Income Taxes

Consolidated income before taxes and noncontrolling interests for domestic and foreign operations is as follows:



	Year Ended December 31,
	2018		2017		2016
	(In millions)
Foreign	$	3,164	$	2,806	$	2,227
Domestic	162		248		37
Total income before income taxes	$	3,326	$	3,054	$	2,264

The components of the income tax expense (benefit) are as follows:



	Year Ended December 31,
	2018			2017			2016
	(In millions)
Foreign:
Current	$	245		$	258		$	206
Deferred	(12		)	12			29
Federal:
Current	15			30			9
Deferred	135			(509		)	(5		)
State:
Current	2			—			—
Deferred	(10		)	—			—
Total income tax expense (benefit)	$	375		$	(209	)	$	239

The reconciliation of the statutory federal income tax rate and the Company's effective tax rate is as follows:



	Year Ended December 31,
	2018		2017		2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
Tax exempt income of foreign subsidiary	(8.3	)%	(7.9	)%	(8.7	)%
Foreign and U.S. tax rate differential	(6.5	)%	(18.8	)%	(20.4	)%
Change in valuation allowance	4.5	%	18.3	%	43.2	%
Repatriation of foreign earnings	—	%	72.1	%	79.8	%
U.S. foreign tax credits	—	%	(105.9	)%	(119.3	)%
Other, net	0.6	%	0.4	%	1.0	%
Effective tax rate	11.3	%	(6.8	)%	10.6	%

The Company enjoys an income tax exemption in Macao that exempts the Company from paying corporate income tax on profits generated by gaming operations. In August 2018, VML received an additional exemption from Macao's corporate income tax on profits generated by the operation of casino games of chance through June 26, 2022, the date VML's subconcession agreement expires. Had the Company not received the income tax exemption in Macao, consolidated net income attributable to LVSC would have been reduced by $184 million, $158 million and $127 million, and diluted earnings per share would have been reduced by $0.23, $0.20 and $0.16 per share for the years ended December 31, 2018, 2017 and 2016, respectively. In May 2014, the Company entered into an agreement with the Macao government, which was effective through the end of 2018 and provided for an annual payment of 42 million patacas (approximately $5 million at exchange rates in effect on December 31, 2018) that is a substitution for a 12% tax otherwise due from VML shareholders on dividend distributions paid from VML gaming profits. In September 2018, VML requested an additional agreement with the Macao government through June 26, 2022, to correspond to the expiration of the income tax exemption for gaming operations; however, there is no assurance VML will receive the additional agreement, which could have a significant impact on the Company's tax obligation in Macao. In September 2013, the Company and the Internal Revenue Service entered into a Pre-Filing Agreement providing the Macao special gaming tax (35% of gross gaming revenue) qualifies as a tax paid in lieu of an income tax and could be claimed as a U.S. foreign tax credit.

The Company's foreign and U.S. tax rate differential reflects the fact that U.S. tax rates are higher than the statutory tax rates in Singapore and Macao of 17% and 12%, respectively.

U.S. tax reform made significant changes to U.S. income tax laws including lowering the U.S. corporate tax rate to 21% effective beginning in 2018 and transitioning from a worldwide tax system to a territorial tax system resulting in dividends from the Company's foreign subsidiaries not being subject to U.S. income tax and therefore, no longer generating U.S. foreign tax credits. As a result, during the year ended December 31, 2017, the Company recorded a tax benefit of $526 million relating to the reduction of the valuation allowance on certain deferred tax assets previously determined not likely to be utilized and also the revaluation of its U.S. deferred tax liabilities at the reduced corporate income tax rate of 21%. The Company recorded this impact of enactment of U.S. tax reform subject to SAB 118, which provided for a twelve-month measurement period to complete the accounting required under ASC 740, Income Taxes.

During the year ended December 31, 2018, the Company recorded a tax expense of $57 million resulting from recently issued guidance by the IRS related to certain international provisions of U.S. tax reform. While management believes the amounts recorded during the year ended December 31, 2018, reasonably represent the ultimate impact of U.S. tax reform on the Company's consolidated financial statements, it is possible the Company may adjust these amounts for future related administrative guidance, notices, implementation regulations, potential legislative amendments and interpretations as the Act continues to evolve. These adjustments could have an impact on the Company's tax assets and liabilities, effective tax rate, net income and earnings per share.

