INCOME TAXES

12 Months Ended

Dec. 31, 2012

INCOME TAXES

INCOME TAXES

18.  INCOME TAXES

The income tax provision (benefit) consists of the following for the years ended December 31:

(in thousands)	2012			2011			2010
Current:
Domestic - Luxembourg	$	2,841		$	2,300		$	(1,031	)
Foreign - U.S. State	353			119			561
Foreign - Non U.S.	2,552			2,891			1,186
	$	5,746		$	5,310		$	716
Deferred:
Domestic - Luxembourg	$	388		$	(387	)	$	395
Foreign - U.S. Federal	2,419			3,216			(1,014		)
Foreign - U.S. State	(23		)	(22		)	(68		)
Foreign - Non U.S.	208			(174		)	(432		)
	2,992			2,633			(1,119		)
Total	$	8,738		$	7,943		$	(403	)

We received a favorable ruling in June 2010 regarding the treatment of certain intangibles that exist for purposes of determining the Company’s taxable income. The ruling was retroactive to the date of Separation from Ocwen and expires December 31, 2018.  As a result of the ruling, the Company recognized a $3.4 million credit attributable to 2009 in the second quarter of 2010. The impact of this is included above as a component of the current Luxembourg tax benefit. This ruling did not have a material impact on our deferred tax assets or liabilities. Income tax computed by applying the Luxembourg statutory income tax rate of 28.8% differs from income tax computed at the effective tax rate primarily because of the effect of the favorable tax ruling, differing tax rates in multiple jurisdictions, changes in valuation allowance and minority interest.

We operate under tax holidays in India, which are effective through 2020, and may be extended if certain additional requirements are satisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes by $1.4 million, $0.7 million, and $0.5 million in 2012, 2011, and 2010, respectively.

The Company accounts for certain income and expense items differently for financial purposes and income tax purposes. We recognize deferred income tax assets and liabilities for these differences between the financial reporting basis and the tax basis of our assets and liabilities as well as expected benefits of utilizing net operating loss and credit carryforwards.  We measure deferred income tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences.

A summary of the tax effects of the temporary differences is as follows for the years ended December 31:

(in thousands)	2012			2011
Current deferred tax assets:
Allowance for doubtful accounts and other reserves	$	40		$	72
Accrued expenses	1,940			1,294
Current deferred tax liabilities:
Prepaid expenses	(205		)	(233		)
Current deferred tax asset, net:	$	1,775		$	1,133
Non-current deferred tax assets:
Net operating loss carryforwards	$	14,342		$	13,207
Non-U.S. deferred tax asset	895			1,479
Share-based compensation	956			533
Other	7			31
Non-current deferred tax liabilities:
Intangible assets	(6,869		)	(8,014		)
Depreciation	(2,845		)	(654		)
	6,486			6,582
Valuation allowance	(2,413		)	(2,209		)
Non-current deferred tax asset, net	4,073			4,373
Net deferred tax asset	$	5,848		$	5,506

A valuation allowance is provided when it is deemed more-likely-than-not that some portion or all of a deferred tax asset will not be realized. In determining whether a valuation allowance is needed, we considered estimates of future taxable income, future reversals of temporary differences, the tax character of gains and losses, and the impact of tax planning strategies that can be implemented, if warranted. The increase in valuation allowance during 2012 relates to state and foreign losses generated in the current and prior years.

We have not provided Luxembourg deferred taxes on cumulative earnings of non-Luxembourg affiliates as these earnings have been indefinitely reinvested. The earnings relate to ongoing operations and at December 31, 2012, were $27.6 million.

As of December 31, 2012, the Company had a deferred tax asset of $14.3 million relating to United States Federal, state and foreign net operating losses. Of this amount, $1.5 million relating to state, and $0.9 million relating to Luxembourg net operating losses were subject to valuation allowances. The gross amount of net operating losses available for carryover to future years approximates $36.1 million.  Of this amount, $14.7 million relates to NCI for periods prior to our acquisition and is subject to Section 382 of the Internal Revenue Code (the “Code”) which limits their use to approximately $1.3 million per year. These losses are scheduled to expire between the years 2022 and 2029.

The Distribution of the Company during 2009 was intended to be a tax-free transaction under Section 355 of the Code. However, Ocwen recognized, and paid tax on, substantially all of the gain it has in the assets that comprise Altisource as a result of the restructuring. To the extent Ocwen does recognize tax under Section 355 of the Code, Altisource has agreed to indemnify Ocwen. In addition, we have agreed to indemnify Ocwen should the expected tax treatments not be upheld upon review or audit to the extent related to our operating results. The Company does not anticipate a material obligation under this indemnity.

The following table reconciles the income tax provision (benefit) to the Luxembourg statutory income tax rate for the years ended December 31:

	2012		2011		2010
Statutory tax rate	28.80	%	28.80	%	28.60	%
Foreign rate differential	(23.30	)	(20.03	)	(23.71	)
Tax adjustment for retroactive ruling	—		—		(6.13	)
Change in valuation allowance	0.16		—		0.44
State tax expense	0.17		0.06		0.26
Other	1.18		0.42		(0.18	)
	7.01	%	9.25	%	(0.72	)%

The Company follows ASC Topic 740 which clarifies the accounting and disclosure for uncertainty in tax positions. We analyzed our tax filing positions in all of the domestic and foreign tax jurisdictions where we are required to file income tax returns as well as for all open tax years in these jurisdictions. Based on this review, no reserves for uncertain income tax positions were required to have been recorded pursuant to ASC Topic 740.

We recognize accrued interest and penalties related to uncertain tax positions in selling, general and administrative expenses in the consolidated statements of operations. As of December 31, 2012 and 2011, we did not have a liability recorded for payment of interest and penalties associated with uncertain tax positions.