Income Taxes

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



	Year Ended December 31, 2016			Year Ended December 31, 2015			Year Ended December 31, 2014
	(In thousands)
Current:
US federal	$	1,259		$	1,267		$	13,504
US state	310			191			270
Non US	3,266			4,789			32
	4,835			6,247			13,806
Deferred:
US federal	78			808			308
US state	295			720			43
Non US	(3,571		)	(669		)	(263		)
	(3,198		)	859			88

Total	$	1,637		$	7,106		$	13,894

Income before income taxes includes the following components:



	Year Ended December 31, 2016			Year Ended December 31, 2015		Year Ended December 31, 2014
	(In thousands)
US	$	(80	)	$	1,384	$	8,807
Non US	96,011			85,255		68,645
Total	$	95,931		$	86,639	$	77,452

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



	Year Ended December 31, 2016		Year Ended December 31, 2015		Year Ended December 31, 2014
Statutory US federal income tax rate	35.0	%	35.0	%	35.0	%
US state income taxes, net of federal benefit	0.4	%	1.0	%	0.3	%
Non-US tax rate differential	(22.8	)%	(2.6	)%	(4.0	)%
Tax holidays	(14.0	)%	(23.5	)%	(12.7	)%
Passive income exemption	(1.4	)%	(2.9	)%	(3.2	)%
Acquisition contingent earnout liability adjustments	(0.9	)%	(0.6	)%	(4.6	)%
Foreign enhanced R&D deductions	(0.9	)%	(1.0	)%	(1.1	)%
Nondeductible items	9.1	%	0.8	%	—	%
Effect of valuation allowance	(2.3	)%	(2.2	)%	—	%
Release of deferred tax liability on intangibles transferred	(3.5	)%	—	%	—	%
Prior year true-ups	2.8	%	3.2	%	(4.3	)%
Uncertain tax positions	0.1	%	0.1	%	12.7	%
Other	0.1	%	0.8	%	(0.2	)%
Effective income tax rate	1.7	%	8.1	%	17.9	%

Our effective tax rate decreased to 1.7% in 2016, compared with 8.1% in 2015, largely due to favorable changes in the proportion of our taxable income in certain US and non-US jurisdictions relative to total pretax income.

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 $13.6 million and $20.5 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, Dubai, and Singapore, where we have tax holidays or tax concessions.

Deferred tax assets and liabilities are comprised of the following:



	December 31, 2016					December 31, 2015
	Deferred					Deferred
	Assets			Liabilities		Assets			Liabilities
	(In thousands)
Depreciation and amortization	$	95		$	—				$	91
Share-based compensation	1,612					937
Accruals and prepaids	842					1,186
Bad debts	859					961
Acquired intangible assets	—			22,508					26,861
Net operating loss carryforwards	19,019					23,085
Tax credit carryforwards (primarily MAT in India)	35,514					30,835
	57,941			22,508		57,004			26,952
Valuation allowance	(3,747		)	—		(5,979		)	—
Total deferred taxes	$	54,194		$	22,508	$	51,025		$	26,952

Amounts recognized in the consolidated balance sheets:



	2016		2015
	(In thousands)
Non-current deferred tax assets	31,686		24,073
ASU 2013-11 reclass, described below	(341	)	(341	)
Net deferred tax assets	31,345		23,732

The valuation allowance changed by ($2.2) million and $(1.9) million during the years ended December 31, 2016 and 2015, respectively. The Company recorded a valuation allowance and offsetting NOL carryforwards for certain foreign acquired losses during 2015 and 2016, 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.

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



	Year Ended December 31, 2016		Year Ended December 31, 2015
	(In thousands)
US Federal loss carryforwards	$	47,796	$	41,405
US state loss carryforwards	15,535		24,168
Foreign loss carryforwards	25,849		38,152

US Federal credit carryforwards	1,235		1,369
Foreign credit carryforwards	34,278		29,462

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 $25.8 million as of December 31, 2016, 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 potentially be partially offset by foreign tax credits. At December 31, 2016 the cumulative amount of the Company’s undistributed foreign earnings was approximately $450.7 million.

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



	December 31, 2016		December 31, 2015			December 31, 2014
	(in thousands)
Beginning Balance	$	3,115	$	3,020		$	12,742
Additions for tax positions related to current year	43		41			451
Additions for tax positions of prior years	107		131			9,348
Reductions for tax position of prior years	—		(77		)	(19,521		)
Ending Balance	$	3,265	$	3,115		$	3,020

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, 2016 and 2015 approximately $771 thousand and $738 thousand, respectively, of estimated interest and penalties. These amounts are included in the December 31, 2016 and 2015 balances in the preceding table of $3.3 million and $3.1 million, respectively, which 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 is to 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 $341 thousand of unrecognized tax benefits have been applied against the deferred tax assets for net operating loss carryforwards, as of December 31, 2016 and 2015 respectively.