15. Taxation

The Company and its Bermuda domiciled subsidiaries are not subject to Bermuda income or capital gains tax under current Bermuda law. In the event that there is a change in current law such that taxes on income or capital gains are imposed, the Company and its Bermuda domiciled subsidiaries would be exempt from such tax until March 2035 pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966.

The Company has subsidiaries and branches that operate in various other jurisdictions around the world that are subject to tax in the jurisdictions in which they operate. The significant jurisdictions in which the Company’s subsidiaries and branches are subject to tax are Canada, France, Ireland, Singapore, Switzerland and the United States.

Income tax returns are open for examination for the tax years 2010-2015 in Canada and Ireland, 2011-2015 in Singapore and Switzerland, 2012-2015 in the United States and 2013-2015 in France. As a global organization, the Company may be subject to a variety of transfer pricing or permanent establishment challenges by taxing authorities in various jurisdictions. While management believes that adequate provision has been made in the Consolidated Financial Statements for any potential assessments that may result from tax examinations for all open tax years, the completion of tax examinations for open years may result in changes to the amounts recognized in the Consolidated Financial Statements.

Income tax expense for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands of U.S. dollars):



	2015			2014			2013
Current income tax expense
U.S.	$	81,066		$	51,615		$	55,993
Non U.S.	95,720			184,367			73,599
Total current income tax expense	$	176,786		$	235,982		$	129,592
Deferred income tax (benefit) expense
U.S.	$	(59,624	)	$	20,410		$	(13,693	)
Non U.S.	(44,125		)	(17,636		)	(70,886		)
Total deferred income tax (benefit) expense	$	(103,749	)	$	2,774		$	(84,579	)
Unrecognized tax expense (benefit)
U.S.	$	—		$	—		$	(335	)
Non U.S.	6,627			750			3,738
Total unrecognized tax expense	$	6,627		$	750		$	3,403
Total income tax expense
U.S.	$	21,442		$	72,025		$	41,965
Non U.S.	58,222			167,481			6,451
Total income tax expense	$	79,664		$	239,506		$	48,416

Income before taxes attributable to the Company’s domestic and foreign operations and a reconciliation of the actual income tax rate to the amount computed by applying the effective tax rate of 0% under Bermuda (the Company’s domicile) law to income before taxes was as follows for the years ended December 31, 2015, 2014 and 2013 (in thousands of U.S. dollars):



	2015			2014		2013
Domestic (Bermuda)	$	(63,603	)	$	686,538	$	611,900
Foreign	250,417			621,081		109,958
Income before taxes	$	186,814		$	1,307,619	$	721,858



Reconciliation of effective tax rate (% of income before taxes)
Expected tax rate	0.0	%	0.0	%	0.0	%
Foreign taxes at local expected tax rates	58.3		15.8		5.1
Impact of foreign exchange gains (losses)	1.1		2.2		(1.1	)
Unrecognized tax expense	3.5		0.1		0.5
Tax-exempt income and expenses not deductible	(8.0	)	(2.2	)	(0.9	)
Impact of enacted changes in tax laws	0.3		—		1.8
Foreign branch tax	(26.8	)	1.4		(1.4	)
Ceding commissions	(0.7	)	1.8		(0.4	)
Valuation allowance	15.2		(0.6	)	1.3
Other	(0.3	)	(0.2	)	1.8
Actual tax rate	42.6	%	18.3	%	6.7	%

Deferred tax assets and liabilities reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the net deferred tax assets and liabilities at December 31, 2015 and 2014 were as follows (in thousands of U.S. dollars):



	2015			2014
Deferred tax assets
Discounting of loss reserves and adjustment to life policy reserves	$	61,712		$	77,117
Foreign tax credit carryforwards	94,560			57,186
Tax loss carryforwards	28,663			35,384
Unearned premiums	23,319			23,230
Other deferred tax assets	49,545			32,431
	257,799			225,348
Valuation allowance	(94,176		)	(68,115		)
Deferred tax assets	163,623			157,233
Deferred tax liabilities
Deferred acquisition costs	48,759			54,718
Goodwill and other intangibles	85,185			93,416
Equalization reserves	55,715			77,383
Unrealized appreciation and timing differences on investments	23,240			85,873
Other deferred tax liabilities	54,715			51,385
Deferred tax liabilities	267,614			362,775
Net deferred tax liabilities	$	(103,991	)	$	(205,542	)

