INCOME TAXES

Domestic and foreign income before income taxes for the three-year period ended September 30, 2016 is as follows:



(In thousands)	Fiscal 2016		Fiscal 2015		Fiscal 2014
Domestic income (loss)	$	99,822	$	22,788	$	(36,756	)
Foreign income	212,933		456,182		434,049
Income before income taxes	$	312,755	$	478,970	$	397,293

The provision (benefit) for domestic and foreign taxes on income consists of the following:



(In thousands)	Fiscal 2016			Fiscal 2015			Fiscal 2014
Current—domestic	$	2,454		$	453		$	773
Deferred—domestic	13,019			(4,061		)	(980		)
Current—foreign	32,480			48,691			56,968
Deferred—foreign	(470		)	1,314			(290		)
Provision for income taxes	$	47,483		$	46,397		$	56,471

Deferred Taxes

The components of the deferred income tax assets (liabilities) as of September 30, 2016 and 2015 are as follows:



	September 30,
(In thousands)	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	—		$	22,930
Tax credit carryforwards	2,831			2,464
Stock option compensation expense	11,801			10,924
Debt issuance costs	251			221
Basis difference in fleet spares	4,310			—
Book accruals	3,189			3,064
	22,382			39,603
Deferred tax liabilities:
Difference in book and tax basis of equipment	(209		)	(209		)
Deferred dividend withholding tax	(1,202		)	(907		)
Other timing differences	(199		)	(1,422		)
	(1,610		)	(2,538		)
Net deferred tax assets (liabilities) before valuation allowance	20,772			37,065
Valuation allowance	(21,808		)	(38,573		)
Net deferred tax liabilities	$	(1,036	)	$	(1,508	)

As of September 30, 2016 and 2015, the valuation allowance of $21.8 million and $38.6 million, respectively, primarily related to our U.S net operating loss carryforward, stock option compensation expense, timing differences and federal tax credit carryforwards. Our net operating loss carryforwards which will begin to expire in 2025, total approximately $5.9 million. Our tax credit carryforwards, which began to expire in 2016, total approximately $5.2 million.

We apply the “with-and-without” approach when utilizing certain tax attributes whereby windfall tax benefits are used last to offset taxable income. We had approximately $19.8 million of windfall tax benefits from previous stock option exercises that have not been recognized as of September 30, 2015. This amount will not be recognized until the deduction would reduce our U.S income taxes payable. At such time, the amount was recorded as an increase to paid-in-capital. During the fiscal year ended September 30, 2016, approximately $13.2 million of these tax benefits were recognized and recorded as an increase to paid-in-capital, as the windfall benefit (embedded in our U.S. net operating loss carry-forward) reduced our income taxes payable as of September 30, 2016. The remaining $6.6 million of windfall tax benefits have not been recognized as of September 30, 2016.

We do not record federal income taxes on the undistributed earnings of our foreign subsidiaries that we consider to be indefinitely reinvested in foreign operations. The cumulative amount of such undistributed earnings was approximately $2.9 billion at September 30, 2016. If these earnings were distributed, we estimate approximately $670.0 million in additional taxes would be incurred. These earnings could also become subject to additional taxes under the anti-deferral provisions within the U.S. Internal Revenue Code. However, we believe this is highly unlikely given our current structure and have not provided deferred income taxes on these foreign earnings as we consider them to be permanently invested abroad.

We record estimated accrued interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2016, we have approximately $16.1 million of reserves for uncertain tax positions, including estimated accrued interest and penalties of $3.8 million, which are included in Other Long Term Liabilities in the Consolidated Balance Sheet. All $16.1 million of the net uncertain tax liabilities would affect the effective tax rate if recognized.

A summary of activity related to the net uncertain tax positions including penalties and interest for fiscal year 2016 is as follows:



	Liability for Uncertain
(In thousands)	Tax Positions
Balance at October 1, 2015	$	13,775
Increases as a result of tax positions taken during the current period	1,268
Increases as a result of tax positions taken in prior periods	2,347
Decreases due to the lapse of the applicable statute of limitations	(1,337		)
Balance at September 30, 2016	$	16,053

We believe that it is reasonably possible that approximately $1.0 million of our remaining unrecognized tax benefits may be recognized by the end of fiscal year 2017 as a result of a lapse of the statute of limitations.

Our U.S tax returns for fiscal year 2012 and subsequent years remain subject to examination by tax authorities. As we conduct business globally, we have various tax years remaining open to examination in our international tax jurisdictions, including tax returns in Australia for fiscal years 2009 through 2015. Although we cannot predict the outcome of ongoing or future tax examinations, we do not anticipate that the ultimate resolution of these examinations will have a material impact on our consolidated financial position, results of operations or cash flows.

We have historically earned most of our operating income in certain nontaxable and deemed profit tax jurisdictions, which significantly reduced our effective tax rate for fiscal years 2016, 2015 and 2014 when compared to the United States statutory rate. There were no significant transactions that materially impacted our effective tax rates for fiscal years 2016, 2015 or 2014. The differences between the United States statutory and our effective income tax rate are as follows:



	Fiscal 2016		Fiscal 2015		Fiscal 2014
Statutory income tax rate	35	%	35	%	35	%
Resolution of prior period tax items	—		—		—
Increase in tax rate resulting from:
Valuation allowance	—		—		2
Increases to the reserve for uncertain tax positions	1		—		1
Decrease in tax rate resulting from:
Release of valuation allowance	(5	)	(3	)	—
Foreign tax rate differentials, net of foreign tax credit utilization	(16	)	(22	)	(24	)
Effective income tax rate	15	%	10	%	14	%