Income Taxes

Selected income tax data (in millions):



	2017		2016		2015
Components of income before income taxes:
United States	$	547.2	$	512.1	$	660.5
Non-United States	490.2		431.0		467.0
Total	$	1,037.4	$	943.1	$	1,127.5



Components of the income tax provision:
Current:
United States	$	67.3		$	175.9		$	238.6
Non-United States	109.9			91.7			73.6
State and local	0.7			16.3			17.0
Total current	177.9			283.9			329.2
Deferred:
United States	44.6			(53.7		)	(30.3		)
Non-United States	(14.1		)	(8.8		)	2.6
State and local	3.3			(8.0		)	(1.6		)
Total deferred	33.8			(70.5		)	(29.3		)
Income tax provision	$	211.7		$	213.4		$	299.9

Total income taxes paid	$	211.9		$	299.8		$	313.1

Effective Tax Rate Reconciliation

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



	2017		2016		2015
Statutory tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes	0.7		0.6		0.9
Non-United States taxes	(9.3	)	(8.6	)	(7.9	)
Tax effect of foreign dividends	0.5		0.1		(0.2	)
Foreign currency transaction loss	(1.9	)	(0.8	)	—
Share-based compensation	(2.8	)	—		—
Research and development tax credit	(0.6	)	(2.0	)	(0.6	)
Change in valuation allowances	0.1		(0.6	)	(0.5	)
Domestic manufacturing deduction	(0.9	)	(1.2	)	(1.2	)
Adjustments for prior period tax matters	(0.4	)	0.4		0.5
Other	—		(0.3	)	0.6
Effective income tax rate	20.4	%	22.6	%	26.6	%

We operate in certain non-U.S. tax jurisdictions under government-sponsored tax incentive programs, which may be extended if certain additional requirements are met. The program which generates the primary benefit will expire in 2022. The tax benefit attributable to these programs was $43.4 million ($0.33 per diluted share) in 2017, $33.9 million ($0.26 per diluted share) in 2016 and $36.5 million ($0.27 per diluted share) in 2015.

Deferred Taxes

The tax effects of temporary differences that give rise to our net deferred income tax assets (liabilities) at September 30, 2017 and 2016 were (in millions):



	2017			2016
Deferred income tax assets:
Compensation and benefits	$	18.8		$	16.2
Inventory	20.2			18.0
Returns, rebates and incentives	45.9			55.1
Retirement benefits	305.5			493.6
Environmental remediation and other site-related costs	33.4			34.8
Share-based compensation	32.4			40.6
Other accruals and reserves	71.3			60.5
Net operating loss carryforwards	20.4			24.4
Tax credit carryforwards	15.3			13.7
Capital loss carryforwards	10.3			9.9
Other	11.1			11.4
Subtotal	584.6			778.2
Valuation allowance	(18.6		)	(17.3		)
Net deferred income tax assets	566.0			760.9
Deferred income tax liabilities:
Property	(74.0		)	(63.5		)
Intangible assets	(45.9		)	(54.9		)
Other	(2.5		)	(8.6		)
Deferred income tax liabilities	(122.4		)	(127.0		)
Total net deferred income tax assets	$	443.6		$	633.9

We have not provided U.S. deferred taxes for $3,526.0 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, 2017 were (in millions):



Tax Attribute to be Carried Forward	Tax Benefit Amount		Valuation Allowance		Carryforward Period Ends
Non-United States net operating loss carryforward	$	6.2	$	5.8	2018	-	2027
Non-United States net operating loss carryforward	4.7		1.7		Indefinite
Non-United States capital loss carryforward	10.3		10.3		Indefinite
United States net operating loss carryforward	1.2		—		2019	-	2033
United States tax credit carryforward	2.2		—		2018	-	2037
State and local net operating loss carryforward	8.3		0.2		2018	-	2037
State tax credit carryforward	13.1		0.6		2019	-	2032
Total	46.0		18.6

Unrecognized Tax Benefits

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



	2017			2016			2015
Gross unrecognized tax benefits balance at beginning of year	$	32.4		$	43.9		$	38.9
Additions based on tax positions related to the current year	1.9			2.3			2.1
Additions based on tax positions related to prior years	10.8			14.9			11.6
Reductions based on tax positions related to prior years	(0.1		)	—			(1.0		)
Reductions related to settlements with taxing authorities	(7.7		)	(27.1		)	(4.3		)
Reductions related to lapses of statute of limitations	(6.3		)	(1.6		)	(1.6		)
Effect of foreign currency translation	0.1			—			(1.8		)
Gross unrecognized tax benefits balance at end of year	$	31.1		$	32.4		$	43.9

The amount of gross unrecognized tax benefits that would reduce our effective tax rate if recognized was $31.1 million, $32.4 million and $43.9 million at September 30, 2017, 2016 and 2015, respectively.

Accrued interest and penalties related to unrecognized tax benefits were $4.0 million and $5.2 million at September 30, 2017 and 2016, respectively. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision. Benefits (expense) recognized were $1.2 million, ($0.1) million and $2.4 million in 2017, 2016 and 2015, respectively.

We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $9.5 million in the next 12 months as a result of the resolution of tax matters in various global jurisdictions and the lapses of statutes of limitations. If all of the unrecognized tax benefits were recognized, the net reduction to our income tax provision, including the recognition of interest and penalties and offsetting tax assets, could be up to $4.4 million.

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.