The components of net tax assets and liabilities at December 31, 2015 and 2014 were as follows (in thousands of U.S. dollars):



	2015			2014
Net tax assets	$	102,596		$	6,876
Net tax liabilities	(218,652		)	(240,989		)
Net tax liabilities	$	(116,056	)	$	(234,113	)



	2015			2014
Net current tax assets (liabilities)	$	11,773		$	(9,739	)
Net deferred tax liabilities	(103,991		)	(205,542		)
Net unrecognized tax benefit	(23,838		)	(18,832		)
Net tax liabilities	$	(116,056	)	$	(234,113	)

Realization of the deferred tax assets is dependent on generating sufficient taxable income in future periods. Although realization is not assured, Management believes that it is more likely than not that the deferred tax assets will be realized. The valuation allowance recorded at December 31, 2015 related to a foreign tax credit carryforward of $89.4 million in Ireland and to tax loss carryforwards of $3.5 million, $1.0 million and $0.3 million in Canada, the United States and Switzerland, respectively. The valuation allowance recorded at December 31, 2014 related to a foreign tax credit carryforward of $47.0 million in Ireland and to tax loss carryforwards of $20.0 million and $1.1 million in Singapore and Canada, respectively. A portion of the valuation allowance recorded at December 31, 2014 related to a foreign tax credit carryforward was reversed during the year ended December 31, 2015, resulting from a reassessment of the likelihood of recovery of the related deferred tax asset.

At December 31, 2015, the deferred tax assets (after valuation allowance) included tax loss carryforwards of $19.1 million in Singapore, which can be carried forward for an unlimited period of time, $2.9 million in Ireland, which can be carried forward for an unlimited period of time, and $0.3 million in the United States, which can be carried forward for 20 years, and foreign tax credit carryforwards of $5.2 million in Ireland, which can be carried forward for an unlimited period of time. At December 31, 2014, the deferred tax assets (after valuation allowance) included foreign tax credit carryforwards of $10.1 million in Ireland, which can be carried forward for an unlimited period of time, tax loss carryforwards of $10.3 million in Switzerland, which can be carried forward for 7 years, and $3.1 million in Ireland, which can be carried forward for an unlimited period of time.

The total amount of unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands of U.S. dollars):



	January 1, 2015		Changes in tax positions taken during a prior period		Tax positions taken during the current period		Change as a result of a lapse of the statute of limitations			Impact of the change in foreign currency exchange rates			December 31, 2015
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	18,266	$	29	$	8,683	$	(3,039	)	$	(1,684	)	$	22,255
Interest and penalties recognized on the above	566		716		261		(24		)	64			1,583
Total unrecognized tax benefits, including interest and penalties	$	18,832	$	745	$	8,944	$	(3,063	)	$	(1,620	)	$	23,838



	January 1, 2014		Changes in tax positions taken during a prior period		Tax positions taken during the current period		Change as a result of a lapse of the statute of limitations			Impact of the change in foreign currency exchange rates			December 31, 2014
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	19,353	$	1,338	$	5,142	$	(5,197	)	$	(2,370	)	$	18,266
Interest and penalties recognized on the above	1,215		259		—		(792		)	(116		)	566
Total unrecognized tax benefits, including interest and penalties	$	20,568	$	1,597	$	5,142	$	(5,989	)	$	(2,486	)	$	18,832



	January 1, 2013		Changes in tax positions taken during a prior period			Tax positions taken during the current period		Change as a result of a lapse of the statute of limitations			Impact of the change in foreign currency exchange rates		December 31, 2013
Unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	15,784	$	(5,038	)	$	10,164	$	(2,102	)	$	545	$	19,353
Interest and penalties recognized on the above	800		507			51		(179		)	36		1,215
Total unrecognized tax benefits, including interest and penalties	$	16,584	$	(4,531	)	$	10,215	$	(2,281	)	$	581	$	20,568

For the years ended December 31, 2015, 2014 and 2013, there were no unrecognized tax benefits that, if recognized, would create a temporary difference between the reported amount of an item in the Company’s Consolidated Balance Sheets and its tax basis. The Company recognizes interest and penalties as income tax expense in its Consolidated Statements of Operations.

At December 31, 2015, the unrecognized tax benefit which is reasonably possible to change within twelve months is $5.8 million primarily relating to the expected expiration of the statute of limitations on certain tax positions.