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)	2017		2016		2015

Domestic - Luxembourg	$	9,123	$	8,489	$	27,884
Foreign - U.S.	7,967		16,655		5,944
Foreign - Non-U.S.	18,285		19,168		19,232

Total	$	35,375	$	44,321	$	53,060

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



(in thousands)	2017			2016			2015

Current:
Domestic - Luxembourg	$	737		$	160		$	1,787
Foreign - U.S. Federal	2,405			9,556			539
Foreign - U.S. State	364			258			855
Foreign - Non-U.S.	17,574			5,558			6,405

	$	21,080		$	15,532		$	9,586
Deferred:
Domestic - Luxembourg	$	(295,318	)	$	432		$	—
Foreign - U.S. Federal	(111		)	(3,065		)	(108		)
Foreign - U.S. State	(210		)	(100		)	(526		)
Foreign - Non-U.S.	(1,697		)	136			(692		)

	$	(297,336	)	$	(2,597	)	$	(1,326	)

Total	$	(276,256	)	$	12,935		$	8,260

In June 2010, the Company received a tax ruling regarding the treatment of certain intangibles that existed for determining the Company’s taxable income, which was scheduled to expire in 2019 unless extended, renewed or terminated by the Company. On December 27, 2017, two of the Company’s wholly-owned subsidiaries, Altisource Solutions S.à r.l. and Altisource Holdings S.à r.l., merged, with Altisource Holdings S.à r.l. as the surviving entity. Altisource Holdings S.à r.l. was subsequently renamed Altisource S.à r.l. The merger is part of a larger subsidiary restructuring plan designed to simplify the Company’s corporate structure, allow it to operate more efficiently and reduce administrative costs. For Luxembourg tax purposes, the merger was recognized at fair value and generated a net operating loss (“NOL”) of $1.3 billion and a deferred tax asset of $342.6 million as of December 31, 2017, before a valuation allowance (see below). The NOL has a 17 year life. This deferred tax asset was partially offset by the impact of other changes in U.S. and Luxembourg income tax rates of $6.3 million and an increase in certain foreign income tax reserves (and related interest) of $10.5 million. The Company’s June 2010 tax ruling was terminated in connection with the merger of the Company’s Luxembourg subsidiaries.

Income tax computed by applying the Luxembourg statutory rate differs from income tax computed at the effective tax rate primarily from changes in the mix of taxable income across the jurisdictions in which the Company operates, remeasurement of deferred taxes related to tax rate changes, recognition of net operating losses created by the merger, an increase in unrecognized tax benefits and a valuation allowance against deferred tax assets the Company believes it is more likely than not will not be realized.

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 has been extended through June 2019. 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 ($0.05 per diluted share), $0.9 million ($0.04 per diluted share) and $0.8 million ($0.04 per diluted share) for the years ended December 31, 2017, 2016 and 2015, 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)	2017			2016

Non-current deferred tax assets:
Net operating loss carryforwards	$	349,154		$	5,891
U.S. federal and state tax credits	407			316
Other non-U.S. deferred tax assets	5,724			3,674
Share-based compensation	1,496			2,486
Accrued expenses	6,494			11,527
Non-current deferred tax liabilities:
Intangible assets	(8,015		)	(4,203		)
Depreciation	(3,318		)	(6,964		)
Other non-U.S. deferred tax liability	(1,692		)	(1,342		)
Other	(260		)	(626		)
	349,990			10,759

Valuation allowance	(46,283		)	(3,467		)

Non-current deferred tax assets, net	$	303,707		$	7,292

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, the Company 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 increase in valuation allowance of $42.8 million during 2017 is primarily related to the portion of the Luxembourg NOL that we project will not be utilized prior to expiration.

We have not recognized 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, 2017 were approximately $74.2 million, which if distributed would result in additional tax due totaling approximately $13.5 million.

The Company had a deferred tax asset of $349.2 million as of December 31, 2017 relating to Luxembourg, U.S. federal, state and foreign net operating losses compared to $5.9 million as of December 31, 2016. Of this amount, a valuation allowance totaling $1.7 million as of December 31, 2017 related to state net operating losses subject to a valuation allowance compared to $1.4 million as of December 31, 2016, and $44.4 million as of December 31, 2017 related to Luxembourg net operating losses have been established compared to $2.2 million as of December 31, 2016. The gross amount of net operating losses available for carryover to future years is approximately $1,339.6 million as of December 31, 2017 compared to approximately $17.3 million as of December 31, 2016. These losses are scheduled to expire between the years 2023 and 2037. Of this amount, $8.9 million as of December 31, 2017 compared to $10.1 million as of December 31, 2016 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 which limits their use to approximately $1.3 million per year.

On December 22, 2017, the Jobs Act was enacted, which reforms corporate tax legislation in the United States and related laws. One of the provisions of the new tax law reduces the U.S. federal corporate tax rate from 35% to 21%. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The provisional amount recorded related to the remeasurement of our deferred tax balance was $2.9 million. However, the Company is still analyzing certain aspects of the Jobs Act and refining its calculations, which could potentially affect the measurement of these balances or potentially result in new deferred tax amounts. Any change in the Company’s reasonable estimates of the impact of the Jobs Act will be included in the reporting period in which the change is identified in accordance with SAB Topic 5 EE.

In addition, the Company had a deferred tax asset of $0.4 million and $0.3 million as of December 31, 2017 and 2016, respectively, relating to the U.S. federal and state tax credits. The U.S. federal credit carryforward is scheduled to expire between 2032 and 2037. The state tax credit carryforwards are scheduled to expire between 2017 and 2027.

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



	2017		2016		2015

Statutory tax rate	27.08	%	29.22	%	29.22	%
Permanent difference related to Luxembourg intangible assets	(0.63	)	—		(13.56	)
Change in valuation allowance	119.20		(0.08	)	0.83
State tax expense	0.50		2.30		0.29
Tax credits	(2.13	)	(1.81	)	(2.34	)
Uncertain taxes	30.16		(3.65	)	1.39
Unrecognized tax loss	(1,008.20	)	—		—
Income tax rate change	57.36		—		—
Other	(4.28	)	3.20		(0.26	)

Effective tax rate	(780.94	)%	29.18	%	15.57	%

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 and subject to audit in these jurisdictions. The Company has open tax years in the United States (2014 through 2016), India (2011 through 2017) and Luxembourg (2012 through 2015).

The following table summarizes changes in unrecognized tax benefits during the years ended December 31:



(in thousands)	2017			2016

Amount of unrecognized tax benefits as of the beginning of the year	$	758		$	2,005
Decreases as a result of tax positions taken in a prior period	(78		)	(1,527		)
Increases as a result of tax positions taken in a prior period	53			60
Increases as a result of tax positions taken in the current period	8,159			220

Amount of unrecognized tax benefits as of the end of the year	$	8,892		$	758

The total amount of unrecognized tax benefits including interest and penalties that, if recognized, would affect the effective tax rate is $11.5 million and $0.6 million as of December 31, 2017 and 2016, respectively. The Company recognizes interest, if any, related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2017 and 2016, the Company had recorded accrued interest and penalties related to unrecognized tax benefits of $2.6 million and less than $0.1 million, respectively.