INCOME TAXES

The income tax expense was $189 million, $68 million, and $133 million in 2014, 2013 and 2012, respectively. The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense at effective worldwide tax rates for the respective periods:



Millions of dollars	2014			2013			2012
Earnings before income taxes
United States	$	325		$	149		$	113
Foreign	556			768			445
Earnings before income taxes	881			917			558

Income tax computed at United States statutory rate	308			321			195
U.S. government tax incentives, including Energy Tax Credits	(10		)	(142		)	—
Foreign government tax incentives, including BEFIEX	(46		)	(63		)	(38		)
Foreign tax rate differential	(17		)	(17		)	(2		)
U.S. foreign tax credits	(148		)	(231		)	(31		)
Valuation allowances	9			16			(86		)
State and local taxes, net of federal tax benefit	5			7			2
Foreign withholding taxes	16			29			12
U.S. tax on foreign dividends and subpart F income	56			195			57
Settlement of global tax audits	(5		)	(54		)	18
Other items, net	21			7			6
Income tax computed at effective worldwide tax rates	$	189		$	68		$	133

Current and Deferred Tax Provision

The following table summarizes our income tax (benefit) provision for 2014, 2013 and 2012:



	2014						2013						2012
Millions of dollars	Current			Deferred			Current			Deferred			Current		Deferred
United States	$	7		$	8		$	(60	)	$	(57	)	$	18	$	24
Foreign	182			12			187			(9		)	189		(96		)
State and local	(2		)	(18		)	2			5			7		(9		)
	$	187		$	2		$	129		$	(61	)	$	214	$	(81	)
Total income tax expense				$	189					$	68				$	133

United States Government Tax Incentives

On January 2, 2013, The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law. The Act extends certain provisions included in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 to ensure that conservation and efficiency are a central component to the United States energy strategy. Among the provisions extended are manufacturers’ tax credits for the accelerated U.S. production of super-efficient clothes washers, refrigerators and dishwashers that meet or exceed certain Energy Star thresholds for energy and water conservation levels as set by the U.S. Department of Energy (“Energy Credit”). The tax credits apply to eligible production during the 2012 and 2013 calendar years provided the production of qualifying product in any individual year exceeds a rolling two year baseline of production. We continue to invest in innovation and energy efficient products that meet these standards for our customers. This provision was not extended to include calendar 2014.

United States Tax on Foreign Dividends

We have historically reinvested all unremitted earnings of our foreign subsidiaries and affiliates. We plan to distribute approximately $24 million of foreign earnings over the next several years. This distribution is forecasted to result in tax benefits which have not been recorded because of their contingent nature. There has been no deferred tax liability provided on the remaining amount of unremitted earnings of $4.9 billion at December 31, 2014. As of December 31, 2014, we had $1.0 billion of cash and equivalents on hand, of which $0.9 billion was held outside of the United States. Our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate these funds to fund our U.S. operations. However, if these funds were repatriated, then we would be required to accrue and pay applicable United States taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these unremitted earnings due to the complexity of its hypothetical calculation.

Valuation Allowances

At December 31, 2014, we had net operating loss carryforwards of $3.2 billion, $1.2 billion of which were United States state net operating loss carryforwards. Of the total net operating loss carryforwards, $1.8 billion do not expire, with substantially all of the remaining carryforwards expiring in various years through 2034. As of December 31, 2014, we had $249 million of foreign tax credit carryforwards and $1.0 billion of United States general business credit carryforwards available to offset future payments of federal income taxes, expiring between 2017 and 2034.

We routinely review the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. We have recorded a valuation allowance to reflect the net estimated amount of certain deferred tax assets associated with net operating loss and other deferred tax assets we believe will be realized. Our recorded valuation allowance of $308 million at December 31, 2014 consists of $288 million of net operating loss carryforward deferred tax assets and $20 million of other deferred tax assets. We believe that it is more likely than not that we will realize the benefit of existing deferred tax assets, net of valuation allowances mentioned above.

Settlement of Global Tax Audits

We are in various stages of audits by certain governmental tax authorities. We establish liabilities for the difference between tax return provisions and the benefits recognized in our financial statements. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and may need to be adjusted over time as more information becomes known. We are no longer subject to any significant United States federal tax examinations for the years before 2008, or any state, local or foreign income tax examinations by tax authorities for years before 2004.

Deferred Tax Liabilities and Assets

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components of our deferred tax liabilities and assets at December 31, 2014 and 2013:



Millions of dollars	2014			2013
Deferred tax liabilities
Intangibles	$	800		$	517
Property, net	156			141
LIFO inventory	45			49
Other	193			201
Total deferred tax liabilities	1,194			908
Deferred tax assets
U.S. general business credit carryforwards, including Energy Tax Credits	1,005			1,050
Pensions	316			311
Loss carryforwards	650			467
Inventory prepayment	—			93
Postretirement obligations	199			177
Foreign tax credit carryforwards	249			243
Research and development capitalization	358			239
Employee payroll and benefits	141			138
Accrued expenses	110			102
Product warranty accrual	62			58
Receivable and inventory allowances	73			51
Other	300			233
Total deferred tax assets	3,463			3,162
Valuation allowances for deferred tax assets	(308		)	(186		)
Deferred tax assets, net of valuation allowances	3,155			2,976
Net deferred tax assets	$	1,961		$	2,068

Unrecognized Tax Benefits

The following table represents a reconciliation of the beginning and ending amount of unrecognized tax benefits that if recognized would impact the effective tax rate, excluding federal benefits of state and local tax positions, and interest and penalties:



Millions of dollars	2014			2013			2012
Balance, January 1	$	113		$	178		$	178
Additions for tax positions of the current year	17			17			13
Additions for tax positions of prior years	4			6			16
Reductions for tax positions of prior years	(23		)	(81		)	(15		)
Settlements during the period	(11		)	(3		)	(5		)
Positions assumed in acquisitions	42			—			—
Lapses of applicable statute of limitation	(1		)	(4		)	(9		)
Balance, December 31	$	141		$	113		$	178

In connection with our acquisitions of Hefei Sanyo and Indesit, the Company assumed $71 million of uncertain tax position liabilities, including $31 million of interest and penalties. The acquisition of Hefei Sanyo resulted in an assumed uncertain tax position of $61 million that was reflected in the opening balance sheet, while the acquisition of Indesit resulted in an assumed uncertain tax position of $10 million.

It is reasonably possible that certain unrecognized tax benefits of $20 million could be settled with various related jurisdictions during the next 12 months.

Interest and penalties associated with unrecognized tax benefits resulted in a net benefit of $6 million, $12 million and $4 million in 2014, 2013 and 2012, respectively. We have accrued a total of $63 million and $39 million at December 31, 2014 and 2013, respectively.