14.

INCOME TAXES

Lazard Ltd, through its subsidiaries, is subject to U.S. federal income taxes on all of its U.S. operating income, as well as on the portion of non-U.S. income attributable to its U.S. subsidiaries. Outside the U.S., Lazard Group operates principally through subsidiary corporations that are subject to local income taxes in foreign jurisdictions. Lazard Group is also subject to New York City Unincorporated Business Tax (“UBT”) attributable to its operations apportioned to New York City.

The Company recorded income tax provisions (benefits) of $(1,176,531) and $(1,164,514) for the three month and six month periods ended June 30, 2015, respectively, and $13,071 and $34,822 for the three month and six month periods ended June 30, 2014, respectively, representing effective tax rates of 146.8%, 160.2%, 13.2% and 16.9%, respectively. The difference between the U.S. federal statutory rate of 35.0% and the effective tax rates reflected above principally relates to (i) change in the valuation allowance affecting the provision for income taxes, (ii) recognition of a deferred tax asset associated with the recording of the tax receivable agreement obligation (see below), (iii) taxes payable to foreign jurisdictions that are not offset against U.S. income taxes, (iv) foreign source income (loss) not subject to U.S. income taxes (including interest on intercompany financings), and (v) U.S. state and local taxes (primarily UBT), which are incremental to the U.S. federal statutory tax rate.

Certain of our tax-paying entities at which we have historically recorded significant valuation allowances were profitable on a cumulative basis for the three year period ended June 30, 2015. In assessing our valuation allowance as of June 30, 2015, we considered all available information, including the magnitude of recent and current operating results, the relatively long duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these entities and our assessment regarding the sustainability of their profitability. We concluded that there is now a sufficient history of sustained profitability at these entities that it is more likely than not that these entities will be able to realize deferred tax assets. Accordingly, during the period ended June 30, 2015, we released substantially all of the valuation allowance against the deferred tax assets held by these entities, with the exception of the portion of the valuation allowance that we currently expect to utilize in the current year.

As a result, during the quarter ended June 30, 2015, we recorded a deferred tax benefit of approximately $821,000. In addition, we also recorded a separate deferred tax benefit of approximately $378,000 that reflects the tax deductibility of payments under the tax receivable agreement. See “—Tax Receivable Agreement” below for more information regarding our accrual under the tax receivable agreement.

Substantially all of Lazard’s operations outside the U.S. are conducted in “pass-through” entities for U.S. income tax purposes. The Company provides for U.S. income taxes on a current basis for those earnings. The repatriation of prior earnings attributable to “non-pass-through” entities would not result in the recognition of a material amount of additional U.S. income taxes.

Tax Receivable Agreement

In connection with our initial public offering and related transactions in May 2005, we entered into a tax receivable agreement with the predecessor of LMDC Holdings LLC (“LMDC Holdings”) on May 10, 2005 (the “Tax Receivable Agreement”). The agreement was based on the mutual recognition that the redemption of Lazard Group membership interests that were held by the historical partners of Lazard Group on May 10, 2005 for cash resulted in an increase in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group that otherwise would not have been available. The agreement also was based on the mutual recognition that the exchange from time to time by such historical partners of exchangeable interests in LAZ-MD Holdings LLC for shares of our Class A common stock could subsequently result in additional increases in such tax basis. Included in our deferred tax assets as of June 30, 2015 are approximately $1,177,000 of deferred tax assets which are subject to the Tax Receivable Agreement.

On June 16, 2015, Lazard and LMDC Holdings amended the Tax Receivable Agreement and entered into an Amended and Restated Tax Receivable Agreement (the “Amended and Restated Tax Receivable Agreement”). Pursuant to the Amended and Restated Tax Receivable Agreement, among other things, (i) LMDC Holdings assigned all of its obligations thereunder, including the obligation to receive payments and promptly distribute them to historical partners of Lazard Group, to LTBP Trust, a new Delaware statutory trust (the “Trust”), and the Trust assumed all of LMDC Holdings’ obligations thereunder, (ii) LMDC Holdings distributed the interests in the Trust to certain owners of LMDC Holdings, and (iii) holders of interests in the Trust obtained the ability, subject to certain restrictions and conditions, to transfer such interests to certain additional persons and entities, including Lazard.

Consistent with the original Tax Receivable Agreement, the Amended and Restated Tax Receivable Agreement provides for the payment by our subsidiaries to the Trust of a specified percentage (originally 85%, subject to downward adjustment in the event of any Lazard purchases of Trust interests) of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of the increases in tax basis and of certain other tax benefits related to the Amended and Restated Tax Receivable Agreement, including tax benefits attributable to payments under the Amended and Restated Tax Receivable Agreement. Our subsidiaries expect to benefit from the balance of cash savings, if any, in income tax that our subsidiaries realize. Any amount paid by our subsidiaries to the Trust will generally be distributed to the owners of the Trust, including our executive officers, in proportion to their beneficial interests in the Trust.

For purposes of the Amended and Restated Tax Receivable Agreement, cash savings in income and franchise tax will be computed by comparing our subsidiaries’ actual income and franchise tax liability to the amount of such taxes that our subsidiaries would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of Lazard Group attributable to our subsidiaries’ interest in Lazard Group as a result of the redemption and exchanges and had our subsidiaries not entered into the Amended and Restated Tax Receivable Agreement. The term of the Amended and Restated Tax Receivable Agreement will continue until approximately 2033 or, if earlier, until all relevant tax benefits have been utilized or expired.

As described above, during the period ended June 30, 2015, we released substantially all of our valuation allowance against deferred tax assets. As a result, we accrued a corresponding liability of $961,948 during the quarter ended June 30, 2015 for amounts relating to the Amended and Restated Tax Receivable Agreement. The cumulative liability recorded as of June 30, 2015 was $988,085.

The amount of the Amended and Restated Tax Receivable Agreement liability is an undiscounted amount based upon currently enacted tax laws, the current structure of the Company and various assumptions regarding potential future operating profitability. The assumptions reflected in the estimate involve significant judgment. As such, the actual amount and timing of payments under the Amended and Restated Tax Receivable Agreement could differ materially from our estimates. Any changes in the amount of the estimated liability would be recorded as a non-compensation expense in the consolidated statement of operations. Adjustments, if necessary, to the related deferred tax assets would be recorded through income tax expense.

Subsequent Event

In July 2015, we purchased approximately 46.9% of the then-outstanding beneficial interests in the Trust from certain owners of the Trust for $42,222 in cash, which resulted in the automatic cancellation of such beneficial interests and the extinguishment of the corresponding portion of our payment obligations under the Amended and Restated Tax Receivable Agreement. The Company expects that the extinguishment of the obligations described above, and the corresponding reduction of related deferred tax assets, will have the effect of increasing our net income by approximately $290,000 in the third quarter of 2015 and will be reflected in our condensed consolidated financial statements in the third quarter of 2015.