Income Taxes

Income before income taxes consisted of:



	Year Ended December 31, 2014		Year Ended December 31, 2013		Year Ended December 31, 2012
	(In thousands)
Domestic	$	8,807	$	5,497	$	6,604
Foreign	68,645		64,655		71,425
Total	$	77,452	$	70,152	$	78,029

The income tax provision consisted of:



	Year Ended December 31, 2014			Year Ended December 31, 2013			Year Ended December 31, 2012
	(In thousands)
Current:
Federal	$	1,335		$	266		$	342
State	270			167			320
Foreign	4,847			4,532			3,660
	6,452			4,965			4,322
Deferred:
Federal	1,118			(632		)	2,382
State	43			(351		)	31
Foreign	(263		)	(760		)	(1,557		)
	898			(1,743		)	856

Provision for income taxes from ongoing operations at effective tax rate	$	7,350		$	3,222		$	5,178
Discrete Items:
Certain discrete tax impacts from foreign subsidiaries	(1,677		)	839			837
NOL carryforward adjustment	(810		)	—			—
IRS Settlement - net of ASC 740 (formerly "FIN 48") reserve reversals	480			—			—
2013 income tax return amendment	1,891			—			—
Additional reserves for uncertain tax positions (ASC 740, formerly "FIN 48")	9,798			6,817			2,745
Reconciliation of the tax payable liability accounts for our various subsidiaries to the income tax returns filed or to be filed in those jurisdictions	(3,138		)	—			(1,300		)
Provision for income taxes from discrete items	6,544			7,656			2,282

Total provision for income taxes	$	13,894		$	10,878		$	7,460

The income tax provision at the Federal statutory rate differs from the effective rate because of the following items:



	Year Ended December 31, 2014		Year Ended December 31, 2013		Year Ended December 31, 2012
Statutory tax rate	35.0	%	35.0	%	35.0	%
Tax impact of foreign subsidiaries (primarily in Singapore)	(4.0	)%	(6.9	)%	(8.1	)%
State income taxes, net of federal benefit	0.3	%	(0.3	)%	0.4	%
Tax holiday - India (Permanent Difference)	(12.7	)%	(15.2	)%	(15.6	)%
Passive income exemption - Sweden (permanent difference)	(3.2	)%	(3.5	)%	(3.1	)%
Acquisition contingent earnout liability adjustments	(4.6	)%	(5.0	)%	(0.4	)%
Singapore enhanced R&D deductions	(1.1	)%	(1.2	)%	(1.3	)%
Other	(0.2	)%	1.7	%	(0.2	)%
Effective tax rate from ongoing operations	9.5	%	4.6	%	6.7	%
Discrete Items:
Certain discrete tax impacts from foreign subsidiaries	(2.2	)%	1.2	%	1.1	%
NOL carryforward adjustment	(1.0	)%	—	%	—	%
IRS Settlement - net of ASC 740 (formerly "FIN 48") reserve reversals	0.6	%	—	%	—	%
2013 income tax return amendment	2.4	%	—	%	—	%
Net ASC 740 (formerly "FIN 48") reserve additions for uncertain tax positions	12.7	%	9.7	%	3.5	%
Reconciliation of the tax payable liability accounts for our various subsidiaries to the income tax returns filed in those jurisdictions	(4.1	)%	—	%	(1.7	)%
Effective tax rate after discrete items	17.9	%	15.5	%	9.6	%

Current deferred income tax assets and liabilities and long-term deferred tax assets and liabilities are presented on a net basis separately in the December 31, 2014 and 2013 accompanying Consolidated Balance Sheets. The individual balances in current and long-term deferred tax assets and liabilities are as follows:



	2014			2013
	(In thousands)
Current deferred income tax assets	$	2,310		$	961
Long-term deferred income tax assets	43,235			44,924
Total deferred income tax assets	45,545			45,885
Current deferred income tax liabilities	(197		)	(705		)
Long-term deferred income tax liabilities	(23,342		)	(24,308		)
Net deferred income tax asset	$	22,006		$	20,872

Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by the applicable local jurisdiction tax laws. Temporary differences and carry forwards which comprise the deferred tax assets and liabilities as of December 31, 2014 and 2013 were as follows:



	December 31, 2014				December 31, 2013
	Deferred				Deferred
	Assets		Liabilities		Assets		Liabilities
	(In thousands)
Depreciation and amortization	$	254	$	—	$	580	$	—
Share-based compensation	817		—		781		—
Accruals and prepaids	2,342		470		3,415		788
Bad debts	600		—		394		—
Acquired intangible assets	—		23,069		—		24,225
Net operating loss carryforwards	16,595		—		19,698		—
Tax credit carryforwards (primarily MAT in India)	24,937		—		21,017		—
	45,545		23,539		45,885		25,013
Valuation allowance	—		—		—		—
Total deferred taxes	$	45,545	$	23,539	$	45,885	$	25,013

For the year ending December 31, 2014, the Company's total recognized income tax expense of $13.9 million includes the effects of several discrete items. Specifically, these discrete items were primarily the adverse net effects of the settlement of the IRS audit for the years 2008 thru 2012 amounting to $0.5 million, the amendment and refiling of the Company U.S. federal income tax return for the year 2013 which amounted to $1.9 million, and additional ASC 740 (formerly "FIN 48") provisioning for uncertain income tax return positions amounting to $9.8 million, partially offset by a benefit of $3.1 million from reconciling the tax payable liability accounts for our various subsidiaries to the income tax returns filed in those jurisdictions, and additional deductible interest expense in Singapore providing a tax benefit of $1.7 million. Thusly, the tax expense excluding such discrete items was $7.4 million, reflecting an effective tax rate of 9.5%.

