INCOME TAXES

Earnings before income taxes for the years ended December 31 were taxed within the following jurisdictions:



In millions	2016		2015		2014
United States	$	129.9	$	123.1	$	162.2
Non-U.S.	165.1		86.2		105.7
Total	$	295.0	$	209.3	$	267.9

The components of the Provision for income taxes for the years ended December 31 were as follows:



In millions	2016			2015			2014
Current tax expense:
United States	$	43.8		$	53.4		$	52.9
Non-U.S.	13.8			3.5			14.1
Total:	57.6			56.9			67.0
Deferred tax expense (benefit):
United States	14.4			2.1			15.6
Non-U.S.	(8.2		)	(4.4		)	1.6
Total:	6.2			(2.3		)	17.2
Total tax expense (benefit):
United States	58.2			55.5			68.5
Non-U.S.	5.6			(0.9		)	15.7
Total	$	63.8		$	54.6		$	84.2

The Provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. statutory income tax rate to pretax income, as a result of the following differences:



	Percent of pretax income
	2016		2015		2014
Statutory U.S. rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in rates resulting from:
Non-U.S. tax rate differential (1)	(17.4	)	(11.1	)	(9.6	)
State and local income taxes (1)	2.0		2.8		3.0
Reserves for uncertain tax positions	2.0		(3.4	)	(2.1	)
Tax on unremitted earnings	1.2		1.5		0.3
Tax on remitted earnings	—		—		2.5
Venezuela devaluation	—		0.9		4.0
Production incentives	(0.6	)	(1.0	)	(2.4	)
Other adjustments	(0.6	)	1.4		0.7
Effective tax rate	21.6	%	26.1	%	31.4	%


(1)	Net of changes in valuation allowances

At December 31, a summary of the deferred tax accounts were as follows:



In millions	2016			2015
Deferred tax assets:
Inventory and accounts receivable	$	18.3		$	10.2
Fixed assets and intangibles	2.0			14.5
Postemployment and other benefit liabilities	42.0			65.5
Other reserves and accruals	16.0			12.7
Net operating losses, tax credits and other carryforwards	227.1			133.4
Investment and other asset basis differences	—			1.1
Other	5.3			6.2
Gross deferred tax assets	310.7			243.6
Less: deferred tax valuation allowances	(225.5		)	(133.3		)
Deferred tax assets net of valuation allowances	$	85.2		$	110.3
Deferred tax liabilities:
Fixed assets and intangibles	$	(90.6	)	$	(96.7	)
Unremitted earnings of foreign subsidiaries	(4.2		)	(3.9		)
Other	(6.0		)	(6.7		)
Gross deferred tax liabilities	(100.8		)	(107.3		)
Net deferred tax (liabilities) assets	$	(15.6	)	$	3.0

At December 31, 2016, $4.2 million of deferred tax was recorded for certain undistributed earnings of foreign subsidiaries. No deferred taxes have been provided for any portion of the remaining undistributed earnings of the Company's subsidiaries since these earnings have been, and will continue to be, permanently reinvested in these subsidiaries. For many reasons, including the number of legal entities and jurisdictions involved, the complexity of the Company's legal entity structure, the complexity of tax laws in the relevant jurisdictions and the impact of projections of income for future years to any calculations, the Company believes it is not practicable to estimate, within any reasonable range, the amount of additional taxes which may be payable upon the distribution of earnings.

At December 31, 2016, the Company had the following tax losses and tax credit carryforwards available to offset taxable income in prior and future years:



In millions	Amount		Expiration Period
U.S. Federal tax loss carryforwards	$	15.1	2027 & 2028
U.S. Federal and State credit carryforwards	22.7		2024-Unlimited
U.S. State tax loss carryforwards	26.6		2017-2037
Non-U.S. tax loss carryforwards	$	706.2	2018-Unlimited

The U.S. state loss carryforwards were incurred in various jurisdictions. The non-U.S. loss carryforwards were incurred in various jurisdictions, predominantly in China, Ireland, Luxembourg and the United Kingdom.

