INCOME TAXES

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



In millions	2018		2017		2016
U.S.	$	151.4	$	166.5	$	129.9
Non-U.S.	323.8		229.2		165.1
Total	$	475.2	$	395.7	$	295.0

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



In millions	2018			2017			2016
Current tax expense:
U.S.	$	86.4		$	78.8		$	43.8
Non-U.S.	18.1			15.0			13.8
Total:	104.5			93.8			57.6
Deferred tax (benefit) expense:
U.S.	(56.1		)	41.2			14.4
Non-U.S.	(8.6		)	(16.0		)	(8.2		)
Total:	(64.7		)	25.2			6.2
Total tax expense (benefit):
U.S.	30.3			120.0			58.2
Non-U.S.	9.5			(1.0		)	5.6
Total	$	39.8		$	119.0		$	63.8

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
	2018		2017		2016
Statutory U.S. rate	21.0	%	35.0	%	35.0	%
Increase (decrease) in rates resulting from:
Non-U.S. tax rate differential (1)	(11.9	)	(20.0	)	(17.4	)
State and local income taxes (1)	2.1		1.8		2.0
Reserves for uncertain tax positions	2.1		0.8		2.0
Tax on unremitted earnings	(1.2	)	0.8		1.2
Tax Reform Act	(4.6	)	13.5		—
Trade incentives	0.6		—		—
Production incentives	—		(0.9	)	(0.6	)
Other adjustments	0.3		(0.9	)	(0.6	)
Effective tax rate	8.4	%	30.1	%	21.6	%


(1)	Net of changes in valuation allowances

On December 22, 2017, the Tax Reform Act became law, resulting in broad and complex changes to the U.S. tax code. The impact to the Company's Consolidated Financial Statements during the year ended December 31, 2017, included, but were not limited to, a (1) reduced U.S. federal corporate tax rate from 35.0% to 21.0%, effective January 1, 2018, (2) required a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries and (3) required review of the future realizability of deferred tax balances.

The Tax Reform Act also put in place new tax laws which include, but are not limited to, a (1) Base Erosion Anti-abuse Tax (BEAT), which is a new minimum tax, (2) general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, (3) provision designed to tax currently global intangible low taxed income (GILTI), (4) provision that may limit the amount of currently deductible interest expense, (5) repeal of certain domestic production incentives, (6) limitation on the deductibility of certain executive compensation and (7) limitation on the utilization of foreign tax credits to reduce the U.S. income tax liability.

Shortly after the Tax Reform Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which provided guidance on accounting for the Tax Reform Act’s impact. SAB 118 provided a measurement period, which in no case was to extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith could complete the accounting for the impacts of the Tax Reform Act under ASC Topic 740. In accordance with SAB 118, the Company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting under ASC 740 is complete. The Company recorded a provisional discrete net tax charge of $53.5 million related to the Tax Reform Act during the year ended December 31, 2017. This net charge primarily consists of a net charge of $24.5 million due to the remeasurement of deferred tax accounts to reflect the corporate rate reduction impact to the Company's net deferred tax balances, a net charge of $22.8 million due to the future realizability of certain deferred tax balances and a net charge for the transition tax of $5.0 million.

In accordance with the expiration of the one-year SAB 118 measurement period, the Company completed the assessment of the income tax effects of the Tax Reform Act in the fourth quarter of 2018. In finalizing the net tax charge resulting from the Tax Reform Act, the Company reversed $22.8 million of previous charges and recorded an additional $0.9 million of transition tax, each of which is described more fully below.

During 2018, the U.S. Internal Revenue Service and Treasury Department released interpretative guidance and accordingly, the Company reversed the $22.8 million of valuation allowance during the year ended December 31, 2018, primarily related to the deductibility of interest limitation carryforward balances and certain executive compensation.

Also during 2018, U.S. Internal Revenue Service and Treasury Department released interpretive guidance and draft regulations which resulted in the $0.9 million increase in the transition tax charge. The Company elected to pay the full liability for the deemed repatriation of foreign earnings during the year ended December 31, 2018. On January 15, 2019, the U.S. Internal Revenue Service and Treasury Department released final regulations related to the Transition Tax that clarifies the required treatment of certain items. The Company is in the process of evaluating the impact of these regulations on its related tax positions but does not believe such final regulations will materially impact the transition tax recorded.

