Income Taxes

The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company's income (loss) before taxes and the provision for (benefit from) income taxes is generated outside of Switzerland.

Income from continuing operations before income taxes for the fiscal years 2017, 2016 and 2015 is summarized as follows (in thousands):



	Years Ended March 31,
	2017		2016		2015
Swiss	$	161,544	$	80,572	$	119,460
Non-Swiss	53,445		50,900		33,623
Income before taxes	$	214,989	$	131,472	$	153,083

The provision for (benefit from) income taxes is summarized as follows (in thousands):



	Years Ended March 31,
	2017			2016			2015
Current:
Swiss	$	1,934		$	1,668		$	1,152
Non-Swiss	9,774			(2,582		)	579
Deferred:
Non-Swiss	(2,595		)	4,024			2,923
Provision for income taxes	$	9,113		$	3,110		$	4,654

The difference between the provision for income taxes and the expected tax provision at the statutory income tax rate of 8.5% is reconciled below (in thousands):



	Years Ended March 31,
	2017			2016			2015
Expected tax provision at statutory income tax rates	$	18,274		$	11,175		$	13,012
Income taxes at different rates	(5,247		)	(2,713		)	(4,299		)
Research and development tax credits	(2,309		)	(1,619		)	(1,120		)
Executive compensation	654			864			1,557
Stock-based compensation	1,794			1,446			2,261
Valuation allowance	1,024			947			764
Restructuring charges / (credits)	2			1,514			(415		)
Tax reserves (releases), net	(5,570		)	(8,761		)	(6,912		)
Audit settlement	—			—			(837		)
Other, net	491			257			643
Provision for income taxes	$	9,113		$	3,110		$	4,654

Deferred income tax assets and liabilities consist of the following (in thousands):



	March 31,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	4,306		$	7,136
Tax credit carryforwards	5,825			2,981
Accruals	41,570			36,365
Depreciation and amortization	2,860			4,059
Share-based compensation	11,846			12,890
Gross deferred tax assets	66,407			63,431
Valuation allowance	(6,626		)	(5,338		)
Gross deferred tax assets after valuation allowance	59,781			58,093
Deferred tax liabilities:
Acquired intangible assets and other	(4,267		)	(3,550		)
Gross deferred tax liabilities	(4,267		)	(3,550		)
Deferred tax assets, net	$	55,514		$	54,543

Management regularly assesses the ability to realize deferred tax assets recorded in the Company's entities based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

The Company had a valuation allowance of $6.6 million at March 31, 2017, increased from $5.3 million at March 31, 2016 primarily due to $1.0 million increase in valuation allowance for deferred tax assets in the state of California of the United States. The Company had a valuation allowance of $5.9 million as of March 31, 2017 against deferred tax assets in the state of California of the United States. The remaining valuation allowance primarily represents $0.7 million for various tax credit carryforwards. The Company determined that it is more likely than not that the Company would not generate sufficient taxable income in the future to utilize such deferred tax assets.

Deferred tax assets relating to tax benefits of employee stock grants have been reduced to reflect settlement activity in fiscal years 2017 and 2016. Settlement activity of grants in fiscal years 2017 and 2016 resulted in a "shortfall" in which tax deductions were less than previously recorded share-based compensation expense. The Company recorded a shortfall to equity of $2.1 million and $2.3 million, respectively, in fiscal years 2017 and 2016.

As of March 31, 2017, the Company had foreign net operating loss and tax credit carryforwards for income tax purposes of $208.3 million and $47.2 million, respectively, of which $181.5 million of the net operating loss carryforwards and $27.2 million of the tax credit carryforwards, if realized, will be credited to equity since they have not met the applicable realization criteria. Unused net operating loss carryforwards will expire at various dates in fiscal years 2018 to 2036. Certain net operating loss carryforwards in the United States relate to acquisitions and, as a result, are limited in the amount that can be utilized in any one year. The tax credit carryforwards will begin to expire in fiscal year 2019.

Swiss income taxes and non-Swiss withholding taxes associated with the repatriation of earnings or for other temporary differences related to investments in non-Swiss subsidiaries have not been provided for, as the Company intends to reinvest the earnings of such subsidiaries indefinitely or the Company has concluded that no additional tax liability would arise on the distribution of such earnings. If these earnings were distributed to Switzerland in the form of dividends or otherwise, or if the shares of the relevant non-Swiss subsidiaries were sold or otherwise transferred, the Company may be subject to additional Swiss income taxes and non-Swiss withholding taxes. As of March 31, 2017, the cumulative amount of unremitted earnings of non-Swiss subsidiaries for which no income taxes have been provided is approximately $148.2 million. The amount of unrecognized deferred income tax liability related to these earnings is estimated to be approximately $3.9 million.

The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

As of March 31, 2017 and March 31, 2016, the total amount of unrecognized tax benefits due to uncertain tax positions was $63.7 million and $69.9 million, respectively, all of which would affect the effective income tax rate if recognized.

As of March 31, 2017, the Company had $51.8 million in non-current income taxes payable and $1.5 million in current income taxes payable, including interest and penalties, related to the Company's income tax liability for uncertain tax positions. As of March 31, 2016, the Company had $59.7 million in non-current income taxes payable and $0.1 million in current income taxes payable. The Company anticipates a settlement with the tax authorities in a foreign jurisdiction in the next twelve months and reclassed $1.4 million from non-current income taxes payable to current income taxes payable as of March 31, 2017.

The aggregate changes in gross unrecognized tax benefits in fiscal years 2017, 2016 and 2015 were as follows (in thousands):



March 31, 2014	$	91,046
Lapse of statute of limitations	(14,071		)
Settlements with tax authorities	(2,160		)
Decreases in balances related to tax positions taken during prior years	(3,544		)
Increases in balances related to tax positions taken during the year	7,752
March 31, 2015	$	79,023
Lapse of statute of limitations	(15,518		)
Settlements with tax authorities	—
Decreases in balances related to tax positions taken during prior years	(1,502		)
Increases in balances related to tax positions taken during the year	7,876
March 31, 2016	$	69,879
Lapse of statute of limitations	(14,161		)
Settlements with tax authorities	—
Decreases in balances related to tax positions taken during prior years	(1,610		)
Increases in balances related to tax positions taken during the year	9,559
March 31, 2017	$	63,667

The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense. The Company recognized $0.7 million, $0.3 million and $0.8 million in interest and penalties in income tax expense during fiscal years 2017, 2016 and 2015, respectively. As of March 31, 2017, 2016 and 2015, the Company had $3.0 million, $3.6 million and $4.9 million of accrued interest and penalties related to uncertain tax positions, respectively.

The Company files Swiss and foreign tax returns. The Company received final tax assessments in Switzerland through fiscal year 2014. For other foreign jurisdictions such as the United States, the Company is generally not subject to tax examinations for years prior to fiscal year 2013. The Company is under examination and has received assessment notices in foreign tax jurisdictions. If the examinations are resolved unfavorably, there is a possibility they may have a material negative impact on its results of operations.

Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. Dollar as compared to other currencies. Excluding these factors, uncertain tax positions may decrease by as much as $8.2 million primarily from the lapse of the statutes of limitations in various jurisdictions during the next 12 months.