The Company evaluates its deferred income tax assets to determine if valuation allowances are required or should be adjusted. U.S. GAAP requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a "more likely than not" standard. This assessment considers the nature, frequency and amount of recent losses, the duration of statutory carryforward periods and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.

Activity associated with the Company’s valuation allowance is as follows:



In millions	2016			2015			2014
Beginning balance	$	133.3		$	50.8		$	46.9
Increase to valuation allowance	109.0			82.2			28.0
Decrease to valuation allowance	(13.9		)	(3.0		)	(15.8		)
Foreign exchange translation	(3.3		)	(1.6		)	(1.7		)
Accumulated other comprehensive income (loss)	0.4			4.9			(6.6		)
Ending balance	$	225.5		$	133.3		$	50.8

During 2016, the valuation allowance increased by $92.2 million. This increase is the result of changes in jurisdictional profitability, country specific tax laws and changes in judgment and facts regarding the realizability of deferred tax assets.

The Company has total unrecognized tax benefits of $32.0 million and $23.8 million as of December 31, 2016, and December 31, 2015, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the continuing operations effective tax rate are $30.5 million as of December 31, 2016. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



In millions	2016			2015			2014
Beginning balance	$	23.8		$	25.4		$	40.6
Additions based on tax positions related to the current year	9.1			3.9			3.1
Additions based on tax positions related to prior years	7.1			1.6			11.8
Reductions based on tax positions related to prior years	(5.5		)	(3.0		)	(23.9		)
Reductions related to settlements with tax authorities	(0.6		)	—			(0.7		)
Reductions related to lapses of statute of limitations	(0.9		)	(1.4		)	(2.7		)
Translation (gain)/loss	(1.0		)	(2.7		)	(2.8		)
Ending balance	$	32.0		$	23.8		$	25.4

The Company records interest and penalties associated with the uncertain tax positions within its Provision for income taxes. The Company had reserves associated with interest and penalties, net of tax, of $5.4 million and $5.3 million at December 31, 2016 and 2015. For the year ended December 31, 2016 the Company recognized $0.3 million in net interest and penalties, net of tax, in continuing operations and did not recognize any net interest and penalties, net of tax, in continuing operations for the year ended December 31, 2015 related to these uncertain tax positions.

The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits, excluding interest and penalties, could potentially be reduced by up to approximately $12.5 million during the next 12 months.

The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a tax authority with respect to that return. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, France, Germany, Italy, Mexico, the Netherlands and the United States. In general, the examination of the material tax returns of subsidiaries of the Company is complete for the years prior to 2003, with certain matters being resolved through appeals and litigation.

In connection with the Spin-off, the Company and Ingersoll Rand entered into a Tax Matters Agreement for the allocation of taxes. In the second quarter of 2016, the Company reached a settlement agreement on a Canadian competent authority matter. The Company made a net remittance of $49.2 million to Ingersoll Rand related to this competent authority matter in the third quarter of 2016. At December 31, 2016, the Company has recorded a $4.2 million receivable from Ingersoll Rand related to this competent authority matter. The Company expects to collect the $4.2 million receivable in 2017. During the fourth quarter of 2016, the Company received a $44.1 million income tax refund (net of tax on interest income accrued on the refund) from the Canadian Tax authorities related to the competent authority matter. At December 31, 2016, the Company has recorded $3.1 million as an Other current asset (net of tax on interest income accrued on the refund) which is due from certain Canadian Provincial Tax Agencies related to the competent authority matter. The Company expects to collect the $3.1 million receivable in 2017.

As of December 31, 2016, the Company agreed to indemnify Ingersoll Rand $0.1 million for various tax matters, exclusive of interest and penalties of $0.1 million, which is reflected as an Other noncurrent liability ($0.6 million and $0.6 million at December 31, 2015). In addition, the Company also has other indemnity receivables from Ingersoll Rand in the amount of $5.6 million reflected as an Other noncurrent asset at December 31, 2016 ($5.0 million at December 31, 2015). The indemnity receivable is primarily related to additional competent authority relief filings.