The majority of the Company's earnings are considered permanently reinvested. The transition tax resulted in certain previously untaxed non-U.S. earnings being included in the U.S. federal and state 2017 taxable income. As a result of the Tax Reform Act, the Company analyzed its global working capital requirements and the potential tax liabilities that would be incurred if certain non-U.S. subsidiaries made distributions, which include local country withholding tax and potential U.S. state taxation. Based on this analysis, the Company made no changes to its permanent reinvestment assertions to reinvest the earnings in its non-U.S. subsidiaries outside of the U.S. Thus, the Company has not recorded any incremental withholding or income tax liabilities on its investment in its non-U.S. subsidiaries.

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



In millions	2018			2017
Deferred tax assets:
Inventory and accounts receivable	$	15.3		$	17.0
Fixed assets and intangibles	2.2			2.6
Postemployment and other benefit liabilities	29.1			29.9
Other reserves and accruals	12.8			12.5
Net operating losses, tax credits and other carryforwards	419.9			309.5
Other	0.7			4.2
Gross deferred tax assets	480.0			375.7
Less: deferred tax valuation allowances	(357.1		)	(312.9		)
Deferred tax assets net of valuation allowances	$	122.9		$	62.8
Deferred tax liabilities:
Fixed assets and intangibles	$	(104.9	)	$	(101.7	)
Postemployment and other benefit liabilities	(3.5		)	(4.7		)
Unremitted earnings of foreign subsidiaries	(0.5		)	(6.0		)
Other	(6.3		)	(7.4		)
Gross deferred tax liabilities	(115.2		)	(119.8		)
Net deferred tax assets (liabilities)	$	7.7		$	(57.0	)

At December 31, 2018, $0.5 million of deferred tax was recorded for certain undistributed earnings of non-U.S. subsidiaries. Historically, 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, 2018, 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	$	20.4	2027-2037
U.S. Federal and State credit carryforwards	22.0		2020-2027
U.S. State tax loss carryforwards	25.5		2019-2037
Non-U.S. tax loss carryforwards	$	1,286.6	2019-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, Italy, 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	2018			2017			2016
Beginning balance	$	312.9		$	225.5		$	133.3
Increase to valuation allowance	70.9			96.9			109.0
Decrease to valuation allowance	(25.0		)	(11.9		)	(13.9		)
Foreign exchange translation	(1.7		)	2.4			(3.3		)
Accumulated other comprehensive income	—			—			0.4
Ending balance	$	357.1		$	312.9		$	225.5

During the year ended December 31, 2018, the valuation allowance increased by $44.2 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 $42.0 million and $29.0 million as of December 31, 2018 and 2017, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $38.5 million as of December 31, 2018. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



In millions	2018			2017			2016
Beginning balance	$	29.0		$	32.0		$	23.8
Additions based on tax positions related to the current year	9.5			6.4			9.1
Additions based on tax positions related to prior years	8.2			1.6			7.1
Reductions based on tax positions related to prior years	(1.4		)	(5.0		)	(5.5		)
Reductions related to settlements with tax authorities	(1.5		)	(7.1		)	(0.6		)
Reductions related to lapses of statute of limitations	(1.1		)	(1.2		)	(0.9		)
Translation (gain)/loss	(0.7		)	2.3			(1.0		)
Ending balance	$	42.0		$	29.0		$	32.0

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 $5.7 million and $4.9 million at December 31, 2018 and 2017, respectively. For the years ended December 31, 2018 and 2017, the Company recognized $0.8 million and $0.0 million in net interest and penalties, net of tax, 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 $11.5 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 Australia, Canada, France, Germany, Italy, Mexico, the Netherlands and the U.S. 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.

The Company had indemnity receivables in the amount of $5.4 million and $5.7 million included in Other noncurrent assets at December 31, 2018 and 2017, respectively, primarily related to additional competent authority relief filings.