INCOME TAXES

9 Months Ended

Sep. 30, 2012

INCOME TAXES [Abstract]

INCOME TAXES

(8)       INCOME TAXES

The Company accounts for income taxes in accordance with the accounting literature forincome taxes, which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the Consolidated Financial Statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. Quarterly, the Company assesses the likelihood that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized.

On February 20, 2011, the Company received notice of an adverse decision by the Canadian Revenue Agency (“CRA”) in regards to the Company's attempt to recover taxes paid to Canada with respect to the years 2001 and 2002. In 2005, through the Competent Authority process, the Company sought relief under the United States-Canada Income Tax Convention for avoidance of double taxation arising from adjustments to the taxable income originally reported to these jurisdictions. Consistent with accounting for tax positions that no longer meet the recognition criteria, the Company derecognized income tax positions totaling $8.6 million through income tax expense in the first quarter of 2011. The Company continues to believe in the merits of the claim for which it sought relief from double taxation through the Competent Authority process. In response to the February 2011 notice, the Company has filed for Judicial Review in the Federal Court of Canada seeking a writ of mandamus to compel the CRA to accept the Company's application for Competent Authority consideration.

On July 31, 2012 the Company entered into a unilateral Advance Pricing Agreement (“APA”) with the Australian Tax Office (“ATO”) that covers the intercompany transfer price TeleTech Australia will pay affiliates operating in other tax jurisdictions for subcontracted services. The agreement will preclude the ATO from making a transfer pricing adjustment to transactions within the scope of this agreement. This agreement is effective for five years beginning January 1, 2011. During the period January 1, 2011 through June 30, 2012,TeleTech Australia recorded payments for services performed by affiliates outside Australia according to intercompany service agreements in effect at the time and subsequently measured the tax benefit related to these tax positions in accordance with accounting for income tax contingencies. As a result of this APA, the Company recognized a benefit of $3.0 million of which $2.0 million had been previously recorded as a contingency for the uncertain tax position. In addition, on September 28, 2012, the Company filed an amended 2010 income tax return in Australia to increase the payment for intercompany services due to the Philippines resulting in an additional tax refund and income tax benefit of $4.6 million. Although not specifically covered by the APA the 2010 adjustment to the income of TeleTech Australia was essentially “pre-agreed” through meetings with the Australian Tax Office making the likelihood of realizing this tax position “highly certain”. Finally, the Company is in the later stages of negotiating a unilateral APA with the New Zealand Inland Revenue office covering similar transactions and time periods. Although there can be no guarantee that such negotiations will result in an agreement, should such an agreement be signed, the Company would recognize an additional $0.6 million in tax benefit in the period the agreement is signed. This will likely occur in the fourth quarter.

As of September 30, 2012, the Company had $62.8 million of gross deferred tax assets.After a $12.4 million valuation allowance and deferred tax liabilities of $5.2 million, the Company has $45.2 million of net deferred tax assets related to the U.S. and international tax jurisdictions whose recoverability is dependent upon future profitability.

The effective tax rate for the three and nine months ended September 30, 2012 was (13.8)% and (6.1)%, respectively. The effective tax rate during these periods was influenced by the distribution of earnings in international jurisdictions currently under an income tax holiday, the $2.6 million and $23.7 million in restructuring and impairment expenses and their related income tax benefit, the benefit related to Australia transfer pricing and the release of an uncertain tax position.The effective tax rate for the three and nine months ended September 30, 2011 was (1.9)% and 13.4%, respectively. The effective tax rate during these periods was influenced by the expense related to the adverse decision by the Canada Revenue Agency regarding the Company's request for relief from double taxation and benefited from the mediated settlement with the IRS related to U.S. tax refund claims, an estimate to the benefit related to transfer pricing terms between Australia and the Philippines, earnings in international jurisdictions currently under an income tax holiday, and the distribution of income between the U.S. and international tax jurisdictions.

During the third quarter of 2012, the 2008 Philippines audit is considered effectively settled resulting in release of the income tax contingency with no additional taxes assessed to the Company.