Income Taxes

The income tax provision consists of the following (amounts in thousands):



	Year Ended March 31,
	2017			2016			2015
Pretax Income:
U.S.	$	(279,304	)	$	(75,515	)	$	(944	)
Foreign	369,091			356,808			346,851
	$	89,787		$	281,293		$	345,907
Current expense (benefit):
U.S. Federal	$	21,287		$	(3,966	)	$	(3,185	)
State	1,004			(188		)	(24		)
Foreign	23,792			21,947			16,602
Total current	$	46,083		$	17,793		$	13,393
Deferred expense (benefit):
U.S. Federal	$	(114,743	)	$	(42,207	)	$	(22,641	)
State	(5,409		)	(1,990		)	(1,562		)
Foreign	(6,736		)	(16,228		)	(8,608		)
Total deferred	(126,888		)	(60,425		)	(32,811		)
Total	$	(80,805	)	$	(42,632	)	$	(19,418	)

The tax benefit associated with the Company's equity incentive plans reduced taxes currently payable by $2.4 million, $0.8 million and $1.2 million for the years ended March 31, 2017, 2016 and 2015, respectively. These amounts were credited to tax expense in fiscal year 2017 and to additional paid-in capital in fiscal years 2015 and 2016.

The provision for income taxes differs from the amount computed by applying the statutory federal tax rate to income before income taxes. The sources and tax effects of the differences in the total income tax provision are as follows (amounts in thousands):



	Year Ended March 31,
	2017			2016			2015
Computed expected income tax provision	$	31,425		$	98,453		$	121,067
State income taxes, net of federal benefits	(4,609		)	(1,246		)	(20		)
Research and development tax credits - current year	(12,852		)	(13,542		)	(9,703		)
Research and development tax credits - prior years	—			(2,511		)	(1,789		)
Foreign income taxed at lower than the federal rate	(105,069		)	(114,497		)	(106,939		)
Increases related to current and prior year tax positions	53,695			14,462			19,769
Decreases related to prior year tax positions ⁽¹⁾	(36,297		)	(12,103		)	(33,100		)
Withholding taxes	5,643			5,970			5,218
Change in valuation allowance	1,814			(2,482		)	(14,286		)
Intercompany prepaid tax asset amortization	7,931			(15,493		)	(1,089		)
Share-based compensation	(24,998		)	—			—
Other	2,512			357			1,454
Total	$	(80,805	)	$	(42,632	)	$	(19,418	)

⁽¹⁾ The release of prior year tax positions during fiscal 2017 increased each of the basic and diluted net income per common share by $0.17 and $0.15, respectively. The release of prior year tax positions during fiscal 2016 increased the basic and diluted net income per common share by $0.06. The release of prior year tax positions during fiscal 2015 increased each of the basic and diluted net income per common share by $0.16 and $0.15, respectively.

The foreign tax rate differential benefit primarily relates to the Company's operations in Thailand, Cayman and Ireland. The Company's Thailand manufacturing operations are currently subject to numerous tax holidays granted to the Company based on its investment in property, plant and equipment in Thailand. The Company's tax holiday periods in Thailand expire at various times in the future, however, the Company actively seeks to obtain new tax holidays. The Company does not expect the future expiration of any of its tax holiday periods in Thailand to have a material impact on its effective tax rate. The aggregate dollar benefits derived from these tax holidays approximated $25.3 million, $6.0 million and $12.4 million in fiscal 2017, 2016 and 2015, respectively.

No U.S. income taxes have been provided on the unremitted foreign earnings of approximately $4.3 billion as of March 31, 2017, with the exception of the pre-acquisition earnings of Supertex and SMSC, since the Company has the ability and intent to permanently reinvest these amounts. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable.

During the year ended March 31, 2017, the Company settled open tax positions related to the examination of fiscal years 2012 and 2011 by the U.S. Internal Revenue Service (IRS), fiscal years 2013, 2012, 2011 and 2010 by the German tax authorities, and fiscal years 2014, 2013 and 2012 by the French tax authorities. In addition, the Company benefited from the expiration of the statute of limitations and other releases related to previously accrued tax reserves. The total tax benefit associated with these items resulted in a reduction of income tax provision of approximately $36.3 million and a decrease in the effective tax rate of 40.4% in fiscal 2017.

The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets and deferred tax liabilities are as follows (amounts in thousands):



	March 31,
	2017			2016
Deferred tax assets:
Deferred income on shipments to distributors	$	55,674		$	34,830
Inventory valuation	14,608			12,082
Net operating loss carryforward	91,606			63,209
Capital loss carryforward	12,927			5,707
Share-based compensation	42,547			31,410
Income tax credits	243,049			100,294
Property, plant and equipment	59,700			16,262
Accrued expenses and other	110,347			37,292
Gross deferred tax assets	630,458			301,086
Valuation allowances	(210,120		)	(161,834		)
Deferred tax assets, net of valuation allowances	420,338			139,252
Deferred tax liabilities:
Convertible debt	(606,674		)	(496,626		)
Intangible assets	(147,543		)	(20,597		)
Other	(6,296		)	(6,416		)
Deferred tax liabilities	(760,513		)	(523,639		)
Net deferred tax liability	$	(340,175	)	$	(384,387	)

Reported as:
Non-current deferred tax assets	$	68,870		$	14,831
Non-current deferred tax liability	(409,045		)	(399,218		)
Net deferred tax liability	$	(340,175	)	$	(384,387	)

In assessing whether it is more likely than not that deferred tax assets will be realized, the Company considers all available evidence, both positive and negative, including its recent cumulative earnings experience and expectations of future available taxable income of the appropriate character by taxing jurisdiction, tax attribute carryback and carryforward periods available to them for tax reporting purposes, and prudent and feasible tax planning strategies.

