6. INCOME TAXES

The Company records deferred tax assets and liabilities based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted statutory tax rate in effect for the year these differences are expected to be taxable or reversed. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The recorded deferred tax assets are reviewed for impairment on a quarterly basis by reviewing the Company’s internal estimates for future taxable income.

As of September 30, 2012, the Company has established a valuation allowance for its U.S. deferred tax assets of $4.8 million, a valuation allowance on its Calgary property of $0.9 million and a valuation allowance on CCE deferred tax assets of $1.3 million due to the uncertainty of future taxable income. The Company assesses the continuing need for a valuation allowance that results from uncertainty regarding its ability to realize the benefits of the Company’s deferred tax assets. The ultimate realization of deferred income tax assets depends on generation of future taxable income in the jurisdictions where the assets are located during the periods in which those temporary differences become deductible. If the Company concludes that its prospects for the realization of its deferred tax assets are more likely than not, the Company will then reduce its valuation allowance as appropriate and credit income tax expense after considering the following factors:

·	The level of historical taxable income and projections for future taxable income in the jurisdictions where the assets are located over periods in which the deferred tax assets would be deductible;

·	Accumulation of net income before tax utilizing a look-back period of three years, and

·	Tax planning strategies.

The income tax provisions are based on estimated full-year earnings for financial reporting purposes adjusted for permanent differences. The Company’s provision for income taxes from operations consists of the following:




	For the nine months
Amounts in thousands	ended September 30,
	2012	2011
U.S. Federal - Current	$ 169	$ 72
U.S. Federal - Deferred	0	0
Provision for U.S. federal income taxes	169	72

Foreign - Current	$ 277	$ 437
Foreign - Deferred	386	(113)
Provision for foreign income taxes	663	324
Total provision for income taxes	$ 832	$ 396

The Company’s income tax expense by jurisdiction is summarized in the tables below:


	For the nine months
Amounts in thousands	ended September 30, 2012
	Pre-tax income	Income tax	Effective tax rate
Canada	$ 2,145	$ 651	30.4%
United States	640	169	26.4%
Mauritius	322	10	3.0%
Austria	902	2	0.2%
Poland*	290	-	0.0%
Total	$ 4,299	$ 832	19.4%
* Poland includes earnings from the equity investment in CPL.


	For the nine months
Amounts in thousands	ended September 30, 2011
	Pre-tax income (loss)	Income tax	Effective tax rate
Canada	$ 1,814	$ 273	15.1%
United States	(1,087)	72	(6.6%)
Mauritius	1,629	49	3.0%
Austria	(132)	2	(1.5%)
Poland *	603	-	0.0%
Total	$ 2,827	$ 396	14.0%
* Poland includes earnings from the equity investment in CPL.

The US effective income tax rate has increased significantly for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 due to a one-time withholding tax payment of $0.1 million related to a Canadian intercompany payable offset by the benefit associated with utilizing net operating losses that had been previously reserved.

The Canadian effective income tax rate has changed for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 due primarily to the translation effect of foreign currency gains and losses related to the change in the foreign exchange rate.

The effective tax rates of our foreign properties are impacted by the movement of exchange rates primarily due to loans which are denominated in U.S. dollars. Therefore, foreign currency gains or losses recorded in each property’s local currency do not impact our earnings reported in U.S. dollars. Certain loans of our foreign properties are denominated in U.S. dollars. Therefore, foreign currency gains or losses can significantly impact each jurisdiction’s effective tax rate.