6. Income Taxes

The Company’s income tax provision (benefit) consists of the following:

	Fiscal Year Ended
	December 28,		December 29,		December 31,
	2013		2012		2011
Federal:
Current	$	(11,907)	$	83,185	$	79,305
Deferred		1,913		(22,988)		(25,763)
		(9,994)		60,197		53,542
State:
Current		2,584		8,532		9,087
Deferred		(408)		(5,327)		(4,490)
		2,176		3,205		4,597
Foreign:
Current		37,094		22,296		22,363
Deferred		11,870		(3,573)		(17,237)
		48,964		18,723		5,126
Total	$	41,146	$	82,125	$	63,265

The income tax provision differs from the amount computed by applying the U.S. statutory federal income tax rate to income before taxes. The sources and tax effects of the differences, including the impact of establishing tax contingency accruals, are as follows:

	December 28,		December 29,		December 31,
	2013		2012		2011
Federal income tax expense at U.S. statutory rate	$	229,420	$	218,585	$	204,456
State income tax expense, net of federal tax effect		1,414		2,083		2,988
Foreign tax rate differential		(121,279)		(141,456)		(148,058)
Taiwan tax holiday benefit		(4,944)		(6,418)		(13,127)
Net change in uncertain tax postions		(50,700)		19,850		8,283
Other foreign taxes less incentives and credits		5,041		(2,287)		9,658
U.S. federal domestic production activities deduction		(3,550)		(6,276)		(2,415)
U.S. federal research and development credit		(14,876)		-		(6,111)
Other, net		620		(1,956)		7,591
Income tax expense	$	41,146	$	82,125	$	63,265

The holding company statutory federal income tax rate in Switzerland, the Company's place of incorporation since the redomestication effective June 27, 2010 (see Note 12), is 7.83%. If the Company reconciled taxes at the Swiss holding company federal statutory tax rate to the reported income tax for 2013, as presented above, the amounts related to tax at the statutory rate would be $178,000 lower, or $51,000, and the foreign tax rate differential would be adjusted by a similar amount to $64,000. For 2012, the amounts related to tax at the statutory rate would be approximately $170,000 lower, or $49,000, and the foreign tax rate differential would be adjusted by a similar amount to approximately $31,000. For 2011, the amounts related to tax at the statutory rate would be approximately $159,000 lower, or $45,000, and the foreign tax rate differential would be adjusted by a similar amount to approximately $11,000. All other amounts would remain substantially unchanged.

The Company’s income before income taxes attributable to non-U.S. operations was $502,423, $495,908, and $473,994, for the years ended December 28, 2013, December 29, 2012, and December 31, 2011, respectively. The Taiwan tax holiday benefits included in the table above reflect $0.03, $0.03, and $0.07 per weighted-average common share outstanding for the years ended December 28, 2013, December 29, 2012, and December 31, 2011, respectively. The Company currently expects to benefit from these Taiwan tax holidays through 2016, at which time these tax benefits will likely expire. Income taxes of $307,990, $252,452, and $229,657 at December 28, 2013, December 29, 2012, and December 31, 2011, respectively, have not been accrued by the Company for the unremitted earnings of several of its foreign subsidiaries because such earnings are intended to be reinvested in the subsidiaries indefinitely.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 28,		December 29,
	2013		2012
Deferred tax assets:
Product warranty accruals	$	3,000	$	2,522
Allowance for doubtful accounts		11,394		11,026
Inventory reserves		5,491		6,162
Sales program allowances		525		5,680
Reserve for sales returns		-		3,442
Other accruals		8,927		8,774
Deferred costs		4,266		-
Stock option compensation		47,954		51,241
Tax credit carryforwards		55,435		46,577
Amortization		23,900		25,841
Deferred revenue		57,813		56,293
Net operating losses of subsidiaries		11,561		15,771
Unrealized investment gain		-		2,459
Benefit related to uncertain tax positions		9,904		13,882
Other		4,064		1,334
Valuation allowance related to loss carryforward and tax credits		(63,361)		(51,393)
		180,873		199,611
Deferred tax liabilities:
Depreciation		16,202		16,286
Reserve for sales returns		733		-
Prepaid expenses		4,766		2,886
Book basis in excess of tax basis for acquired entities		2,343		4,907
Unrealized investment loss		1,429		-
Other		-		1,744
		25,473		25,823
Net deferred tax assets	$	155,400	$	173,788

For improved comparability, the Company has updated the 2012 footnote to include a reclassification from noncurrent payable to noncurrent deferred tax asset for the tax benefit that would be recognized related to uncertain tax positions. This reclassification if recorded in the balance sheet for the period ended December 29, 2012 would result in an increase to noncurrent income taxes payable of $13,882, the same amount reflected as an increase to the noncurrent deferred tax asset in this schedule.

