The components of the Company's (Benefit from) provision for income taxes are as follows (amounts in thousands):

				Year Ended December 31,
			2012		2011		2010
Current (benefit from) provision for
	Federal		$	(2,211)	$	(10,371)	$	9,612
	State			(1,013)		297		1,391
	Foreign			809		21,695		20,458
		Total current (benefit from) provision for		(2,415)		11,621		31,461
Deferred (benefit from) provision for
	Federal			1,215		(838)		(128)
	State			64		(44)		(17)
	Foreign			1,075		2,540		(2,885)
		Total deferred (benefit from) provision for		2,354		1,658		(3,030)
		Total (benefit from) provision for income taxes	$	(61)	$	13,279	$	28,431

The following reconciles the Company's effective tax rate to the federal statutory rate (amounts in thousands):

				Year Ended December 31,
			2012		2011		2010
Income tax per U.S. federal statutory rate (35%)			$	25,852	$	32,044	$	28,689
	State income taxes, net of federal deduction			(345)		875		2,079
	Change in valuation allowances			(315)		(79)		5,645
	Foreign income taxes at different rates than the U.S.			(24,507)		(18,136)		(12,499)
	Foreign withholding taxes			2,876		2,177		989
	Increase to current/deferred tax assets due to
		Implementation of tax planning strategies		-		-		(4,910)
	Losses in international markets without tax benefits			4,329		1,094		964
	Nondeductible compensation under Section 162(m)			1,451		2,408		1,002
	Liabilities for uncertain tax positions			(2,988)		1,875		(2,695)
	Permanent difference related to foreign exchange gains			(13)		(45)		(46)
	(Income) losses of foreign branch operations			(4,263)		70		2,340
	Non-taxable earnings of minority interest			(213)		390		(603)
	Foreign dividend less foreign tax credits			(2,935)		(5,294)		5,344
	Increase in deferred tax liability - branch losses in UK			(1,012)		18		2,586
	Decrease (increase) to deferred tax asset - change in tax rate			946		-		(588)
	IRS settlement on prior year refund claims			-		(11,700)		-
	Canada CRA tax decision			-		8,680		-
	State income tax credits and net operating losses			709		-		-
	Other			367		(1,098)		134
Income tax per effective tax rate			$	(61)	$	13,279	$	28,431

The Company's deferred income tax assets and liabilities are summarized as follows (amounts in thousands):

			Year Ended December 31,
			2012		2011
Deferred tax assets, gross
	Accrued workers compensation, deferred compensation
		and employee benefits	$	5,363	$	4,720
	Allowance for doubtful accounts, insurance and other accruals			5,787		6,017
	Depreciation and amortization			4,366		8,377
	Amortization of deferred rent liabilities			1,586		1,472
	Net operating losses			21,637		15,932
	Equity compensation			6,174		7,389
	Customer acquisition and deferred revenue accruals			13,542		10,252
	Federal and state tax credits, net			17,545		15,965
	Unrealized losses on derivatives			-		2,679
	Other			13,420		11,284
		Total deferred tax assets, gross		89,420		84,087
	Valuation allowances			(20,909)		(16,555)
		Total deferred tax assets, net		68,511		67,532
Deferred tax liabilities
	Long-term lease obligations			10		(23)
	Unrealized gains on derivatives			(7,464)		-
	Contract acquisition costs			(7,847)		(6,015)
	Future losses in UK			(3,559)		(4,571)
	Other			(3,423)		(5,349)
		Total deferred tax liabilities		(22,283)		(15,958)
		Net deferred tax assets	$	46,228	$	51,574

Quarterly, the Company assesses the likelihood by jurisdiction 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.

As of December 31, 2012 the Company had approximately $25.2 million of net deferred tax assets in the U.S. and $21.0 million of net deferred tax assets related to certain international locations whose recoverability is dependent upon their future profitability. As of December 31, 2012 the deferred tax valuation allowance was $20.9 million and related primarily to tax losses in foreign jurisdictions and U.S. federal and state tax credits which do not meet the “more-likely-than-not” standard under current accounting guidance. The utilization of these state tax credits are subject to numerous factors including various expiration dates, generation of future taxable income over extended periods of time and state income tax apportionment factors which are subject to change.

