NetSpend 2015 Annual Report Download - page 73

deferred income 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.
Management believes it is more likely than not that TSYS will realize the benefits of these deductible differences,
net of existing valuation allowances. The valuation allowance for deferred tax assets was $18.4 million and $19.0
million at December 31, 2015 and 2014, respectively. The decrease in the valuation allowance for deferred
income tax assets was $0.5 million for 2015. The decrease relates to foreign and state losses which, more likely
than not, will not be realized in later years.
TSYS has adopted the permanent reinvestment exception under GAAP, with respect to future earnings of certain
foreign subsidiaries. As a result, TSYS considers foreign earnings related to these foreign operations to be
permanently reinvested. No provision for U.S. federal and state incomes taxes has been made in the
consolidated financial statements for those non-U.S. subsidiaries whose earnings are considered to be reinvested.
The amount of undistributed earnings considered to be “reinvested” which may be subject to tax upon
distribution was approximately $83.9 million as of December 31, 2015. Although TSYS does not intend to
repatriate these earnings, a distribution of these non-U.S. earnings in the form of dividends, or otherwise, would
subject the Company to both U.S. federal and state income taxes, as adjusted for non-U.S. tax credits, and
withholding taxes payable to the various non-U.S. countries. Determination of the amount of any unrecognized
deferred income tax liability on these undistributed earnings is not practicable.
TSYS is the parent of an affiliated group that files a consolidated U.S. federal income tax return and most state
and foreign income tax returns on a separate entity basis. In the normal course of business, the Company is
subject to examinations by these taxing authorities unless statutory examination periods lapse. TSYS is no longer
subject to U.S. federal income tax examinations for years before 2011 and with few exceptions, the Company is
no longer subject to income tax examinations from state and local or foreign tax authorities for years before
2005. There are currently federal income tax examinations in progress for the years 2009 through 2012 for a
subsidiary which was acquired in 2013. Additionally, a number of tax examinations are in progress by the relevant
state tax authorities. Although TSYS is unable to determine the ultimate outcome of these examinations, TSYS
believes that its liability for uncertain tax positions relating to these jurisdictions for such years is adequate.
GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition,
measurement and disclosure of a tax position taken or expected to be taken in a tax return. During the year
ended December 31, 2015, TSYS increased its liability for prior year uncertain income tax positions as a discrete
item by a net amount of approximately $6.4 million (net of the federal tax effect). The Company is not able to
reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time,
the Company does not expect any significant changes related to these obligations within the next twelve months.
A reconciliation of the beginning and ending amount of unrecognized tax liabilities is as follows 1:
(in millions) Year Ended December 31, 2015
Beginning balance ............................................................. $ 6.7
Current activity:
Additions based on tax positions related to current year ............................ 2.3
Additions for tax positions of prior years ......................................... 4.7
Reductions for tax positions of prior years ........................................ (0.6)
Net, current activity ......................................................... 6.4
Ending balance ................................................................ $13.1
1 Unrecognized state tax liabilities are not adjusted for the federal tax impact
TSYS recognizes potential interest and penalties related to the underpayment of income taxes as income tax
expense in the Consolidated Statements of Income. Gross accrued interest and penalties on unrecognized tax
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