INCOME TAXES

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



(in thousands)	2014		2013		2012

Domestic - Luxembourg	$	124,181	$	122,722	$	107,498
Foreign - U.S.	9,575		11,125		4,915
Foreign - Non-U.S.	13,509		8,486		12,236

Total	$	147,265	$	142,333	$	124,649

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



(in thousands)	2014			2013			2012

Current:
Domestic - Luxembourg	$	4,415		$	2,516		$	2,841
Foreign - U.S. Federal	75			6			—
Foreign - U.S. State	476			403			353
Foreign - Non-U.S.	4,046			3,600			2,552

	$	9,012		$	6,525		$	5,746
Deferred:
Domestic - Luxembourg	$	—		$	—		$	388
Foreign - U.S. Federal	1,756			2,506			2,419
Foreign - U.S. State	(281		)	84			(23		)
Foreign - Non-U.S.	(309		)	(575		)	208

	$	1,166		$	2,015		$	2,992

Total	$	10,178		$	8,540		$	8,738

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 29.22% 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 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 $0.9 million ($0.04 per diluted share), $0.2 million ($0.01 per diluted share) and $1.5 million ($0.06 per diluted share) for the years ended December 31, 2014, 2013 and 2012, 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)	2014			2013

Current deferred tax assets:
Allowance for doubtful accounts and other reserves	$	72		$	43
Accrued expenses	5,165			3,183
Current deferred tax liabilities:
Prepaid expenses	(250		)	(389		)

Current deferred tax assets, net	$	4,987		$	2,837

Non-current deferred tax assets:
Net operating loss carryforwards	$	13,940		$	12,439
U.S. federal and state tax credits	1,202			—
Non-U.S. deferred tax assets	1,780			1,471
Share-based compensation	856			784
Other	—			7
Non-current deferred tax liabilities:
Intangible assets	(5,302		)	(6,035		)
Depreciation	(11,878		)	(4,855		)
Other	(177		)	—
	421			3,811
Valuation allowance	(3,115		)	(3,189		)

Non-current deferred tax assets, net	$	—		$	622

Non-current deferred tax liabilities, net	$	(2,694	)	$	—

Net deferred tax assets	$	2,293		$	3,459

Total deferred tax assets	$	19,900		$	14,738

Total deferred tax liabilities	$	(17,607	)	$	(11,279	)

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 2014 relates to an increase in state and foreign losses generated in the current year and a release of prior year valuation allowance related to certain state losses 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, 2014 were approximately $48.0 million, which if distributed would result in additional tax due totaling approximately $9.6 million.

The Company had a deferred tax asset of $13.9 million as of December 31, 2014 relating to the U.S. federal, state and foreign net operating losses compared to $12.4 million as of December 31, 2013. Of this amount, $1.8 million as of December 31, 2014 related to state net operating losses subject to a valuation allowance compared to $1.4 million as of December 31, 2013, and $1.7 million as of December 31, 2014 related to Luxembourg net operating losses subject to a valuation allowance compared to $1.8 million as of December 31, 2013. The Company has not recognized the U.S. federal net operating loss carryforwards of $13.6 million as of December 31, 2014 related to stock options exercised compared to $9.5 million as of December 31, 2013. 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 $35.7 million as of December 31, 2014 compared to $32.6 million as of December 31, 2013. Of this amount, $12.2 million as of December 31, 2014 compared to $13.5 million as of December 31, 2013 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.

In addition, the Company had a deferred tax asset of $1.2 million as of December 31, 2014 relating to the U.S. federal and state tax credits (no comparative amount for 2013). The U.S. federal credit carryforward is scheduled to expire between 2032 and 2034. The state tax credit carryforwards are scheduled to expire between 2017 and 2024.

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. 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:



	2014		2013		2012

Statutory tax rate	29.22	%	29.22	%	28.80	%
Permanent difference related to Luxembourg intangible assets	(22.60	)	(23.59	)	(21.99	)
Change in valuation allowance	(0.05	)	0.76		0.16
State tax expense	0.03		0.24		0.17
Tax credits	(0.71	)	—		—
Uncertain taxes	0.88		—		—
Other	0.14		(0.63	)	(0.13	)

Effective tax rate	6.91	%	6.00	%	7.01	%

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 (2011 through 2013), India (2010 through 2014) and Luxembourg (2010 through 2013).

The following table reconciles the amount of unrecognized tax benefits for the year ended December 31, 2014 (no comparative amounts for 2013):



(in thousands)	2014

Amount of unrecognized tax benefits as of the beginning of the year	$	—
Increases as a result of tax positions taken in a prior period	1,153

Amount of unrecognized tax benefit as of the end of the year	$	1,153

The total amount of unrecognized tax benefits including interest and penalties that, if recognized, would affect the effective tax rate is $1.3 million as of December 31, 2014 (no comparative amount for 2013). The Company recognizes interest, if any, related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2014, the Company had recorded accrued interest and penalties related to unrecognized tax benefits of $0.1 million (no comparative amount for 2013).

Due to an expected settlement within the next twelve months, an estimated $1.3 million of unrecognized tax benefits may be recognized during that twelve month period.