19. INCOME TAXES

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

(in thousands)	2013			2012			2011

Current:
Domestic - Luxembourg	$	2,516		$	2,841		$	2,300
Foreign - U.S. Federal	6			—			—
Foreign - U.S. State	403			353			119
Foreign - Non U.S.	3,600			2,552			2,891

	$	6,525		$	5,746		$	5,310
Deferred:
Domestic - Luxembourg	$	—		$	388		$	(387	)
Foreign - U.S. Federal	2,506			2,419			3,216
Foreign - U.S. State	84			(23		)	(22		)
Foreign - Non U.S.	(575		)	208			(174		)
	2,015			2,992			2,633

Total	$	8,540		$	8,738		$	7,943

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. This ruling does not have a material impact on our deferred tax assets or liabilities. Income tax computed by applying the Luxembourg statutory income tax rate of 29.22% 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 certain geographies in India and the Philippines. The India tax holidays are effective through 2020, and may be extended if certain additional requirements are satisfied. The Philippines tax holiday is effective through 2016, and may also be extended. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes by $0.2 million ($0.01 per diluted share), $1.5 million ($0.06 per diluted share), and $0.6 million ($0.02 per diluted share) for the years ended December 31, 2013, 2012 and 2011, respectively. The Philippines tax holiday commenced in 2013 and had no impact on taxes for the year ended December 31, 2013.

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)	2013			2012

Current deferred tax assets:
Allowance for doubtful accounts and other reserves	$	43		$	40
Accrued expenses	3,183			1,940
Current deferred tax liabilities:
Prepaid expenses	(389		)	(205		)

Current deferred tax assets, net	$	2,837		$	1,775

Non-current deferred tax assets:
Net operating loss carryforwards	$	12,439		$	14,342
Non-U.S. deferred tax assets	1,471			895
Share-based compensation	784			956
Other	7			7
Non-current deferred tax liabilities:
Intangible assets	(6,035		)	(6,869		)
Depreciation	(4,855		)	(2,845		)
	3,811			6,486
Valuation allowance	(3,189		)	(2,413		)

Non-current deferred tax assets, net	$	622		$	4,073

Net deferred tax assets	$	3,459		$	5,848

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 of $0.8 million during 2013 relates to state and foreign losses generated in the current year.

We have not provided Luxembourg deferred taxes on cumulative earnings of non-Luxembourg affiliates as we have chosen to indefinitely reinvest these earnings. The earnings reinvested as of December 31, 2013 were approximately $38.5 million.

The Company had a deferred tax asset of $12.4 million as of December 31, 2013 relating to United States federal, state and foreign net operating losses compared to $14.3 million as of December 31, 2012. Of this amount, $1.4 million as of December 31, 2013 related to state net operating losses subject to a valuation allowance compared to $1.5 million as of December 31, 2012, and $1.8 million as of December 31, 2013 related to Luxembourg net operating losses subject to a valuation allowance compared to $0.9 million as of December 31, 2012. The Company has not recognized federal net operating loss carry forwards of $9.5 million as of December 31, 2013 related to stock options exercised compared to $2.2 million as of December 31, 2012. If realized, the benefit would be an increase to additional paid-in-capital. The gross amount of net operating losses available for carryover to future years is approximately $32.6 million as of December 31, 2013 compared to $36.1 million as of December 31, 2012. Of this amount, $13.5 million as of December 31, 2013 compared to $14.7 million as of December 31, 2012 relates to NCI for periods prior to our acquisition of NCI 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 in connection with the separation from Ocwen 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 had in the assets that comprised 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 to the Luxembourg statutory income tax rate for the years ended December 31:

	2013		2012		2011

Statutory tax rate	29.22	%	28.80	%	28.80	%
Foreign rate differential	(24.97	)	(23.30	)	(20.03	)
Change in valuation allowance	0.76		0.16		—
State tax expense	0.24		0.17		0.06
Other	0.75		1.18		0.42

	6.00	%	7.01	%	9.25	%

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, 2013 and 2012, we did not have a liability recorded for payment of interest and penalties associated with uncertain tax positions.