Income Taxes

The income tax expense (benefit) consists of the following:



	Year Ended December 31, 2015			Year Ended December 31, 2014			Year Ended December 31, 2013
	(In thousands)
Current:
US federal	$	1,267		$	13,504		$	7,083
US state	191			270			167
Non US	4,789			32			5,371
	6,247			13,806			12,621
Deferred:
US federal	808			308			(632		)
US state	720			43			(351		)
Non US	(669		)	(263		)	(760		)
	859			88			(1,743		)

Total	$	7,106		$	13,894		$	10,878

Income before income taxes includes the following components:



	Year Ended December 31, 2015		Year Ended December 31, 2014		Year Ended December 31, 2013
	(In thousands)
US	$	1,384	$	8,807	$	5,497
Non US	85,255		68,645		64,655
Total	$	86,639	$	77,452	$	70,152

A reconciliation of the statutory federal income tax rate to the effective income tax rate consists of the following:



	Year Ended December 31, 2015		Year Ended December 31, 2014		Year Ended December 31, 2013
Statutory US federal income tax rate	35.0	%	35.0	%	35.0	%
US state income taxes, net of federal benefit	1.0	%	0.3	%	(0.3	)%
Non-US tax rate differential	(2.6	)%	(4.0	)%	(6.9	)%
Tax holidays	(23.5	)%	(12.7	)%	(15.2	)%
Passive income exemption	(2.9	)%	(3.2	)%	(3.5	)%
Acquisition contingent earnout liability adjustments	(0.6	)%	(4.6	)%	(5.0	)%
Foreign enhanced R&D deductions	(1.0	)%	(1.1	)%	(1.2	)%
Nondeductible items	0.8	%	—	%	—	%
Effect of valuation allowance	(2.2	)%	—	%	—	%
Prior year true-ups	3.2	%	(4.3	)%	1.2	%
Uncertain tax positions	0.1	%	12.7	%	9.7	%
Other	0.8	%	(0.2	)%	1.7	%
Effective income tax rate	8.1	%	17.9	%	15.5	%

Our effective tax rate decreased to 8.1% in 2015, compared with 17.9% in 2014, largely due to favorable changes in the proportion of our taxable income in certain US and non-US jurisdictions relative to total pretax income, as well as the decrease in the amount of liability the Company recorded for uncertain tax positions in 2015 versus 2014.

Beginning in 2009, we were granted a 100% tax holiday for certain of our Indian operations, which was in effect until March 31, 2014 and March 31, 2015 for some of our locations and continues until March 31, 2020 for other locations. When these tax holidays expire, these locations become 50% taxable for an additional five years. The impact of this tax holiday decreased our non-US income tax expense by $20.5 million and $9.9 million for 2015 and 2014, respectively.

The Company’s consolidated worldwide effective tax rate is relatively low because of the effect of conducting significant operations in certain foreign jurisdictions, specifically India and Singapore, where we have tax holidays or tax concessions. Our operations in Singapore before 2015 were taxed at a 10% tax rate as a result of concessions granted by the Singapore Economic Development Board for the benefit of in-country intellectual property owners. The concessionary 10% rate expired January 1, 2015, at which time our operations are now taxed at the 17% statutory rate.

Deferred tax assets and liabilities are comprised of the following:



	December 31, 2015					December 31, 2014
	Deferred					Deferred
	Assets			Liabilities		Assets			Liabilities
	(In thousands)
Depreciation and amortization				$	91	$	254		$	—
Share-based compensation	937					817			—
Accruals and prepaids	1,186					2,342			470
Bad debts	961					600			—
Acquired intangible assets				26,861		—			23,069
Net operating loss carryforwards	23,085					24,435			—
Tax credit carryforwards (primarily MAT in India)	30,835					24,937			—
	57,004			26,952		53,385			23,539
Valuation allowance	(5,979		)	—		(7,840		)	—
Total deferred taxes	$	51,025		$	26,952	$	45,545		$	23,539

Amounts recognized in the consolidated balance sheets:



