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Income Taxes

The Company or its subsidiaries file income tax returns in the U.S. federal, and various states and foreign jurisdictions.

The Company assessed its uncertain tax positions and determined that it has no uncertain tax position at December 31, 2016.

The components of income before income taxes consist of the following:

	Year ended December 31,
	2016		2015		2014
U.S. operations	$	12,441	$	11,564	$	12,712
Foreign operations		54,633		48,932		44,003

	$	67,074	$	60,496	$	56,715

The provision for current and deferred income tax expense (benefit) consists of the following:

	Year ended December 31,
	2016			2015		2014
Current:
Federal	$	3,792		$	3,660	$	4,374
State and local		309			220		323
Foreign		21,099			16,806		15,229
		25,200			20,686		19,926
Deferred:
Federal		113			30		(84	)
State and local		9			1		30
Foreign		(1,496	)		810		(502	)
		(1,374	)		841		(556	)
Total income tax expense	$	23,826		$	21,527	$	19,370

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31,
	2016			2015
Net deferred tax assets:
Foreign net operating loss carry-forwards	$	821		$	296
Inventory and accounts receivable		1,875			2,321
Profit sharing		3,187			2,442
Stock option compensation		864			717
Effect of inventory profit elimination		2,888			2,170
Other		(724	)		(468	)
Total gross deferred tax assets, net		8,911			7,478
Valuation allowance		(821	)		(296	)
Net deferred tax assets		8,090			7,182
Deferred tax liabilities (long-term):
Trademarks and licenses		(3,449	)		(3,746	)
Other		—			—
Total deferred tax liabilities		(3,449	)		(3,746	)
Net deferred tax assets	$	4,641		$	3,436

Valuation allowances are provided for foreign net operating loss carry-forwards, as future profitable operations from certain foreign subsidiaries might not be sufficient to realize the full amount of net operating loss carry-forwards.

No other valuation allowances have been provided as management believes that it is more likely than not that the asset will be realized in the reduction of future taxable income.

As previously reported, the French Tax Authorities examined the 2012 tax return of Interparfums SA, the Company’s majority owned Paris-based subsidiary, and in August 2015 issued a $6.9 million tax adjustment. It is the Company’s position that the French Tax Authorities are incorrect in their assessments and the Company believes that it has strong arguments to support its tax positions. The main issues challenged by the French Tax Authorities related to the commission rate and royalty rate paid to Interparfums Singapore Pte. and Interparfums (Suisse) SARL, respectively. Interparfums Singapore Pte. and Interparfums (Suisse) SARL are wholly-owned subsidiaries of Interparfums SA. Due to the subjective nature of the issues involved, in April 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities. The settlement requires Interparfums SA to pay a tax assessment of $1.9 million covering the issues for not only the 2012 tax year, but also covering the issues for the tax years ended 2013 through 2015. The settlement also includes an agreement as to future acceptable commission and royalty rates, which is not expected to have a significant impact on cash flow. The settlement, which for 2012, is subject to formal documentation with the French Tax Authorities, was accrued as of March 31, 2016. In July 2016, Interparfums SA paid $1.1 million to the French Tax Authorities relating to tax years 2013 and 2014.

The Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2013.

The Company has not provided for U.S. deferred income taxes on $365 million of undistributed earnings of its non-U.S. subsidiaries as of December 31, 2016 since the Company intends to reinvest most of these earnings in its foreign operations indefinitely and the Company believes it has sufficient foreign tax credits available to offset any potential tax on amounts that have been and are planned to be repatriated.

Differences between the United States Federal statutory income tax rate and the effective income tax rate were as follows:

	Year ended December 31,
	2016			2015			2014
Statutory rates		34.0	%		34.0	%		34.0	%
State and local taxes, net of Federal benefit		0.3			0.2			0.1
Effect of foreign taxes greater than
U.S. statutory rates		1.5			1.6			0.4
Other		(0.3	)		(0.2	)		(0.3	)
Effective rates		35.5	%		35.6	%		34.2	%