Provision for Income Taxes

3 Months Ended

Mar. 31, 2017

Provision for Income Taxes

Provision for Income Taxes

10.Provision for Income Taxes

The Company accounts for income taxes using the asset and liability approach by recognizing deferred tax assets and liabilities for the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. In addition, the Company accounts for uncertain tax positions that have reached a minimum recognition threshold.

The income tax provision for the three months ended March 31, 2017 and 2016 was $9.9 million and $4.8 million, respectively, representing effective tax rates of 31.3% and 16.9%, respectively.  The increase in the Company’s effective tax rate for the three months ended March 31, 2017, compared to the same period in 2016, was primarily caused by the recognition of previously uncertain tax benefits due to the closure of certain tax audits and the release of valuation allowances in the first quarter of 2016.  The Company’s effective tax rate may change over time as the amount or mix of income and taxes changes among the jurisdictions in which the Company is subject to tax.

As of March 31, 2017 and December 31, 2016, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $5.9 million and $6.2 million, respectively, of which $5.0 million and $5.3 million, if recognized, would result in a reduction of the Company’s effective tax rate. The Company recognizes penalties and interest related to unrecognized tax benefits in the provision for income taxes. As of March 31, 2017 and December 31, 2016, approximately $0.5 million of accrued interest and penalties related to uncertain tax positions was included in each period in other long-term liabilities on the unaudited condensed consolidated balance sheets. Penalties and interest related to unrecognized tax benefits of $0.1 million were recorded in the provision for income taxes during the three months ended March 31, 2016. No corresponding amount was recorded in the three month period ended March 31, 2017.

The Company files tax returns in the United States which include federal, state and local jurisdictions and many foreign jurisdictions with varying statutes of limitations. The Company considers Germany, the United States and Switzerland to be its significant tax jurisdictions. The tax years 2013 to 2016 are open tax years in the significant foreign jurisdictions. In 2016, the Company settled tax audits in Germany and Switzerland. The settlement was immaterial to the consolidated financial statements. Tax years 2011 to 2016 remain open for examination in the United States.

The Company asserts that its foreign earnings, with the exception of its foreign earnings that have been previously taxed by the U.S., are indefinitely reinvested. The Company regularly evaluates its assertion that its foreign earnings are indefinitely reinvested. If the cash, cash equivalents and short-term investments held by the Company’s foreign subsidiaries are needed to fund operations in the United States or the Company otherwise elects to repatriate the unremitted earnings of its foreign subsidiaries in the form of dividends or otherwise, or if the shares of the subsidiaries were sold or transferred, the Company would likely be subject to additional U.S. income taxes, net of the impact of any available tax credits, which could result in a higher effective tax rate in the future.