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NOTE 20. INCOME TAXES

The components of income before income taxes consist of:

 Year ended December 31,
 20152016
The Netherlands95,76077,645
Other countries56,16760,115
Income before income taxes151,927137,760

The income tax expense consists of:

 Year ended December 31,
 20152016
Current:
The Netherlands736(959)
Other countries(2,850)(2,221)
(2,114)(3,180)
Deferred:
The Netherlands5,000
Other countries2,464891
Income tax (expense) benefit5,350(2,289)

The provisions for income taxes as shown in the Consolidated Statements of Profit or Loss differ from the amounts computed by applying the Dutch Statutory income tax rate to earnings before taxes. A reconciliation of the provisions for income taxes and the amounts that would be computed using the Dutch Statutory income tax rate is set forth as follows:

 
 20152016
Earnings before income taxes from continuing operations151,927100.0%137,760100.0%
Income tax provision based on Dutch statutory income tax rate(37,982)25.0%(34,440)25.0%
Non-deductible expenses(3,027)2.0%(3,044)2.2%
Foreign taxes at a rate other than the Dutch statutory rate255(0.2%)(315)0.2%
Recognition of net operating losses6,619(4.4%)692(0.5%)
Utilization of net operating losses, previously not recognized17,805(11.7%)12,192(8.9%)
Non-taxable income 15,514(3.6%)11,819(8.6%)
Adjustments in respect of prior years' current taxes9,470(6.2%)1,935(1.4%)
Other 26,696(4.4%)8,872(6.4%)
Tax income / (expense)5,350(3.5%)(2,289)1.7%
  1. Non-taxable income mainly consists of revenues deriving from the share in income of investments and associates which are exempted under the Dutch participation exemption.
  2. Other mainly consists of tax credits, withholding taxes, changes in (enacted) tax laws and revaluation of certain assets.

Included in Other for 2016 is €3,612 regarding the Company’s manufacturing operations in Singapore and other countries where income covering certain products is subject to concessional tax rates under tax incentive schemes granted by the local tax authority. The majority of these tax incentive schemes have terms ending by July 1, 2018.

On June 8, 2009, the Singapore Economic Development Board (EDB) granted a Pioneer Certificate to ASM Front-end Manufacturing Singapore Pte Ltd (FEMS), a principal subsidiary of the Group, to the effect that profits arising from certain manufacturing activities by FEMS of Front-end equipment will in principle be exempted from tax for a period of 10 years effective from July 1, 2008, subject to fulfillment of certain criteria during the period.

In Korea, a High Technology Tax Exemption has been granted to the effect that profits arising from certain equipment sales will in principle be partly exempted from tax in the period ending by 2016, subject to fulfillment of certain criteria during the period.

Since 2011, the Dutch Statutory tax rate is 25%. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. The Company’s deferred tax assets and liabilities have been determined in accordance with these Statutory income tax rates.

Deferred income taxes consist of the following:

 January 1, 2015Consolidated statement of profit or lossEquityExchange differencesDecember 31, 2015
Deferred tax assets:
Reserves and allowances2,109(502)(4)3081,911
Depreciation6271,630962,353
Recognition net operating losses6,619(74)6,545
Other48123043754
Deferred tax assets3,2177,977(4)37311,563
Deferred tax liabilities:
Capitalized development expenses(9,809)(607)(866)(11,282)
Other(143)93(50)
Deferred tax liabilities(9,952)(514)(866)(11,332)
Net deferred income taxes(6,735)7,463(4)(493)231
 January 1, 2016Consolidated statement of profit or lossEquityExchange differencesDecember 31, 2016
Deferred tax assets:
Reserves and allowances1,911951282,134
Depreciation2,3533861172,856
Recognition net operating losses6,545692207,257
Other754925(7)1,672
Deferred tax assets11,5632,09825813,919
Deferred tax liabilities:
Capitalized development expenses(11,282)(1,207)(581)(13,070)
Other(50)2(48)
Deferred tax liabilities(11,332)(1,207)(579)(13,118)
Net deferred income taxes231891(321)801

Based on tax filings, ASMI and its individual subsidiaries have net operating losses available at December 31, 2016 of €129,045 to reduce future income taxes, mainly in Europe. The Company believes that realization of its net deferred tax assets is dependent on the ability of the Company to generate taxable income in the future. Given the volatile nature of the semiconductor equipment industry, past experience, and the tax jurisdictions where the Company has net operating losses, the Company believes that there is currently sufficient evidence to recognize a deferred tax asset in the amount of €13,919. Deferred tax assets for temporary differences are recognized in Japan and South Korea.

The amounts and expiration dates of the net operating losses for tax purposes are as follows:

EXPIRATION YEARTotal of net operating losses for tax purposesNet operating losses for tax purposes the NetherlandsNet operating losses for tax purposes other countries
201917,49917,499
2020202202
202158,47858,478
202226,81526,815
20231616
20259,3289,328
20298,1898,189
20304,9444,944
20353,5743,574
Total129,045102,79226,253

The Company has not provided for deferred foreign withholding taxes, if any, on undistributed earnings of its foreign subsidiaries. At December 31, 2016, the undistributed earnings of subsidiaries, subject to withholding taxes, were approximately €13,155. These earnings could become subject to foreign withholding taxes if they were remitted as dividends and/or if the Company should sell its interest in the subsidiaries.

A summary of open tax years by major jurisdiction is as follows:

Jurisdiction 
Japan2011-2016
The Netherlands2013-2016
Singapore2013-2016
United States of America1997-2016
South Korea2011-2016

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws. The Company’s estimate for the potential outcome of any unrecognized tax benefits is highly judgmental. Settlement of unrecognized tax benefits in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s financial position, net earnings and cash flows. The Company is subject to tax audits in its major tax jurisdictions, and local tax authorities may challenge the positions taken by the Company.