Income Tax

The components of income tax expense for the three and six months ended June 30, 2017 and 2016, respectively, consisted of the following:



	Three months ended June 30,						Six months ended June 30,
(Dollar amounts in thousands)	2017			2016			2017			2016
Current tax provision	$	4,380		$	3,534		$	7,887		$	6,214
Deferred tax benefit	(312		)	(733		)	(1,799		)	(1,537		)
Income tax expense	$	4,068		$	2,801		$	6,088		$	4,677

The Company conducts operations in Puerto Rico and certain countries in Latin America. As a result, the income tax expense includes the effect of taxes paid to the Puerto Rico government as well as foreign jurisdictions. The following table presents the components of income tax expense for the three and six months ended June 30, 2017 and 2016, respectively, and its segregation based on location of operations:



	Three months ended June 30,						Six months ended June 30,
(Dollar amounts in thousands)	2017			2016			2017			2016
Current tax provision
Puerto Rico	$	3,054		$	1,795		$	4,860		$	3,561
United States	386			72			200			236
Foreign countries	940			1,667			2,827			2,417
Total current tax provision	$	4,380		$	3,534		$	7,887		$	6,214
Deferred tax (benefit) provision
Puerto Rico	$	(463	)	$	(431	)	$	(1,052	)	$	(910	)
United States	20			(26		)	(83		)	(51		)
Foreign countries	131			(276		)	(664		)	(576		)
Total deferred tax benefit	$	(312	)	$	(733	)	$	(1,799	)	$	(1,537	)

Taxes payable to foreign countries by EVERTEC’s subsidiaries will be paid by such subsidiary and the corresponding liability and expense will be presented in EVERTEC’s consolidated financial statements.

As of June 30, 2017, the Company has $30.0 million of unremitted earnings from foreign subsidiaries. The Company has not recognized a deferred tax liability on undistributed earnings for the Company’s foreign subsidiaries because these earnings are intended to be indefinitely reinvested.

On June 27, 2017 the Company received a one-time repatriation of cash from a foreign subsidiary of $8.9 million to partially fund the acquisition of a Chilean based payment processing company. This distribution was subject to withholding at source of 15% in the country of origin and accordingly the Company recognized current income tax expense of $1.3 million. No income tax expense was recorded in the country that received the distribution because of the availability to credit foreign taxes paid both at the corporate level and the withholding at source on the distribution. The Company believes that this one time repatriation of existing funds from a foreign subsidiary does not prohibit applying the indefinite reinvestment exception to the remaining undistributed earnings because Management has sufficient evidence of specific plans to continue reinvesting the foreign subsidiary’s undistributed earnings.

As of June 30, 2017, the gross deferred tax asset amounted to $5.5 million and the gross deferred tax liability amounted to $19.0 million, compared to $5.0 million and $19.2 million as of December 31, 2016.

The Company estimates that it is reasonably possible that the potential liability for uncertain tax positions relating to the net operating loss created by previously deducted transaction costs will decrease by no more than $4.5 million in the next twelve months as a result of the expiration of the statute of limitations.

Pursuant to the applicable provision of the PR Code, net operating losses (“NOL”) can be carried forward for a period of seven, ten or twelve taxable years, depending on the taxable year generated. Act 72 enacted on May 29, 2015, limited the amount of a NOL deduction to 80% for regular tax and 70% for alternative minimum tax. At June 30, 2017, the Company has $11.8 million in NOL carryforwards for tax purposes available to offset future taxable income.