Note 6. Income Taxes

For the years ended December 31, 2015, 2014 and 2013, Income before provision for income taxes, includes the following components (amounts in thousands):

	2015		2014		2013
Domestic income	$	9,663	$	6,764	$	(1,301	)
Foreign income		13,118		6,222		134

	$	22,781	$	12,986	$	(1,167	)

For the years ended December 31, 2015, 2014 and 2013, income tax expense is composed of the following (amounts in thousands):

	2015			2014			2013
Current income tax expense	$	11,880		$	4,693		$	2,101
Deferred income tax (benefit) expense		(2,838	)		(2,264	)		1,029

	$	9,042		$	2,429		$	3,130

Current tax expense for the years ended December 31, 2015, 2014 and 2013 includes $1.5 million, $1.1 million and $0.6 million of foreign withholding tax, respectively.

For the years ended December 31, 2015, 2014 and 2013 the Company's income tax expense and effective tax rates were as follows:

	2015			2014			2013
Pre-tax book income—US Only		35.0	%		35.0	%		34.0	%
Pre-tax book income—PR Only		20.2	%		16.9	%		–3.9	%
Permanent items		4.0	%		3.2	%		–164.6	%
Return to provision true-ups—Current/Deferred		–1.4	%		–3.8	%		27.9	%
Foreign rate differential		2.2	%		3.4	%		–7.4	%
Foreign tax credits		–24.5	%		–31.1	%		90.2	%
Current/Deferred—rate difference		0.0	%		0.0	%		0.9	%
Change in valuation allowance		0.0	%		–19.6	%		–212.6	%
Foreign withholding taxes		6.7	%		8.9	%		0.0	%
Deferred foreign tax credit offset		–2.2	%		4.0	%		–20.4	%
State taxes and state rate change		–0.3	%		1.9	%		146.9	%
Federal rate change		0.0	%		0.0	%		–152.8	%

		39.7	%		18.8	%		–261.8	%

For the year ended December 31, 2015, the items that significantly affect the differences between the tax provision calculated at the statutory federal income tax rate and the actual tax benefit recorded relate to increases in taxes in Puerto Rico and foreign withholding taxes that will generate offsetting U.S. foreign tax credits.

For the year ended December 31, 2014, the items that significantly affect the differences between the tax provision calculated at the statutory federal income tax rate and the actual tax benefit recorded relate to increases in taxes in Puerto Rico that will generate offsetting U.S. foreign tax credits and the reduction of the valuation allowance.

For the year ended December 31, 2013, the items that significantly affect the differences between the tax provision calculated at the statutory federal income tax rate and the actual tax benefit recorded relate to permanent differences related to non-deductible expenses in conjunction with the Transaction, increases in taxes in Puerto Rico that will not generate offsetting U.S. foreign tax credits and the change in the valuation allowance.

The Company may be audited by federal, state and local tax authorities, and from time to time these audits could result in proposed assessments. The Company has open tax years from 2012 forward for federal and state tax purposes. During 2015, the Company received a notice that the Hemisphere Media Group, Inc., 2013 tax return was selected for examination by the IRS. As of the date of filing, the examination has not commenced.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities calculated for financial reporting purposes and the amounts calculated for preparing its income tax returns in accordance with tax regulations and the net tax effects of operating loss and tax credits carried forward. Net deferred tax liabilities consist of the following components as of December 31, 2015 and 2014 (amounts in thousands):

	2015			2014
Deferred tax assets:
Allowances for doubtful accounts	$	1,976		$	1,091
Deferred branch tax benefit		15,813			16,592
Deferred income		29			31
Fixed assets		39			—
Accrued expenses		1,440			3,299
Foreign tax credit		5,572			2,592
Stock compensation		3,465			2,918
Pension		651			1,041
Intangibles		2,376			2,651

		31,361			30,215

Deferred tax liabilities:
Prepaid expenses		(196	)		(200	)
Intangibles		(23,000	)		(25,807	)
Property and equipment		(3,098	)		(4,032	)
Amortization expense		(9,715	)		(7,624	)

Total deferred tax liabilities		(36,009	)		(37,663	)

	$	(4,648	)	$	(7,448	)

The deferred tax amounts mentioned above have been classified on the accompanying consolidated balance sheets at December 31, 2015 and 2014 as follows (amounts in thousands):

	2015		2014
Current assets	$	—	$	4,222


Non-current assets	$	13,280	$	—


Non-current liabilities	$	17,928	$	11,670

In the fourth quarter of 2015, we prospectively adopted ASU-2015-17—Income taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. To provide greater clarity in the presentation and timing of utilization of both deferred tax assets and liabilities, we have elect to early adopt this ASU by tax jurisdiction. If we had adopted this ASU retrospectively, current deferred tax assets would have been reclassified to $9.8 million of non-current deferred tax assets and $17.3 million of non-current deferred tax liabilities.

At December 31, 2015 and 2014, the Company has foreign tax credit carryforwards for U.S. federal purposes and foreign minimum credits totaling $5.6 million and $ 2.6 million, respectively, which expire during the years 2021 through 2025.

Upon audit, taxing authorities may prohibit the realization of all or part of an uncertain tax position. While the Company has no history of tax audits, the Company regularly assesses the outcome of potential examinations in each of the tax jurisdictions when determining the adequacy of the amount of unrecognized tax benefit recorded. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. As of December 31, 2015, the Company has uncertain tax position reserves of $0.3 million and recorded related interest expense of $0.0 million. During 2014, the Company identified an uncertain tax position and recorded a liability of $0.7 million with an offsetting deferred tax asset. The company accrued no interest related to this item.