14. Income Taxes

Consolidated income before provision for income taxes consists of the following for the years ended December 31, 2012, 2013 and 2014 (U.S. dollars in thousands):

	2012		2013		2014

U.S.	$	259,309	$	307,994	$	184,476
Foreign		85,933		248,946		114,031
Total	$	345,242	$	556,940	$	298,507

The provision for current and deferred taxes for the years ended December 31, 2012, 2013 and 2014 consists of the following (U.S. dollars in thousands):

	2012			2013			2014
Current
Federal	$	70,727		$	81,871		$	37,402
State		2,425			361			2,095
Foreign		45,851			148,310			48,904
		119,003			230,542			88,401
Deferred
Federal		12,918			(2,831	)		(380	)
State		656			551			444
Foreign		(8,980	)		(36,210	)		20,866
		4,594			(38,490	)		20,930
Provision for income taxes	$	123,597		$	192,052		$	109,331

The Company's foreign taxes paid are high relative to foreign operating income and the Company's U.S. taxes paid are low relative to U.S. operating income due largely to the flow of funds among the Company's Subsidiaries around the world. As payments for services, management fees, license arrangements and royalties are made from the Company's foreign affiliates to its U.S. corporate headquarters, these payments often incur withholding and other forms of tax that are generally creditable for U.S. tax purposes. Therefore, these payments lead to increased foreign effective tax rates and lower U.S. effective tax rates. Variations occur in the Company's foreign and U.S. effective tax rates from year to year depending on several factors. These factors include the impact of global transfer prices, the timing and level of remittances from foreign affiliates, profits and losses in various markets, the valuation of deferred tax assets or liabilities, or changes in tax laws, regulations, accounting principles, or interpretations thereof.

The principal components of deferred taxes are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2013			2014
Deferred tax assets:
Inventory differences	$	2,927		$	12,362
Foreign tax credit and other foreign benefits		120,534			116,603
Stock-based compensation		18,132			17,211
Accrued expenses not deductible until paid		88,465			48,189
Foreign currency exchange		13,734			10,774
Net operating losses		10,808			17,530
Capitalized research and development		6,202			3,362
Exchange gains and losses		-			41,542
Other		739			841
Gross deferred tax assets		261,541			268,414
Deferred tax liabilities:
Exchange gains and losses		9,924			-
Intangibles step-up		16,375			15,106
Overhead allocation to inventory		2,523			10,781
Amortization of intangibles		17,360			18,374
Foreign outside basis in controlled foreign corporation		76,470			100,016
Other		63,409			48,187
Gross deferred tax liabilities		186,061			192,464
Valuation allowance		(10,803	)		(35,999	)
Deferred taxes, net	$	64,677		$	39,951

At December 31, 2014, the Company had foreign operating loss carryforwards of $74.2 million for tax purposes, which will be available to offset future taxable income. If not used, $49.6 million of carryforwards will expire between 2015 and 2024, while $24.6 million do not expire. A valuation allowance has been placed on foreign operating loss carryforwards of $31.0 million.

The valuation allowance primarily represents amounts for foreign operating loss carryforwards and unrealized foreign exchange losses for which it is more likely than not some portion or all of the deferred tax asset will not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies and recent financial operations. When the Company determines that there is sufficient taxable income to utilize the net operating losses, the valuation will be released which would reduce the provision for income taxes.

The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2013		2014

Net current deferred tax assets	$	73,456	$	40,840
Net noncurrent deferred tax assets		5,174		15,128
Total net deferred tax assets		78,630		55,968

Net current deferred tax liabilities		1		-
Net noncurrent deferred tax liabilities		13,952		16,017
Total net deferred tax liabilities		13,953		16,017
Deferred taxes, net	$	64,677	$	39,951

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax liabilities.

The actual tax rate for the years ended December 31, 2012, 2013 and 2014 compared to the statutory U.S. Federal tax rate is as follows:

	Year Ended December 31,
	2012			2013			2014

Income taxes at statutory rate		35.00	%		35.00	%		35.00	%
Indefinitely invested earnings of non-U.S. subsidiaries		–			(0.76	)		–
Non-deductible expenses		0.12			0.12			0.12
Controlled foreign corporation losses		–			–			1.48
Other		0.68			0.12			0.03
		35.80	%		34.48	%		36.63	%

The lower effective tax rate in 2013 compared to 2012 and 2014 was primarily attributable to indefinitely invested earnings of non-U.S. Subsidiaries. The effective tax rate in 2014 was also impacted by the foreign currency charge relating to Venezuela, for which a valuation allowance was recognized, offset by the re-measurement of Venezuela's books due to the highly inflationary accounting treatment under U.S. GAAP.

The cumulative amount of undistributed earnings of the Company's non-U.S. Subsidiaries held for indefinite reinvestment is approximately $50.0 million at December 31, 2013 and 2014. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $5.3 million.