GSI TECHNOLOGY INC

NOTE 5—INCOME TAXES

Loss before income taxes and the provision (benefit) for income taxes consists of the following:


	Year Ended March 31,
	2017		2016		2015
	(In thousands)
Loss before income taxes:
U.S.	$	(4,938)	$	(3,426)	$	(6,910)
Foreign		4,889		615		1,257
	$	(49)	$	(2,811)	$	(5,653)
Current income tax expense (benefit):
U.S. federal	$	(14)	$	(354)	$	(619)
Foreign		736		15		(2)
State		4		(289)		(54)
		726		(628)		(675)
Deferred income tax expense (benefit):
U.S. federal		14		(3)		—
Foreign		(674)		(10)		—
		(660)		(13)		—
Provision (benefit) for income taxes	$	66	$	(641)	$	(675)

The provision (benefit) for income tax differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pre-tax loss as follows:


	Year Ended March 31,
	2017		2016		2015
	(In thousands)
U.S. Federal taxes at statutory rate	$	(17)	$	(956)	$	(1,922)
State taxes, net of federal benefit		3		(204)		(39)
Stock-based compensation		630		470		447
Tax credits		(398)		(539)		(472)
Foreign tax rate differential		(1,525)		(368)		(916)
Tax exempt interest		(5)		(9)		(20)
Non-deductible expenses and other		24		6		(35)
		(1,288)		(1,600)		(2,957)
Valuation allowance		1,354		959		2,282
	$	66	$	(641)	$	(675)

Deferred tax assets and deferred tax liabilities consist of the following:


	March 31,
	2017		2016
	(In thousands)
Deferred tax assets:
Deferred revenue	$	330	$	231
Tax credits		3,387		2,706
Net operating losses		2,264		1,356
Stock-based compensation		1,386		1,550
Property and equipment		425		297
Other reserves and accruals		1,167		1,175
Total deferred tax assets	$	8,959	$	7,315
Deferred tax liabilities:
Intangible assets	$	(13)	$	(856)
Unrecognized gains		—		(14)
Total deferred tax liabilities	$	(13)	$	(870)

Net deferred tax assets	$	8,946	$	6,445
Valuation allowance		(8,939)		(7,256)
Net deferred tax asset (liability)	$	7	$	(811)

U.S. income taxes and withholding taxes have not been provided on a cumulative total of $45.0 million of undistributed earnings for certain non-U.S. subsidiaries. The Company currently intends to indefinitely reinvest these earnings in operations outside the United States. No provision has been made for taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of such potential liability.

The long-term portion of the Company’s unrecognized tax benefits at March 31, 2017 and 2016 was $244,000 and $116,000, respectively, of which the timing of the resolution is uncertain. As of March 31, 2017 and 2016, $2,481,000 and $1,943,000, respectively, of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets. As of March 31, 2017, the Company’s net deferred tax assets of $8.9 million are subject to a valuation allowance. It is possible, however, that some months or years may elapse before an uncertain position for which the Company has established a reserve is resolved. A reconciliation of unrecognized tax benefits is as follows:


	Year Ended March 31,
	2017		2016		2015
	(In thousands)
Unrecognized tax benefits, beginning of period	$	2,055	$	1,982	$	2,386
Additions based on tax positions related to current year		730		453		292
Additions based on tax positions related to prior years		—		183		—
Settlements during the current year		—		—		—
Lapses during the current year applicable to statutes of limitations		(71)		(563)		(696)
Unrecognized tax benefits, end of period	$	2,714	$	2,055	$	1,982

The unrecognized tax benefit balance as of March 31, 2017 of $233,000 would affect the Company’s effective tax rate if recognized.

Management believes that within the next twelve months the Company will have no reduction in uncertain tax benefits, including interest and penalties, as a result of the lapse of statute of limitations.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision (benefit) for income taxes in the Consolidated Statements of Operations.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of March 31, 2017, the Company maintained a valuation allowance of $8.9 million for deferred tax assets that are not expected to be utilized in future years. Fiscal years 2013 through 2017 remain open to examination by the federal tax authorities and fiscal years 2011 through 2017 remain open to examination by the state of California.