The primary tax affected components of the Company's net deferred tax assets (liabilities) are as follows:



	December 31,
	2018			2017
	(In millions)
Deferred tax assets:
U.S. foreign tax credit carryforwards	$	4,919		$	4,937
Net operating loss carryforwards	271			262
Allowance for doubtful accounts	16			21
Accrued expenses	16			16
Deferred gain on the sale of The Grand Canal Shoppes and The Shoppes at The Palazzo	14			16
Stock-based compensation	13			14
Pre-opening expenses	11			14
State deferred items	10			8
Other	1			—
	5,271			5,288
Less — valuation allowances	(4,769		)	(4,690		)
Total deferred tax assets	502			598
Deferred tax liabilities:
Property and equipment	(245		)	(246		)
Prepaid expenses	(3		)	(5		)
Other	(77		)	(60		)
Total deferred tax liabilities	(325		)	(311		)
Deferred tax assets, net	$	177		$	287

U.S. tax reform required the Company to compute a one-time mandatory tax on the previously unremitted earnings of its foreign subsidiaries during the year ended December 31, 2017. This one-time deemed repatriation of these earnings did not result in a cash tax liability for the Company as the incremental U.S. taxable income was fully offset by the utilization of the U.S. foreign tax credits generated as a result of the deemed repatriation. In addition, the deemed repatriation generated excess U.S. foreign tax credits, which were carried forward to tax years 2018 and beyond. The Company's U.S. foreign tax credit carryforwards were $4.99 billion and $5.0 billion as of December 31, 2018 and 2017, respectively, which will begin to expire in 2021. The Company's state net operating loss carryforwards were $232 million and $237 million as of December 31, 2018 and 2017, respectively, which will begin to expire in 2029. There was a valuation allowance of $4.50 billion and $4.43 billion as of December 31, 2018 and 2017, respectively, provided on certain net U.S. deferred tax assets, as the Company believes these assets do not meet the "more-likely-than-not" criteria for recognition. Net operating loss carryforwards for the Company's foreign subsidiaries were $2.21 billion and $2.14 billion as of December 31, 2018 and 2017, respectively, which begin to expire in 2019. There are valuation allowances of $268 million and $261 million as of December 31, 2018 and 2017, respectively, provided on the net deferred tax assets of certain foreign jurisdictions, as the Company believes these assets do not meet the "more-likely-than-not" criteria for recognition.

Undistributed earnings of subsidiaries are accounted for as a temporary difference, except deferred tax liabilities are not recorded for undistributed earnings of foreign subsidiaries deemed to be indefinitely reinvested in foreign jurisdictions. U.S. tax reform required the Company to compute a tax on previously unremitted earnings of its foreign subsidiaries upon transition from a worldwide tax system to a territorial tax system during the year ended December 31, 2017. The Company expects these earnings to be exempt from U.S. income tax if distributed as these earnings were taxed during the year ended December 31, 2017, under U.S. tax reform. The Company does not consider current year's tax earnings and profits of its foreign subsidiaries to be indefinitely reinvested. Beginning with the year ended December 31, 2015, the Company's major foreign subsidiaries distributed, and may continue to distribute, earnings in excess of their current year's tax earnings and profits in order to meet the Company's liquidity needs. As of December 31, 2018, the amount of earnings and profits of foreign subsidiaries the Company does not intend to repatriate was $3.53 billion. The Company does not expect withholding taxes or other foreign income taxes to apply should these earnings be distributed in the form of dividends or otherwise. If the Company's current agreement with the Macao government that provides for a fixed annual payment that is a substitution for a 12% tax otherwise due on dividend distributions from the Company's Macao gaming operations is not extended beyond December 31, 2018, a 12% tax would be due on distributions from earnings generated after 2018.

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



	December 31,
	2018		2017			2016
	(In millions)
Balance at the beginning of the year	$	92	$	74		$	65
Additions to tax positions related to prior years	2		1			14
Additions to tax positions related to current year	24		18			7
Settlements	—		—			(10		)
Lapse in statutes of limitations	—		(1		)	(2		)
Balance at the end of the year	$	118	$	92		$	74

As of December 31, 2018, 2017 and 2016, unrecognized tax benefits of $67 million, $62 million and $58 million, respectively, were recorded as reductions to the U.S. foreign tax credit deferred tax asset. As of December 31, 2018, 2017 and 2016, unrecognized tax benefits of $51 million, $30 million and $16 million, respectively, were recorded in other long-term liabilities.

Included in the unrecognized tax benefit balance as of December 31, 2018, 2017 and 2016, are $103 million, $80 million and $65 million, respectively, of uncertain tax benefits that would affect the effective income tax rate if recognized.

The Company's major tax jurisdictions are the U.S., Macao, and Singapore. The Company could be subject to examination for tax years beginning 2010 in the U.S. and tax years beginning in 2014 in Macao and Singapore. The Company believes it has adequately reserved for its uncertain tax positions; however, there is no assurance the taxing authorities will not propose adjustments that are different from the Company's expected outcome and it could impact the provision for income taxes.

The Company recognizes interest and penalties, if any, related to unrecognized tax positions in the provision for income taxes in the accompanying consolidated statement of operations. Interest and penalties of $3 million and $1 million were accrued as of December 31, 2018 and 2017, respectively. No interest or penalties were accrued as of December 31, 2016. The Company does not expect a significant increase or decrease in unrecognized tax benefits over the next twelve months.