Income Taxes

Selected income tax data (in millions):



	2016		2015		2014
Components of income before income taxes:
United States	$	512.1	$	660.5	$	607.3
Non-United States	431.0		467.0		526.9
Total	$	943.1	$	1,127.5	$	1,134.2



Components of the income tax provision:
Current:
United States	$	175.9		$	238.6		$	219.4
Non-United States	91.7			73.6			85.3
State and local	16.3			17.0			9.9
Total current	283.9			329.2			314.6
Deferred:
United States	(53.7		)	(30.3		)	(3.8		)
Non-United States	(8.8		)	2.6			(4.0		)
State and local	(8.0		)	(1.6		)	0.6
Total deferred	(70.5		)	(29.3		)	(7.2		)
Income tax provision	$	213.4		$	299.9		$	307.4

Total income taxes paid	$	299.8		$	313.1		$	323.8

Effective Tax Rate Reconciliation

The reconciliation between the U.S. federal statutory rate and our effective tax rate was:



	2016		2015		2014
Statutory tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes	0.6		0.9		0.8
Non-United States taxes	(8.6	)	(7.9	)	(9.5	)
Tax effect of foreign dividends	0.1		(0.2	)	0.5
Foreign currency transaction loss	(0.8	)	—		—
Research and development tax credit	(2.0	)	(0.6	)	(0.1	)
Change in valuation allowances	(0.6	)	(0.5	)	(0.1	)
Domestic manufacturing deduction	(1.2	)	(1.2	)	(1.1	)
Adjustments for prior period tax matters	0.4		0.5		1.0
Other	(0.3	)	0.6		0.6
Effective income tax rate	22.6	%	26.6	%	27.1	%

We operate in certain non-U.S. tax jurisdictions under government-sponsored tax incentive programs, the primary benefit of which will expire in 2019. These programs may be extended with reduced incentives if certain additional requirements are met. The tax benefit attributable to these incentive programs was $33.9 million ($0.26 per diluted share) in 2016, $36.5 million ($0.27 per diluted share) in 2015 and $42.9 million ($0.31 per diluted share) in 2014.

Deferred Taxes

The tax effects of temporary differences that give rise to our net deferred income tax assets (liabilities) at September 30, 2016 and 2015 were (in millions):



	2016			2015
Deferred income tax assets:
Compensation and benefits	$	16.2		$	28.4
Inventory	18.0			15.3
Returns, rebates and incentives	55.1			50.8
Retirement benefits	493.6			371.2
Environmental remediation and other site-related costs	34.8			31.1
Share-based compensation	40.6			35.5
Other accruals and reserves	60.5			48.9
Net operating loss carryforwards	24.4			25.9
Tax credit carryforwards	13.7			8.5
Capital loss carryforwards	9.9			13.6
Other	11.4			15.9
Subtotal	778.2			645.1
Valuation allowance	(17.3		)	(22.2		)
Net deferred income tax assets	760.9			622.9
Deferred income tax liabilities:
Property	(63.5		)	(74.9		)
Intangible assets	(54.9		)	(53.2		)
Other	(8.6		)	—
Deferred income tax liabilities	(127.0		)	(128.1		)
Total net deferred income tax assets	$	633.9		$	494.8

We have not provided U.S. deferred taxes for $3,274.0 million of undistributed earnings of certain non-U.S. subsidiaries, since these earnings have been determined to be indefinitely reinvested outside the U.S. and thus are not subject to U.S. income taxes and foreign withholding taxes. It is not practicable to estimate the amount of additional taxes that may be payable upon distribution of these earnings.

We believe it is more likely than not that we will realize our deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below.

Tax attributes and related valuation allowances at September 30, 2016 were (in millions):



Tax Attribute to be Carried Forward	Tax Benefit Amount		Valuation Allowance		Carryforward Period Ends
Non-United States net operating loss carryforward	$	7.7	$	4.4	2017	-	2026
Non-United States net operating loss carryforward	6.1		1.6		Indefinite
Non-United States capital loss carryforward	9.9		9.9		Indefinite
United States net operating loss carryforward	2.8		—		2019	-	2033
United States tax credit carryforward	2.5		—		2018	-	2037
State and local net operating loss carryforward	7.8		0.2		2017	-	2033
State tax credit carryforward	11.2		0.6		2019	-	2031
Subtotal — tax carryforwards	48.0		16.7
Other deferred tax assets	0.6		0.6		Indefinite
Total	$	48.6	$	17.3

Unrecognized Tax Benefits

A reconciliation of our gross unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):



	2016			2015			2014
Gross unrecognized tax benefits balance at beginning of year	$	43.9		$	38.9		$	40.8
Additions based on tax positions related to the current year	2.3			2.1			1.0
Additions based on tax positions related to prior years	14.9			11.6			2.2
Reductions based on tax positions related to prior years	—			(1.0		)	—
Reductions related to settlements with taxing authorities	(27.1		)	(4.3		)	—
Reductions related to lapses of statute of limitations	(1.6		)	(1.6		)	(4.2		)
Effect of foreign currency translation	—			(1.8		)	(0.9		)
Gross unrecognized tax benefits balance at end of year	$	32.4		$	43.9		$	38.9

The amount of gross unrecognized tax benefits that would reduce our effective tax rate if recognized was $32.4 million, $43.9 million and $38.9 million at September 30, 2016, 2015 and 2014, respectively.

Accrued interest and penalties related to unrecognized tax benefits were $5.2 million and $5.1 million at September 30, 2016 and 2015, respectively. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision. Benefits (expense) recognized were $(0.1) million, $2.4 million and $4.0 million in 2016, 2015 and 2014, respectively.

We do not expect the amount of gross unrecognized tax benefits to change significantly in the next 12 months.

We conduct business globally and are routinely audited by the various tax jurisdictions in which we operate. We are no longer subject to U.S. federal income tax examinations for years before 2014 and are no longer subject to state, local and non-U.S. income tax examinations for years before 2003.