The Company had federal, state and foreign NOL carryforwards with an estimated tax effect of $266.6 million available at March 31, 2017. The federal and state NOL carryforwards expire at various times between 2017 and 2036. The Company believes that it is more likely than not that the benefit from certain foreign and state NOL carryforwards will not be realized. In recognition of this risk, at March 31, 2017, the Company has provided a valuation allowance of $72.6 million. The Company also has state tax credits with an estimated tax effect of $103.1 million available at March 31, 2017. These state tax credits expire at various times between 2017 and 2036. The Company believes that it is more likely than not that the full benefit from these state tax credits will not be realized, and therefore has provided a valuation allowance of $71.0 million. The Company has capital loss carryforwards with an estimated tax effect of $12.9 million available at March 31, 2017. These capital loss carryforwards begin to expire in 2020. The Company believes that it is more likely than not that the full benefit from these capital losses will not be realized, and therefore has provided a valuation allowance of $12.9 million. The Company had U.S foreign tax credits with an estimated tax effect of $47.7 million that expire at various times between 2017 and 2026. The Company believes it is more likely than not that the benefit from these credits will not be fully realized and has provided a valuation allowance of $27.6 million. At March 31, 2017, the Company had credits for increasing research activity in the amount of $128.5 million that expire at various times between 2017 and 2036. At March 31, 2017, the Company had $5.8 million of alternative minimum tax credits that do not expire. The Company had refundable foreign tax credits of $41.3 million available at March 31, 2017. In addition, the Company had $19.9 million of withholding tax credits that expire at various times between 2022 and 2024 in foreign jurisdictions. The Company believes it is more likely than not that the benefit from these credits will not be fully realized and has provided a valuation allowance of $19.9 million.

During the year ended March 31, 2016, the H.R. 2029 "Protecting Americans from Tax Hikes Act of 2015" was signed into law which extended certain business tax provisions through December 31, 2019, including IRC section 954(c)(6) dealing with the application of Subpart F to certain inter-company payments among controlled foreign corporations. The expiration of section 954(c)(6) and the other expired provisions could have a material impact on the Company's consolidated results of operations subsequent to the year ended March 31, 2020.

The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The Company files U.S. federal, U.S. state, and foreign income tax returns. For U.S. federal, and in general for U.S. state tax returns, the fiscal 2005 and later tax years remain effectively open for examination by tax authorities. For foreign tax returns, the Company is generally no longer subject to income tax examinations for years prior to fiscal 2007.

Significant judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. Although the Company believes that it has appropriately reserved for its uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different than expectations. The Company will adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate, the closing of a statutory audit period or changes in applicable tax law. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences could impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to the reserves that are considered appropriate, as well as related net interest.

The Company recognizes liabilities for anticipated tax audit issues in the U.S. and other domestic and international tax jurisdictions based on its estimate of whether, and the extent to which, additional tax payments are more likely than not. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

The Company believes it maintains appropriate reserves to offset any potential income tax liabilities that may arise upon final resolution of matters for open tax years. If such reserve amounts ultimately prove to be unnecessary, the resulting reversal of such reserves could result in tax benefits being recorded in the period the reserves are no longer deemed necessary. If such amounts prove to be less than an ultimate assessment, a future charge to expense would be recorded in the period in which the assessment is determined. Although the timing of the resolution or closure of audits is highly uncertain, the Company does not believe that it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.

The following table summarizes the activity related to the Company's gross unrecognized tax benefits from April 1, 2014 to March 31, 2017 (amounts in thousands):



	Year Ended March 31,
	2017			2016			2015
Beginning balance	$	220,669		$	170,654		$	149,878
Increases related to acquisitions	193,297			46,245			8,381
Decreases related to settlements with tax authorities	(11,729		)	(7,954		)	(20,197		)
Decreases related to statute of limitation expirations	(7,556		)	(4,591		)	(9,031		)
Increases related to current year tax positions	26,332			16,315			23,179
Decreases/Increases related to prior year tax positions	(22,536		)	—			18,444
Ending balance	$	398,477		$	220,669		$	170,654

As of March 31, 2017, the Company had accrued approximately $9.4 million related to the potential payment of interest on the Company's uncertain tax positions. As of March 31, 2016, the Company had accrued approximately $2.4 million related to the potential payment of interest on the Company's uncertain tax positions. Interest was included in the provision for income taxes. The Company has accrued for approximately $66.1 million and $27.6 million in penalties related to its uncertain tax positions related primarily to its international locations as of March 31, 2017 and March 31, 2016, respectively. Interest and penalties charged or (credited) to operations during the years ended March 31, 2017, 2016 and 2015 related to the Company's uncertain tax positions were $5.8 million, $1.7 million and $(1.8) million, respectively. The increase related to prior year tax positions for March 31, 2015 related primarily to a balance sheet reclassification from a valuation allowance to a reserve in the amount of $15.7 million.