The Company recognized a $29,615 deferred tax asset during 2010 for the future tax benefit of the fair market value step-up in basis of intangible assets related to the redomestication to Switzerland and local statutory tax reporting requirements. The deferred tax asset was recognized as an increase to Additional Paid-In Capital in 2010 and will reverse as the intangible assets are amortized for Swiss statutory and tax reporting purposes.

At December 28, 2013, the Company had $55,435 of tax credit carryover which includes $52,618 of Taiwan surtax credit with no expiration. There is a full valuation allowance for the Taiwan surtax credits. The valuation allowance reflects a net increase of $11,968 during 2013 including $11,064 related to Taiwan surtax credits. The valuation allowance had a net increase in 2012 of $14,220 of which $10,314 related to surtax credits in Taiwan.

At December 28, 2013, the Company had a deferred tax asset of $11,561 related to the future tax benefit on net operating loss (NOL) carryforwards of $71,530. Included in the NOL carryforwards is $9,476 that relates to Spain and expires in varying amounts between 2022 and 2027, $41,497 that relates to Switzerland and expires in 2019, $2,124 related to China that expires in 2017 and $18,432 that relates to various other jurisdictions and has no expiration date. The Company has recorded a valuation allowance for a portion of its deferred tax asset relating to various tax attributes that it does not believe are more likely than not to be realized. In the future, if the Company determines, based on existence of sufficient evidence, that it should realize more or less of its deferred tax assets, an adjustment to the valuation allowance will be made in the period such a determination is made.

The total amount of unrecognized tax benefits as of December 28, 2013 was $133,015. A reconciliation of the beginning and ending amount of unrecognized tax benefits for years ended December 28, 2013, December 29, 2012, and December 31, 2011 is as follows:

	December 28,		December 29,		December 31,
	2013		2012		2011
Balance at beginning of year	$	182,870	$	156,354	$	149,731
Additions based on tax positions related to prior years		2,668		3,263		834
Reductions based on tax positions related to prior years		(5,224)		(890)		(7,335)
Additions based on tax positions related to current period		30,262		33,232		30,781
Reductions related to settlements with tax authorities		(3,387)		(672)		-
Expiration of statute of limitations		(74,174)		(8,417)		(17,257)
Balance at end of year	$	133,015	$	182,870	$	156,754

The December 28, 2013 balance of $125,918 of unrecognized tax benefits, if recognized, would reduce the effective tax rate. None of the unrecognized tax benefits are due to uncertainty in the timing of deductibility.

Accounting guidance requires unrecognized tax benefits to be classified as non-current liabilities, except for the portion that is expected to be paid within one year of the balance sheet date. The entire $125,918, $173,532, and $148,977 are required to be classified as non-current at December 28, 2013, December 29, 2012, and December 31, 2011, respectively.

Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. At December 28, 2013, December 29, 2012, and December 31, 2011, the Company had accrued approximately $5,111, $8,222, and $12,927, respectively, for interest. The interest component of the reserve increased (decreased) income tax expense for the years ending December 28, 2013, December 29, 2012, and December 31, 2011 by ($3,111), ($4,705), and $5,568, respectively. The Company had no amounts accrued for penalties as the nature of the unrecognized tax benefits, if recognized, would not warrant the imposition of penalties.

The Company files income tax returns in Switzerland and U.S. federal jurisdictions, as well as various state, local and foreign jurisdictions. The Company is no longer subject to U.S. federal, state, or local tax examinations by tax authorities for years 2009 and prior. The Company is no longer subject to Taiwan income tax examinations by tax authorities for years 2007 and prior. The Company is no longer subject to United Kingdom tax examinations by tax authorities for years 2010 and prior.

The Company recognized a reduction of income tax expense of $70,847, $8,362, and $17,215 in fiscal years ended December 28, 2013, December 29, 2012, and December 31, 2011, respectively, to reflect the expiration of statutes of limitations in various jurisdictions.

The Company believes that it is reasonably possible that approximately $34,569 of its reserves for certain unrecognized tax benefits will decrease within the next 12 months as the result of the expiration of statutes of limitations. This potential decrease in unrecognized tax benefits would impact the Company’s effective tax rate within the next 12 months.

On September 13, 2013, Treasury and the Internal Revenue Service issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce, or improve tangible property as well as dispositions of such property and are generally effective for tax years beginning on or after January 1, 2014. We have evaluated these regulations and determined they will not have a material impact on our consolidated results of operations, cash flows, or financial position.