Taxes

A reconciliation of the United States federal statutory corporate tax rate to the Company’s income tax expense on continuing operations, or effective tax rate, was as follows:



	Three-months Ended				Six-months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Income tax provision at federal statutory corporate tax rate	35	%	35	%	35	%	35	%
State income taxes, net of federal benefit	1	%	1	%	1	%	1	%
Foreign tax rate differential	(18	)%	(18	)%	(18	)%	(18	)%
Tax credit	(1	)%	(1	)%	(1	)%	(1	)%
Discrete tax benefit related to stock option exercises	(9	)%	(1	)%	(19	)%	(2	)%
Other	1	%	1	%	1	%	1	%
Income tax provision on continuing operations	9	%	17	%	(1	)%	16	%

The majority of income earned outside of the United States is permanently reinvested to provide funds for international expansion. The Company is tax resident in numerous jurisdictions around the world and has identified its major jurisdictions as the United States, Ireland, and China. The statutory tax rate is 12.5% in Ireland and 25% in China, compared to the U.S. federal statutory corporate tax rate of 35%. International rights to certain of the Company's intellectual property are held by a subsidiary whose legal jurisdiction does not tax this income, resulting in a foreign effective tax rate that is lower than the above mentioned statutory rates. These differences resulted in a decrease in the effective tax rate by 18 percentage points for the three-month and six-month periods ended July 2, 2017 and July 3, 2016.

The excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises resulted in a decrease of the effective tax rate by 9 and 1 percentage points for the three-month periods ended July 2, 2017 and July 3, 2016, respectively, and a decrease of the effective tax rate by 19 and 2 percentage points for the six-month periods ended July 2, 2017 and July 3, 2016, respectively.

During the six-month period ended July 2, 2017, the Company recorded a $702,000 increase in reserves for income taxes, net of deferred tax benefit. Estimated interest and penalties included in these amounts totaled $86,000 for the six-month period ended July 2, 2017.

The Company’s reserve for income taxes, including gross interest and penalties, was $7,150,000 as of July 2, 2017, which included $6,122,000 classified as a non-current liability and $1,028,000 recorded as a reduction to non-current deferred tax assets. The amount of gross interest and penalties included in these balances was $798,000. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $800,000 to $900,000 over the next twelve months.

The Company has defined its major tax jurisdictions as the United States, Ireland, and China, and within the United States, Massachusetts and California. Within the United States, the tax years 2013 through 2016 remain open to examination by the Internal Revenue Service and various state tax authorities. The tax years 2012 through 2016 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.