When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred. In 2012, the Company made adjustments to its deferred tax assets and corresponding valuation allowances. The net increase to the valuation allowance of $4.4 million was due to a $1.2 million decrease in certain state credits and NOLs that do not meet the “more-likely-than-not” standard, a $0.6 million increase in valuation allowance in PRG Turkey for deferred tax assets that do not meet the “more-likely-than-not” standard, a $4.5 million increase in valuation allowance in Spain for deferred tax assets that do not meet the “more-likely-than-not” standard, a $0.3 million increase in the valuation allowance related to certain federal tax credits, and a $0.2 million increase in the valuation allowance in certain other foreign jurisdictions.

Activity in the Company's valuation allowance accounts consists of the following (amounts in thousands):

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, during the third quarter of 2012 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. This refund was received during the fourth quarter of 2012. Finally, during the fourth quarter of 2012, the Company entered into a unilateral APA with the New Zealand Inland Revenue office covering similar transactions and time periods. As a result of this agreement, the Company recognized an additional $0.3 million in tax benefit.

As of December 31, 2012, after consideration of all tax loss and tax credit carry back opportunities, the Company had net tax loss carry forwards worldwide expiring as follows (amounts in thousands):

As of December 31, 2012, domestically, the Company had federal tax credit carry forwards in the amount of $5.4 million that if unused will expire in 2020, $4.5 million that if unused will expire in 2021 , and $2.0 million that if unused will expire in 2022. The Company also had state tax credit carry-forwards of $3.9 million that if unused will expire between 2013 and 2023.

As of December 31, 2012 the cumulative amount of foreign earnings considered permanently invested outside the U.S. was $307.1 million. Those earnings do not include earnings from certain subsidiaries which the Company intends to repatriate to the U.S. or are otherwise considered available for distribution to the U.S. Accordingly, no provision for U.S. federal or state income taxes or foreign withholding taxes has been provided on these undistributed earnings. If these earnings become taxable in the U.S, the Company would be subject to incremental tax expense, after any applicable foreign tax credit, and foreign withholding tax expense. It is not practicable to estimate the additional taxes that may become payable upon the eventual remittance of these foreign earnings.

The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of the Philippines and Costa Rica. Generally, a Tax Holiday is an agreement between the Company and a foreign government under which the Company receives certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities. In the Philippines, the Company has been granted 16 separate agreements with an initial period of four years and additional periods for varying years, expiring at various times between 2011 and 2017. The aggregate effect on income tax expense for the years ended December 31, 2012, 2011 and 2010 was approximately $20.1 million, $14.0 million and $7.6 million, respectively, which had a favorable impact on diluted net income per share of $0.36, $0.25 and $0.13, respectively.

In accordance with ASC 740, the Company has recorded a reserve for uncertain tax positions. The total amount of interest and penalties recognized in the accompanying Consolidated Statements of Comprehensive Income as of December 31, 2012, 2011 and December 31, 2010 was approximately $40 thousand, $0.1 million and $0.1 million, respectively, and the total amount of interest and penalties recognized in the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 was approximately $40 thousand and $0.6 million, respectively.

The Company had a reserve for uncertain tax benefits, on a net basis, of $0.4 million and $3.3 million for the years ended December 31, 2012 and 2011, respectively. The liability for uncertain tax positions was reduced by $2.9 million in 2012 for tax positions that were resolved favorably or expired.

The tabular reconciliation of the reserve for uncertain tax benefits on a gross basis for the year ended December 31, 2012 is presented below (amounts in thousands):

Balance as of December 31, 2009		$	22,032
	Additions for current year tax positions		28
	Reductions in prior year tax positions		(13,025)
Balance as of December 31, 2010			9,035
	Additions for current year tax positions		2,202
	Reductions in prior year tax positions		(8,502)
Balance as of December 31, 2011			2,735
	Additions for current year tax positions		369
	Reductions in prior year tax positions		(2,746)
Balance as of December 31, 2012		$	358

At December 31, 2012, the amount of uncertain tax benefits that, if recognized, would reduce tax expense was $0.4 million. Within the next 12 months, it is not expected that unrecognized tax benefits will change as the result of the expiration of various statutes of limitation.

The Company and its domestic and foreign subsidiaries (including Percepta LLC and its domestic and foreign subsidiaries) file income tax returns as required in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table presents the major tax jurisdictions and tax years that are open as of December 31, 2012 and subject to examination by the respective tax authorities:

The Company's U.S. income tax returns filed for the tax years ending December 31, 2009 to present, remain open tax years subject to IRS audit. The Company has been notified of the intent to audit, or is currently under audit of income taxes in Canada. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company's Consolidated Financial Statements.