TAXES

The components of deferred tax assets and liabilities are as follows (in thousands):



	March 31,
	2016			2015
Deferred tax assets:
Foreign tax credits	$	41,140		$	31,134
Net operating losses	28,695			17,487
Accrued pension liability	13,266			21,657
Accrued equity compensation	17,092			12,728
Deferred revenue	1,749			2,156
Employee award programs	5,098			7,515
Employee payroll accruals	5,099			5,118
Inventories	3,305			5,259
Investment in unconsolidated affiliates	10,863			6,539
Other	4,903			4,790
Valuation allowance	(29,373		)	(11,700		)
Total deferred tax assets	$	101,837		$	102,683
Deferred tax liabilities:
Property and equipment	$	(202,388	)	$	(207,395	)
Inventories	(799		)	(196		)
Investment in unconsolidated affiliates	(38		)	—
Employee programs	(1,360		)	(1,564		)
Other	(3,390		)	(8,378		)
Total deferred tax liabilities	$	(207,975	)	$	(217,533	)
Net deferred tax liabilities	$	(106,138	)	$	(114,850	)

Companies may use foreign tax credits to offset the U.S. income taxes due on income earned from foreign sources. However, the credit that may be claimed for a particular taxable year is limited by the total income tax on the U.S. income tax return as well as by the ratio of foreign source net income in each statutory category to total net income. The amount of creditable foreign taxes available for the taxable year that exceeds the limitation (i.e., “excess foreign tax credits”) may be carried back one year and forward ten years. We have $41.1 million of excess foreign tax credits as of March 31, 2016, of which $6.6 million will expire in fiscal year 2021, $3.9 million will expire in fiscal year 2022, $0.2 million will expire in fiscal year 2023, $15.6 million will expire in fiscal year 2024 and $14.8 million will expire in 2025. In fiscal year 2016, we generated $127.5 million of net operating loss in the U.S. which we plan to carryback to fiscal years 2014 and 2015 to claim a cash refund. Any unused losses after carryback will expire in 2036.

We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. As of March 31, 2016, valuation allowances totaled $29.4 million for operating loss carryforwards. The increase in the valuation allowance of $17.7 million in fiscal year 2016 resulted from foreign losses. This increase does not include an additional $2.4 million recorded in additional paid-in capital resulting from the purchase of the remaining 15% of the outstanding shares of Airnorth in fiscal year 2016.

The components of income before provision for income taxes for fiscal years 2016, 2015 and 2014 are as follows (in thousands):



	Fiscal Year Ended March 31,
	2016			2015			2014
Domestic	$	(115,277	)	$	(40,602	)	$	(14,357	)
Foreign	36,046			152,075			259,348
Total	$	(79,231	)	$	111,473		$	244,991

The provision for income taxes for fiscal years 2016, 2015 and 2014 consisted of the following (in thousands):



	Fiscal Year Ended March 31,
	2016			2015			2014
Current:
Domestic	$	(29,907	)	$	4		$	36,872
Foreign	27,317			34,822			33,939
	$	(2,590	)	$	34,826		$	70,811
Deferred:
Domestic	$	(4,483	)	$	(11,358	)	$	(6,646	)
Foreign	4,991			(702		)	(6,953		)
	$	508		$	(12,060	)	$	(13,599	)
Total	$	(2,082	)	$	22,766		$	57,212

The reconciliation of the U.S. Federal statutory tax rate to the effective income tax rate for the provision for income taxes is shown below:



	Fiscal Year Ended March 31,
	2016		2015		2014
Statutory rate	35.0	%	35.0	%	35.0	%
Net foreign tax on non-U.S. earnings	(8.4	)%	26.3	%	11.8	%
Benefit of foreign tax deduction in the U.S.	2.6	%	—	%	—	%
Foreign earnings indefinitely reinvested abroad	15.9	%	(47.0	)%	(18.9	)%
Change in valuation allowance	(25.3	)%	4.0	%	1.8	%
Foreign earnings that are currently taxed in the U.S.	(7.9	)%	8.7	%	4.1	%
Effect of reduction in corporate income tax rate	1.1	%	—	%	(1.2	)%
Dividend inclusion as a result of internal realignment	—	%	—	%	1.1	%
Goodwill impairment	(11.8	)%	—	%	—	%
Benefit of current year foreign tax credits	—	%	(11.3	)%	(5.2	)%
Tax reserve release	0.2	%	(0.1	)%	(0.7	)%
Other, net	1.2	%	4.8	%	(4.4	)%
Effective tax rate	2.6	%	20.4	%	23.4	%

Our effective income tax rate for fiscal year 2016 is 2.6% representing the income tax benefit rate for the fiscal year, which was reduced by $20.1 million of tax expense for an increase in valuation allowance and increased by $0.9 million of tax benefit due to the revaluation of our deferred taxes as a result of the enactment of a tax rate reduction in the U.K. and a $2.1 million tax benefit due to the deduction of foreign tax in lieu of foreign tax credits.

A portion of our aircraft fleet is owned directly or indirectly by our wholly owned Cayman Island subsidiaries. Our foreign operations combined with our leasing structure provided a material benefit to the effective tax rates for fiscal years 2016, 2015 and 2014. In fiscal year 2016, our unfavorable permanent differences, such as valuation allowances and non-tax deductible goodwill write-off had the effect of increasing our income tax expense and reducing our effective tax rate applied to pre-tax losses. Also, our effective tax rates for fiscal years 2016, 2015 and 2014 benefited from the permanent investment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided.

