INCOME TAXES

The components of income before income taxes and non-controlling interests consist of the following for the years ended December 31:



(in thousands)	2016		2015		2014

Domestic - Luxembourg	$	8,498	$	27,884	$	124,181
Foreign - U.S.	16,655		5,944		9,575
Foreign - Non-U.S.	19,168		19,232		13,509

Total	$	44,321	$	53,060	$	147,265

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



(in thousands)	2016			2015			2014

Current:
Domestic - Luxembourg	$	160		$	1,787		$	4,415
Foreign - U.S. Federal	9,556			539			75
Foreign - U.S. State	258			855			476
Foreign - Non-U.S.	5,558			6,405			4,046

	$	15,532		$	9,586		$	9,012
Deferred:
Domestic - Luxembourg	$	432		$	—		$	—
Foreign - U.S. Federal	(3,065		)	(108		)	1,756
Foreign - U.S. State	(100		)	(526		)	(281		)
Foreign - Non-U.S.	136			(692		)	(309		)

	$	(2,597	)	$	(1,326	)	$	1,166

Total	$	12,935		$	8,260		$	10,178

We received a tax ruling in June 2010 regarding the treatment of certain intangibles that exist for purposes of determining the Company’s taxable income, which expires in 2019 unless extended or renewed. 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 29.2% differs from income tax computed at the effective tax rate primarily because of the effect of the tax ruling and differing tax rates in multiple jurisdictions.

We operate under tax holidays in certain geographies in India, the Philippines and Uruguay. 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 June 2017, and may also be extended. We operate in a Uruguay free trade zone that provides an indefinite future tax benefit. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes by $0.9 million ($0.04 per diluted share), $0.8 million ($0.04 per diluted share) and $0.9 million ($0.04 per diluted share) for the years ended December 31, 2016, 2015 and 2014, respectively.

The Company accounts for certain income and expense items differently for financial reporting 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)	2016			2015

Non-current deferred tax assets:
Net operating loss carryforwards	$	5,891		$	5,417
U.S. federal and state tax credits	316			2,577
Non-U.S. deferred tax assets	3,674			2,472
Share-based compensation	2,486			1,750
Accrued expenses	11,527			7,730
Non-current deferred tax liabilities:
Intangible assets	(4,203		)	(4,508		)
Depreciation	(6,964		)	(7,446		)
Non-U.S. deferred tax liability	(1,342		)	—
Other	(626		)	(815		)
	10,759			7,177

Valuation allowance	(3,467		)	(3,558		)

Non-current deferred tax assets, net	$	7,292		$	3,619

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 net decrease in valuation allowance of $0.1 million during 2016 relates to a decrease in the tax rate applied to the valuation allowance and a decrease in foreign losses generated in the current year that the Company believes will more likely than not be realized.

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, 2016 were approximately $71.9 million, which if distributed would result in additional tax due totaling approximately $13.4 million.

The Company had a deferred tax asset of $5.9 million as of December 31, 2016 relating to Luxembourg, U.S. federal, state and foreign net operating losses compared to $5.4 million as of December 31, 2015. Of this amount, $1.4 million as of December 31, 2016 related to state net operating losses subject to a valuation allowance compared to $1.6 million as of December 31, 2015, and $2.2 million as of December 31, 2016 related to Luxembourg net operating losses subject to a valuation allowance compared to $2.3 million as of December 31, 2015. The gross amount of net operating losses available for carryover to future years is approximately $17.3 million as of December 31, 2016 compared to $14.8 million as of December 31, 2015. These losses are scheduled to expire between the years 2023 and 2036. Of this amount, $6.9 million as of December 31, 2016 compared to $10.1 million as of December 31, 2015 relates to Nationwide Credit, Inc. (“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.

In addition, the Company had a deferred tax asset of $0.3 million and $2.6 million as of December 31, 2016 and 2015, respectively, relating to the U.S. federal and state tax credits. The U.S. federal credit carryforward is scheduled to expire between 2032 and 2036. The state tax credit carryforwards are scheduled to expire between 2017 and 2026.

The following table reconciles the Luxembourg statutory tax rate to our effective tax rate for the years ended December 31:



	2016		2015		2014

Statutory tax rate	29.22	%	29.22	%	29.22	%
Permanent difference related to Luxembourg intangible assets	—		(13.56	)	(22.60	)
Change in valuation allowance	(0.08	)	0.83		(0.05	)
State tax expense	2.30		0.29		0.03
Tax credits	(1.81	)	(2.34	)	(0.71	)
Uncertain taxes	(3.65	)	1.39		0.88
Other	3.20		(0.26	)	0.14

Effective tax rate	29.18	%	15.57	%	6.91	%

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. The Company has open tax years in the United States (2013 through 2015), India (2010 through 2016) and Luxembourg (2010 through 2014).

The following table reconciles the amount of unrecognized tax benefits for the years ended December 31:



(in thousands)	2016			2015

Amount of unrecognized tax benefits as of the beginning of the year	$	2,005		$	1,153
Decreases as a result of tax positions taken in a prior period	(1,527		)	—
Increases as a result of tax positions taken in a prior period	60			638
Increases as a result of tax positions taken in the current period	220			214

Amount of unrecognized tax benefits as of the end of the year	$	758		$	2,005

The total amount of unrecognized tax benefits including interest and penalties that, if recognized, would affect the effective tax rate is $0.6 million and $2.1 million as of December 31, 2016 and 2015, respectively. The Company recognizes interest, if any, related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2016 and 2015, the Company had recorded accrued interest and penalties related to unrecognized tax benefits of less than $0.1 million and $0.2 million, respectively.