10. Income Taxes

The income tax provision consists of the following amounts:


	Year Ended December 31,
	2014		2013		2012

	(in millions)
Current income taxes:
Federal	$	123	$	134	$	130
State		36		21		37
Foreign		28		33		16
Total current income taxes		187		188		183
Deferred income taxes:
Federal		(13)		13		(10)
State		(2)		11		6
Foreign		9		4		20
Total deferred income taxes		(6)		28		16
Total income tax provision	$	181	$	216	$	199

U.S. federal taxes have not been provided on undistributed earnings of certain non-U.S. subsidiaries to the extent such earnings will be reinvested abroad for an indefinite period of time. At December 31, 2014, the cumulative amount of undistributed earnings in these subsidiaries is approximately $118 million. We have the intent and ability to indefinitely reinvest the undistributed earnings of these non-U.S. subsidiaries.

A reconciliation of the income tax provision, based on the U.S. federal statutory rate, to our actual income tax provision for the years ended December 31, 2014, 2013 and 2012 is as follows:


	Year Ended December 31,
	2014		2013		2012


Federal income tax provision at the statutory rate	35.0	%	35.0	%	35.0	%
State income tax provision, net of federal effect	3.4	%	2.9	%	4.2	%
Non-U.S. subsidiary earnings	(7.0)	%	(4.4)	%	(6.3)	%
Change in deferred taxes due to change in tax rate	-	%	0.6	%	2.3	%
Change in unrecognized tax benefits	(3.0)	%	4.8	%	2.6	%
Other, net	2.1	%	(2.9)	%	(1.5)	%
Actual income tax provision(1)	30.5	%	36.0	%	36.3	%

(1) The lower effective tax rate in 2014 when compared to 2013 is primarily due to a decrease in unrecognized tax benefits in 2014.

The temporary differences, which give rise to our deferred tax assets and (liabilities), consisted of the following:


		December 31,
		2014		2013

	(in millions)
Deferred tax assets:
Deferred revenues	$	36	$	36
U.S. federal net operating loss		2		1
Foreign net operating loss		99		105
State net operating loss		1		1
Compensation and benefits		96		84
Foreign currency translation		358		231
Lease reserves		15		11
Tax credits		9		10
Other		26		17
Gross deferred tax assets		642		496

Deferred tax liabilities:
Amortization of software development costs and depreciation		(107)		(91)
Amortization of acquired intangible assets		(536)		(631)
Compensation and benefits		(6)		(12)
Other		(14)		(12)
Gross deferred tax liabilities		(663)		(746)
Net deferred tax liabilities before valuation allowance		(21)		(250)
Less: valuation allowance		(90)		(80)
Net deferred tax liabilities	$	(111)	$	(330)

A valuation allowance has been established with regards to the tax benefits primarily associated with certain net operating losses, as it is more likely than not that these benefits will not be realized in the foreseeable future.

As of December 31, 2014, our U.S. federal net operating loss of $2 million will expire in 2030. Our foreign net operating loss of $99 million, as of December 31, 2014, includes $60 million that will expire in years 2015 through 2024 and $39 million that has no expiration date. Also, our state net operating loss of $1 million, as of December 31, 2014, will expire in years 2015 through 2033. Our tax credits of $9 million include $7 million related to U.S. research and development credits that will expire in years 2018 through 2027, and $2 million related to non-U.S. tax credits that will expire in years 2015 through 2017.

The following represents the domestic and foreign components of income before income tax provision:


	Year Ended December 31,
	2014		2013		2012

	(in millions)
Domestic	$	349	$	362	$	355
Foreign		245		238		193
Income before income tax provision	$	594	$	600	$	548

We recorded income tax benefits of $9 million in 2014, $16 million in 2013 and $7 million in 2012, primarily related to share-based compensation. These amounts were recorded as additional paid-in-capital in the Consolidated Balance Sheets.

We are subject to examination by federal, state and local, and foreign tax authorities. We regularly assess the likelihood of additional assessments by each jurisdiction and have established tax reserves that we believe are adequate in relation to the potential for additional assessments. We believe that the resolution of tax matters will not have a material effect on our financial condition but may be material to our operating results for a particular period and the effective tax rate for that period.

