13. Income Taxes

The Company’s United States and Irish based subsidiaries file tax returns in the United States and Ireland respectively. Other foreign subsidiaries are taxed separately under the laws of their respective countries.

The components of income before provision for income tax expense are as follows:

	Year ended
	December		December		December
	2013		2012		2011
	(in thousands)
Ireland	$	80,914	$	12,157	$	(33,732	)
United States		16,218		11,371		13,317
Other		23,733		43,693		49,410

Income before provision for income taxes	$	120,865	$	67,221	$	28,995

The components of total income tax expense are as follows:

	Year ended
	December			December			December
	2013			2012			2011
	(in thousands)
Provision for income taxes:
Current:
Ireland	$	9,158		$	1,684		$	351
United States		14,492			12,290			6,367
Other		4,876			8,257			5,518

Total current tax		28,526			22,231			12,236

Deferred expense/(benefit):
Ireland		1,914			(287	)		(3,825	)
United States		(9,420	)		(9,715	)		(1,711	)
Other		(2,967	)		(428	)		(585	)

Total deferred tax expense/(benefit)		(10,473	)		(10,430	)		(6,121	)

Provision for income taxes		18,053			11,801			6,115

Impact on shareholders equity and other comprehensive income of the tax consequence of :
Excess tax benefit on stock compensation		(1,651	)		(1,274	)		(681	)
Currency impact on long term funding		87			356			(294	)

Total	$	16,489		$	10,883		$	5,140

Ireland’s statutory income tax rate is 12.5%. The Company’s consolidated effective tax rate differed from the statutory rate as set forth below;

	Year ended
	December			December			December
	2013			2012			2011
	(in thousands)
Taxes at Irish statutory rate of 12.5% (2011:12.5%; 2012: 12.5%)	$	15,108		$	8,401		$	3,625
Foreign and other income taxed at higher/(reduced) rates		4,229			7,873			5,373
Research & development tax incentives		(2,598	)		(4,954	)		(6,341	)
Movement in valuation allowance		2,389			1,557			4,362
Prior year over provision in respect of foreign taxes		(47	)		(678	)		(83	)
Effects of permanent items		(1,002	)		(26	)		(615	)
Other		(26	)		(372	)		(206	)

	$	18,053		$	11,801		$	6,115

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented below:

	Year ended
	December			December			December
	2013			2012			2011
	(in thousands)
Deferred tax liabilities:
Property, plant and equipment	$	6,501		$	6,631		$	7,331
Goodwill		14,013			11,467			9,443
Other intangible assets		970			2,707			3,525
Accruals		51			77			1,185
Other		4			88			97
Unrealised FX		1,056			1,160			-

Total deferred tax liabilities recognized		22,595			22,130			21,581

Deferred tax assets:
Net operating loss carry forwards		27,646			25,116			21,981
Property, plant and equipment		2,739			2,345			1,324
Accrued expenses and payments on account		29,429			19,382			11,652
Stock compensation		6,291			5,586			4,818
Deferred compensation expense		1,187			1,136			1,197
Other		-			-			214
Unrealised FX		92			98			-
Total deferred tax assets		67,384			53,663			41,186
Valuation allowance for deferred tax assets		(21,591	)		(18,817	)		(16,445	)

Deferred tax assets recognized	$	45,793		$	34,846		$	24,741

Net deferred tax asset	$	23,198		$	12,716		$	3,160

At December 31, 2013 non-U.S subsidiaries had operating loss carry forwards for income tax purposes that may be carried forward indefinitely, available to offset against future taxable income, if any, of approximately $96.2 million (2012: $94.4 million). At December 31, 2013 non-U.S. subsidiaries also had additional operating loss carry forwards of $5.9 million which are due to expire between 2014 and 2016.

At December 31, 2013 U.S. subsidiaries, had U.S. federal and state net operating loss (“NOL”) carry forwards of approximately $8.3 million and $15.9 million, respectively. These net operating losses are available for offset against future taxable income and expire between 2014 and 2032. Of the $8.3 million U.S. federal and $15.9 million state net operating losses, approximately $7.6 million and $15.2 million are currently available for offset against future U.S. federal and state taxable income respectively. Annual utilization of these state net operating losses may be limited by specific state rules. The subsidiary’s ability to use the remaining U.S. federal and state net operating loss carry forwards of $0.7 million and $0.7 million, respectively is further limited to $113,000 per year due to a change of ownership in 2000, as defined by Section 382 of the Internal Revenue Code of 1986, as amended.

The expected expiry dates of these losses are as follows:

	Federal		State
	NOL’s		NOL’s
	(in thousands)

2014- 2020	$	678	$	678
2021- 2025		-		8,572
2026- 2032		7,644		6,648

	$	8,322	$	15,898

In addition US subsidiaries have alternative minimum tax credit carry forwards of approximately $0.3 million that are available to reduce future U.S. federal regular income taxes, over an indefinite period. They also have general business credit carry forwards of approximately $0.3 million that are available to offset future U.S. federal income taxes.

The valuation allowance at December 31, 2013 was approximately $21.6 million. The valuation allowance for deferred tax assets as of December 31, 2012 and December 31, 2011 was $18.8 million and $16.4 million respectively. The net change in the total valuation allowance was an increase of $2.8 million during 2013 and an increase of $2.4 million during 2012.

The valuation allowances at December 31, 2013 and December 31, 2012 were primarily related to tax losses and tax credits carried forward that, in the judgment of management, are not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

The Company has not recognized a deferred tax liability for the undistributed earnings of foreign subsidiaries that arose in 2013 and prior years as the Company considers these earnings to be indefinitely reinvested. It is not practical to calculate the unrecognized deferred tax liability.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows:

	December 31,			December 31,			December 31,
	2013			2012			2011
	(in thousands)
Gross amount of unrecognized tax benefits at start of year	$	7,189		$	6,543		$	8,566

Increase related to prior year tax positions		-			1,167			304
Decrease related to prior year tax positions		(494	)		-			(36	)
Increase related to current year tax positions		2,269			1,473			482
Settlements		(899	)		(98	)		-
Lapse of statute of limitations		(2,285	)		(1,896	)		(2,773	)

Gross amount of unrecognized tax benefits at end of year	$	5,780		$	7,189		$	6,543

The relevant statute of limitations for gross unrealized tax benefits totaling $1.2 million could potentially expire during 2014.

Included in the balance of total unrecognized tax benefits at December 31, 2013 there were net potential benefits of $5.8 million, which if recognized, would affect the effective rate on income tax from continuing operations. The balance of total unrecognized tax benefits at December 31, 2012 and December 31, 2011 included net potential benefits which, if recognized, would affect the effective rate of income tax from continuing operations of $7.2 million and $6.5 million respectively.

Interest and penalties recognized as a net benefit during the year ended December 31, 2013 amounted to $0.2 million (2012: $0.1 million) and are included within the provision for income taxes. Total accrued interest and penalties as of December 31, 2013 and December 31, 2012 were $0.9 million and $1.1 million respectively and are included in the closing income tax liabilities at those dates.

Our major tax jurisdictions are the United States and Ireland. We may potentially be subjected to tax audits in both our major jurisdictions. In the United States tax periods open to audit include the years December 31, 2010, December 31, 2011, December 31, 2012 and December 31, 2013. In Ireland tax periods open to audit include the years ended December 31, 2008, December 31, 2009, December 31, 2010, December 31, 2011, December 31, 2012 and December 31, 2013. During such audits, local tax authorities may challenge the positions taken by us in tax returns.