In fiscal year 2016, our effective tax rate was impacted by valuation allowances of $20.1 million and a change in the mix of geographic earnings in which we experienced U.S. losses offset by taxes in jurisdictions taxed on a deemed profit basis. The current effective tax rate was impacted by the tax effect of the $41.6 million goodwill impairment discussed in Note 1. Fiscal year 2014 includes a benefit due to the revaluation of our deferred taxes as a result of the enactment of tax rate reductions in the U.K. of $2.9 million effective April 1 of that year.

In August 2008, certain of our existing and newly created subsidiaries completed intercompany leasing transactions involving eleven aircraft. The tax benefit of this transaction is being recognized over the remaining useful life of the assets, which is approximately 13 years. During each of the fiscal years 2016, 2015 and 2014, this transaction resulted in a $2.8 million, $2.9 million and $2.9 million reduction in our consolidated provision for income taxes, respectively.

Our operations are subject to the jurisdiction of multiple tax authorities, which impose various types of taxes on us, including income, value added, sales and payroll taxes. Determination of taxes owed in any jurisdiction requires the interpretation of related tax laws, regulations, judicial decisions and administrative interpretations of the local tax authority. As a result, we are subject to tax assessments in such jurisdictions including the re-determination of taxable amounts by tax authorities that may not agree with our interpretations and positions taken. The following table summarizes the years open by jurisdiction as of March 31, 2016:



	Jurisdiction	Years Open
	U.S.	Fiscal year 2013 to present
	U.K.	Fiscal year 2014 to present
	Nigeria	Fiscal year 2009 to present
	Trinidad	Fiscal year 2005 to present
	Australia	Fiscal year 2012 to present

The effects of a tax position are recognized in the period in which we determine that it is more-likely-than-not (defined as a more than 50% likelihood) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement.

We have analyzed filing positions in the federal, state and foreign jurisdictions where we are required to file income tax returns for all open tax years. We believe that the settlement of any tax contingencies would not have a significant impact on our consolidated financial position, results of operations and/or liquidity. In fiscal years 2016, 2015 and 2014, we had a net (benefit) provision of $0.4 million, $0.5 million and $(1.5) million, respectively, of reserves for tax contingencies primarily related to non-U.S. income tax on foreign leasing operations. Our policy is to accrue interest and penalties associated with uncertain tax positions in our provision for income taxes. In fiscal years 2016, 2015 and 2014, $0.3 million, $0.4 million and $0.1 million, respectively, in interest and penalties were accrued in connection with uncertain tax positions.

As of March 31, 2016 and 2015, we had $1.1 million and $4.9 million, respectively, of unrecognized tax benefits, all of which would have an impact on our effective tax rate, if recognized. The $4.2 million recorded in fiscal year 2014 relates to pre-acquisition tax matters for the February 2014 acquisition of a 60% interest in Eastern Airways and are the subject of an indemnity, for which a corresponding indemnity asset has been established for the same amount. In fiscal year 2016, we determined that the reserve for tax contingencies related to Eastern Airways pre-acquisition tax matters was no longer needed as all related tax matters were resolved or expired, therefore, the liability was released along with the corresponding indemnity.

The activity associated with our unrecognized tax benefit during fiscal years 2016 and 2015 is as follows (in thousands):



	Fiscal Year Ended March 31,
	2016			2015
Unrecognized tax benefits – beginning of fiscal year	$	4,904		$	4,380
Eastern pre-acquisition tax liability	(4,193		)	—
Increases for tax positions taken in prior years	898			591
Decreases for tax positions taken in prior years	(188		)	—
Decrease related to statute of limitation expirations	(328		)	(67		)
Unrecognized tax benefits – end of fiscal year	$	1,093		$	4,904

Unremitted foreign earnings reinvested abroad upon which U.S. income taxes have not been provided aggregated approximately $832.1 million and $805.3 million as of March 31, 2016 and 2015, respectively. No accrual of income tax has been made for fiscal years 2016 and 2015 related to these indefinitely reinvested earnings as there was no plan in place to repatriate any of these foreign earnings to the U.S. as of the end of the fiscal year. Withholding taxes, if any, upon repatriation would not be significant. We do not currently provide for U.S. deferred taxes on unremitted earnings of our foreign subsidiaries as such earnings are deemed to be permanently reinvested. If such earnings were to be distributed, we could be subject to U.S. taxes, which may have a material impact on our results of operations. We cannot practicably estimate the amount of additional taxes that might be payable on unremitted earnings

We receive a tax benefit that is generated by certain employee stock benefit plan transactions. This benefit is recorded directly to additional paid-in-capital on our consolidated balance sheets and does not reduce our effective income tax rate. The tax benefit for fiscal years 2015 and 2014 totaled approximately $1.6 million and $5.7 million, respectively. We did not receive any tax benefits in fiscal year 2016 relating to employee stock benefit plan transactions.

Income taxes paid during fiscal years 2016, 2015 and 2014 were $28.0 million, $34.8 million and $59.1 million, respectively.