As of December 31, 2014 and 2013, there are $35 million and $52 million of unrecognized tax benefits that if recognized would affect our effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


		Year Ended December 31,
		2014		2013

	(in millions)
Beginning balance	$	58	$	32
Additions (reductions) as a result of tax positions taken in prior periods		(21)		17
Additions as a result of tax positions taken in the current period		5		11
Reductions related to settlements with taxing authorities		(1)		(1)
Reductions as a result of lapses of the applicable statute of limitations		-		(1)
Ending balance	$	41	$	58

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2014, we had accrued $6 million for interest and penalties, net of tax effect. As of December 31, 2013, we had accrued $8 million for interest and penalties, net of tax effect.

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for the years 2011 and 2012 are currently under audit by the Internal Revenue Service and we are subject to examination for years 2008 through 2010 and 2013. In 2014, we concluded the audit for the year 2007. The conclusion of this audit gave rise to a reduction of our unrecognized tax benefits, resulting in a decrease to tax expense of $21 million. This amount was partially offset by an increase to operating expenses of $19 million associated with the reversal of a receivable under a tax sharing agreement with an unrelated party. We also recorded a decrease to tax expense of $8 million associated with the reversal of the $19 million receivable. This amount was partially offset by an increase to operating expenses of $4 million associated with the reversal of a receivable under a tax sharing agreement with an unrelated party. Several state tax returns are currently under examination by the respective tax authorities for the years 2005 through 2012 and we are subject to examination for 2013. Non-U.S. tax returns are subject to examination by the respective tax authorities for the years 2008 through 2013. We anticipate that the amount of unrecognized tax benefits at December 31, 2014 will significantly decrease in the next twelve months as we expect to settle certain tax audits. The final outcome of such audits cannot yet be determined. We anticipate that such adjustments will not have a material impact on our consolidated financial position or results of operations.

In the fourth quarter of 2010, we received an appeal from the Finnish Tax Authority challenging certain interest expense deductions claimed by Nasdaq in Finland for the year 2008. The appeal also demanded certain penalties be paid with regard to the company’s tax return filing position. In October 2012, the Finnish Appeals Board disagreed with the company’s tax return filing position for years 2009 through 2011, even though the tax return position with respect to this deduction was previously reviewed and approved by the Finnish Tax Authority. In June 2014, the Finnish Administrative Court also disagreed with the company’s tax return filing position. We have appealed this ruling to the Finnish Supreme Administrative Court and expect to receive a favorable decision. Through December 31, 2014, we have recorded tax benefits of $23 million associated with this filing position. We have paid this amount to the Finnish tax authorities. We have also paid $11 million in interest and penalties. We expect the Finnish Supreme Administrative Court to agree with our position, which would result in Nasdaq receiving a refund of $34 million. If the Finnish Supreme Administrative Court disagrees with our position, we would record tax expense of $34 million, or $0.20 per diluted share.

From 2009 through 2012, we recorded tax benefits associated with certain interest expense incurred in Sweden. Our position is supported by a 2011 ruling we received from the Swedish Supreme Administrative Court. However, under new legislation effective January 1, 2013, limitations are imposed on certain forms of interest expense. Since the new legislation is unclear with regards to our ability to continue to claim such interest deductions, Nasdaq filed an application for an advance tax ruling with the Swedish Tax Council for Advance Tax Rulings. In June 2014, we received an unfavorable ruling from the Swedish Tax Council for Advance Tax Rulings. We have appealed this ruling to the Swedish Supreme Administrative Court and expect to receive a favorable decision. Since January 1, 2013, we have recorded tax benefits of $32 million, or $0.19 per diluted share, related to this matter. We expect to record recurring quarterly tax benefits of $4 million to $5 million with respect to this issue for the foreseeable future.

Other Tax Matters

In December 2012, the Swedish Tax Agency approved our 2010 amended value added tax, or VAT, tax return and we received a cash refund for the amount claimed. In 2013, we filed VAT tax returns for 2011 and 2012 and utilized the same approach which was approved for the 2010 filing. However, even though the VAT return position was previously reviewed and approved by the Swedish Tax Agency, we were informed by the Swedish Tax Agency that our VAT refund claims for 2011 and 2012 are not valid. However, they will not seek reimbursement of the 2010 refund. We will appeal the finding by the Swedish Tax Agency. Through December 31, 2014, we have recorded benefits of $16 million associated with this position.