As of December 31, 2014, the Company has remaining available domestic net operating loss (“NOL”) carry-forwards of $42.0 million (net of $5.7 million utilized to offset domestic taxable income for 2014), which are available to offset future federal and certain state income taxes. The Company reviews its NOL positions to validate that all NOL carry-forwards will be utilized before they begin to expire. Portions of these remaining NOL's will expire during the years 2020 through 2027.

The Company's consolidated worldwide effective tax rate is relatively low because of the effect of conducting significant operating activities in certain foreign jurisdictions with low tax rates and where a large portion of its taxable income is generated. Furthermore, the Company's worldwide product development operations and intellectual property ownership is centralized in its India and Singapore subsidiaries, respectively. Our operations in India benefit from a tax holiday, which affect our various operating facilities in that country. The tax holiday expired for one of our facilities in April of 2014, and will expire for our other facilities in the years 2015 through 2018. As such a significant component of the income generated by our India operations, other than passive interest income, is not taxed. After the expiration of the full tax holiday all of the income generated by our India operations will be taxed at 50% of the normal 33.99% corporate tax rate for a period of five years. This tax holiday had the effect of reducing tax expense by approximately $9.9 million or approximately $0.17 per diluted share in 2014 with $3.82 million of Minimum Alternative Tax ("MAT") tax prepaid/accrued against 2014 income during the year ended December 31, 2014, for future taxes to be paid in India.

The Company also has a relatively low income tax rate in Singapore in which our operations are taxed at a 10% marginal tax rate as a result of concessions granted by the local Singapore Economic Development Board ("EDB") for the benefit of in-country intellectual property owners. The concessionary 10% income tax rate will expire during 2015, at which time our Singapore operations will be subject to the prevailing corporate tax rate in Singapore, which is currently 17%, unless the Company reaches a subsequent agreement to extend the incentive period and the then applicable concessionary rate. The concessionary tax rate granted by the EDB as compared to the statutory tax in effect in Singapore reduces income tax expense by approximately $2.5 million or approximately $0.07 per diluted share in 2014.

The pre-tax income from the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending December 31, 2014 were as follows:



(dollar amounts in thousands)	United States			Canada			Latin America			Australia			Singapore			New Zealand			India			Mauritius			Europe(United Kingdom)			Sweden			Total
Pre-tax income	$	8,807		$	115		$	1,590		$	5,091		$	16,015		$	1,000		$	28,194		$	(370	)	$	9,940		$	7,070		$	77,452
Statutory tax rate	35.0		%	30.5		%	34.0		%	30.0		%	10.0		%	28.0		%	—		%	—		%	24.0		%	—		%

The income from the Company's operations in India is subject to MAT at a 20.97% rate. The tax paid under the MAT provisions is carried forward for a period of up to ten years following the end of the year in which the MAT tax has been paid as a set off against future tax liabilities computed under the regular corporate income tax provisions using the statutory 33.99% corporate income tax rate. During the year ended December 31, 2014, the Company paid/accrued $3.82 million in MAT tax. The accompanying Consolidated Balance Sheets as of December 31, 2014 and 2013 includes a long-term deferred tax asset in the amount of $22.46 million and $18.64 million , respectively, associated with cumulative future MAT tax credit entitlement.

The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. Hypothetically if those earnings were to be not considered indefinitely invested, approximately $71.9 million of deferred U.S. income taxes would had to have been provided as of December 31, 2014.

On January 6, 2015, Ebix reached a resolution with the Internal Revenue Service with respect to the previously disclosed audit of Ebix’s income tax returns for the taxable years 2008 through 2012. The original audit was extended to 2012, which is now part of that resolution dated December 30, 2014. The assessment resulted in a cash payment of $20.5 million, including interest of $1.6 million, and a ($1.5) million impact on net income for the fourth quarter of 2014 after taking into account the company’s previously established and disclosed provisions for uncertain tax positions. This resolution includes all issues for the taxable years 2008 through 2012.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With the exception of NOL carryforwards, the Company is no longer subject to U.S. federal or state tax examinations by tax authorities for years before 2013. Regarding our foreign operations as of December 31, 2014, the tax years that remain open and possibly subject to examination by the tax authorities in those jurisdictions are Australia (2008 to 2013), Singapore and Brazil (2008 to 2013), New Zealand (2010 to 2013), and India (2009 to 2013).

The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. Accordingly liabilities are recognized for a tax position, where based solely on its technical merits, it is believed to be more likely than not fully sustainable upon examination. This liability is included in other long-term liabilities in the accompanying consolidated balance sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	December 31, 2014			December 31, 2013		December 31, 2012
	(in thousands)
Beginning Balance	$	12,742		$	5,925	$	3,180
Additions for tax positions related to current year	451			6,546		2,482
Additions for tax positions of prior years	9,348			271		263
Reductions for tax position of prior years	(19,521		)	—		—
Ending Balance	$	3,020		$	12,742	$	5,925

In the above table the $19.5 million of reductions to the Company reserves for uncertain tax positions primarily pertains to applicable reserves that were released and applied to the accounting for the settlement of the U.S. Internal Revenue Service's audit of the Company 2008 through 2012 income tax returns, and has been reclassified to income taxes payable within the accounts payable and accrued liability line as of December 31, 2014 in the accompanying Consolidated Balance sheet. The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. Interest assessed upon settlement of a tax return audit is classified as interest expense. As of December 31, 2014 approximately $680 thousand of estimated interest and penalties, which is part of the $3.02 million ending balance in the preceding table, is included in other long-term liabilities in the accompanying Consolidated Balance Sheet.

The Company has applied the new provisions under FAS update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists. Under these provisions, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward in most cases. This provision has been applied and $1.1 million and $8.4 million of unrecognized tax benefits have been applied against NOL carryforward amounts as of December 31, 2014 and 2013, respectively.