	2015		2014
	(In thousands)
Non-current deferred tax assets	24,073		22,006
ASU 2013-11 reclass, described below	(341	)	(1,135	)
Net deferred tax assets	23,732		20,871

The valuation allowance changed by ($1.9) million and $(408) thousand during the years ended December 31, 2015 and 2014, respectively. The Company recorded a valuation allowance and offsetting NOL carryforwards for certain foreign acquired losses during 2015, where an implied valuation allowance had been previously recognized in prior years. The presentation above has been modified to correctly show the valuation allowances that should have been recorded and to gross up the Company’s deferred tax assets for implied valuation allowances that were inherited through acquisitions.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes, or ASU 2015-17. This amendment requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. Prior to the issuance of ASU 2015-17, deferred taxes were required to be presented as a net current asset or liability and a net noncurrent asset or liability. We adopted the provisions of ASU 2015-17 upon issuance and prior period amounts have been reclassified to conform to the current period presentation. As of December 31, 2014, the previously reported balance of our net current deferred tax assets of $2.11 million was reclassified in the consolidated balance sheet and netted against the net long-term deferred tax liabilities. The adoption of ASU 2015-17 did not impact our consolidated financial position, results of operations or cash flows.

We have US Federal, state and foreign operating losses and credit carryforwards as follows:



	Year Ended December 31, 2015		Year Ended December 31, 2014
	(In thousands)
US Federal loss carryforwards	$	41,405	$	42,022
US state loss carryforwards	24,168		40,286
Foreign loss carryforwards	38,152		39,905

US Federal credit carryforwards	1,369		2,579
Foreign credit carryforwards	29,462		22,463

The US federal and state operating loss carryforwards expire at varying dates through 2035. The federal credits begin to expire in 2018. We also have non-US loss carryforwards of approximately $38.2 million as of December 31, 2015, the majority of which may be carried forward indefinitely. As indicated in the table above, we have established valuation allowances for certain non US operating loss carryforwards due to the uncertainty resulting from a lack of previous substantial taxable income within the applicable tax jurisdictions. We may possibly release these valuation allowances, particularly in our UK entity, in the future.

The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to income taxes and withholding taxes payable in various jurisdictions, which could be potentially offset by foreign tax credits. Determination of the amount of unrecognized deferred income tax liability is not practical because of the complexities associated with its hypothetical calculation.

The following table summarizes the activity related to our unrecognized tax benefits:



	December 31, 2015			December 31, 2014			December 31, 2013
	(in thousands)
Beginning Balance	$	3,020		$	12,742		$	5,925
Additions for tax positions related to current year	41			451			6,546
Additions for tax positions of prior years	131			9,348			271
Reductions for tax position of prior years	(77		)	(19,521		)	—
Ending Balance	$	3,115		$	3,020		$	12,742

The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. Interest assessed upon settlement of a tax return position is classified as interest expense. As of December 31, 2015 approximately $738 thousand of estimated interest and penalties, which is part of the $3.1 million in the preceding table, is included in other long term liabilities in the accompanying Consolidated Balance Sheet.

We file income tax returns in the US federal, many US state and local jurisdictions, and certain foreign jurisdictions. We have substantially resolved all US federal income tax matters for tax years prior to 2014. Our state and foreign tax matters may remain open from 2008 forward.

On January 6, 2015, the Company reached a resolution with the Internal Revenue Service with respect to the previously disclosed audit of Ebix’s federal income tax returns for the taxable years 2008 through 2012. The assessment resulted in a cash payment of $20.5 million, including interest of $1.6 million. This resolution includes all issues for the years 2008 through 2012. In December 2015, the Company reached a resolution with the IRS in regards to its 2013 federal tax return, which resulted in an additional cash payment of $320 thousand.

The Company has applied the new provisions under Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists, or ASU 2013-11. Under these provisions, an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. The Company has applied this provision and $341 thousand and $1.1 million of unrecognized tax benefits have been applied against the deferred tax assets for net operating loss carryforwards, as of December 31, 2015 and 2014 respectively.