189, $125 and $55 at December 31, 2013, 2012 and 2011, respectively.

The beginning to ending reconciliation of the gross unrecognized tax benefits were as follows:

	2013		2012		2011
Gross Balance at January 1	$	1,271	$	1,271	$	56
Increases in tax positions in current year		—		—		178
Increases in tax positions in prior year		—		—		1,093
Decreases due to settlement		—		—		(56	)
Balance at December 31	$	1,271	$	1,271	$	1,271

There were no tax positions for which it was reasonably possible that unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

The Company files income tax returns in the United States and in various states, local and foreign jurisdictions. The Company’s significant tax jurisdictions are the U.S. Federal, Pennsylvania, Canada, Russia, Denmark, Germany, Ukraine, the United Kingdom, Hungary, Switzerland and Kazakhstan. The tax years subsequent to 2009 remain open to examination by the Internal Revenue Service. Generally, the tax years subsequent to 2009 remain open to examination by various state and local taxing authorities and various foreign taxing authorities.