INCOME TAXES

Pre-tax income and the provision for income taxes from continuing operations are summarized as follows (in millions):



	Fiscal Year
	2015		2014		2013
Pre-tax income (loss):
Ireland	(821.2	)	(369.3	)	—
Other	1,069.2		641.9		607.7
Total	248.0		272.6		607.7
Provision for income taxes:
Current:
Ireland	(2.0	)	2.2		—
United States - Federal	77.0		44.0		125.0
United States - State	6.9		9.3		10.7
Other Foreign	54.1		49.1		24.3
Subtotal	136.0		104.6		160.1
Deferred (credit):
Ireland	7.5		(24.2	)	—
United States - Federal	(17.5	)	7.8		16.6
United States - State	(0.8	)	(5.8	)	—
Other Foreign	(5.2	)	(15.1	)	(10.9	)
Subtotal	(16.0	)	(37.3	)	5.7
Total	120.0		67.3		165.8

A reconciliation of the provision based on the Federal statutory income tax rate to our effective income tax rate is as follows:



	Fiscal Year
	2015		2014		2013

Provision at statutory rate	12.5	%	12.5	%	35.0	%
Ireland tax on non-trading differences	(10.3	)	2.8		—
Expenses not deductible for tax purposes/ deductions not expensed for book, net	15.5		12.1		(0.6	)
U.S. Operations:
State income taxes, net of federal benefit	(1.0	)	(0.2	)	1.1
Foreign tax credit	—		0.2		(0.1	)
Research and development credit	(0.8	)	(0.5	)	(0.5	)
Other	5.6		(0.8	)	(1.0	)
Other foreign differences (earnings taxed at other than applicable statutory rate)	(16.6	)	(16.0	)	(8.7	)
Worldwide operations:
Valuation allowance changes	25.0		2.9		—
Audit impacts	—		—		(1.2	)
Change in unrecognized taxes	18.5		15.0		3.3
Rate change impacts	—		(3.3	)	—
Effective income tax rate	48.4	%	24.7	%	27.3	%

We have provided a provision for income taxes through opening balance sheet accounting on a portion of pre-acquisition earnings of the Omega group of companies. No further provision has been made for income taxes on remaining undistributed earnings of foreign subsidiaries, of approximately $3.4 billion at June 27, 2015, since it is our intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries. Due to the number of legal entities and taxing jurisdictions involved and the complexity of the legal entity structure, the complexity of tax laws in the various jurisdictions, including, but not limited to the rules pertaining to the utilization of foreign tax credits in the U.S. and the impact of income projections to calculations, we believe it is not practicable to estimate, within any reasonable range, the additional income taxes may be payable on the remittance of such undistributed earnings.

Deferred income taxes arise from temporary differences between the financial reporting and the tax reporting basis of assets and liabilities and operating loss and tax credit carryforwards for tax purposes. The components of our net deferred income tax asset (liability) was as follows:



	Fiscal Year
	2015			2014
Deferred income tax asset (liability):
Depreciation and amortization	$	(1,889.0	)	$	(982.6	)
Inventory basis differences	30.2			43.9
Accrued liabilities	67.2			84.3
Allowance for doubtful accounts	0.9			0.9
Research and development	62.8			3.7
Loss carryforwards	502.4			300.4
Share-based compensation	14.3			14.3
Foreign tax credit	10.6			10.6
Federal benefit of unrecognized tax positions	26.3			20.7
Other, net	29.7			59.6
Subtotal	(1,144.6		)	(444.2		)
Valuation allowance for loss and credit carryforwards	(519.2		)	(198.4		)
Net deferred income tax asset (liability):	$	(1,663.8	)	$	(642.6	)

The above amounts are classified on the Consolidated Balance Sheets as follows (in millions):



	June 27, 2015			June 28, 2014
Assets	$	161.9		$	86.4
Liabilities	(1,825.7		)	(729.0		)
Net deferred income tax (liability) asset	$	(1,663.8	)	$	(642.6	)

At June 27, 2015, we had gross carryforwards as follows: worldwide federal net operating losses, excluding U.S. states, of $2.9 billion, U.S. state net operating losses of $459.0 million, worldwide federal capital losses of $29.4 million, U.S. state credits of $1.5 billion and U.S. federal credits of $269.1 million. At June 27, 2015, gross valuation allowances had been provided for worldwide federal net operating loss carryforwards, excluding U.S. states, in the amount of $2.4 billion, $416.0 million for U.S. state net operating loss carryforwards, $29.4 million for worldwide federal capital loss carryforwards, $1.5 billion for U.S. state credit carryforwards and $198.2 million for U.S. federal credit carryforward as utilization of such carryforwards within the applicable statutory periods is uncertain. The U.S. federal net operating loss carryforwards expire through 2035, U.S. capital loss carryforward expires through 2017 and U.S. federal credit carryforwards of $37.2 million and $167.8 million expire through 2025 and through 2027, respectively, with the remaining U.S. credits having no expiration. U.S. state net operating loss carryforwards expire through 2035, and U.S. state credit carryforwards expire through 2030. Of the non-U.S. net operating loss carryforwards, $4.4 million, $32.0 million, $0.1 million, $1.2 million and $4.5 million expire through 2017, 2020, 2022, 2023, and 2025, respectively, while the remaining amounts of non U.S. net operating loss carryforwards and non-U.S. capital loss carryforwards have no expiration. The valuation allowances for these net operating loss carryforwards are adjusted annually, as necessary. After application of the valuation allowances described above, we anticipate no limitations will apply with respect to the realization of our net deferred income tax assets.

The following table summarizes the activity related to amounts recorded for uncertain tax positions, excluding interest and penalties, for the years ended June 27, 2015 and June 28, 2014 (in millions):



	Unrecognized Tax Benefits
Balance at June 29, 2013	$	110.1
Additions:
Positions related to the current year	28.8
Positions related to prior years	22.7
Reductions:
Positions related to the current year	—
Positions related to prior years	—
Settlements with taxing authorities	—
Lapse of statutes of limitation	(1.5		)
Balance at June 28, 2014	160.1
Additions:
Positions related to the current year	38.9
Positions related to prior years	122.7
Reductions:
Positions related to the current year	—
Positions related to prior years	—
Settlements with taxing authorities	(1.4		)
Lapse of statutes of limitation	(1.7		)
Balance at June 27, 2015	$	318.6

We recognize interest and penalties related to uncertain tax positions as a component of income tax expense. The total amount accrued for interest and penalties in the liability for uncertain tax positions was $65.7 million and $45.3 million as of June 27, 2015 and June 28, 2014, respectively.

The total liability for uncertain tax positions was $384.3 million and $205.4 million as of June 27, 2015 and June 28, 2014, respectively, after considering the federal tax benefit of certain state and local items, of which $217.6 million and $170.2 million, respectively, would impact the effective tax rate in future periods, if recognized. This increase is due primarily to acquisitions and the current year impact related to prior year positions.

We file income tax returns in numerous jurisdictions and are therefore subject to audits by tax authorities. Our primary income tax jurisdictions are Ireland, the U.S., Israel, Belgium, France, and the United Kingdom.

Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audit and any related litigation could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.

The IRS audit of fiscal years 2009 and 2010 had previously concluded with the issuance of a statutory notice of deficiency on August 27, 2014. While we had previously agreed on certain adjustments and made associated payments of $8.0 million, inclusive of interest in November, 2014, the statutory notice of deficiency asserted various additional positions, including transfer pricing, relative to the same fiscal 2009 and 2010 audit. The statutory notice asserted an incremental tax obligation of approximately $68.9 million, inclusive of interest and penalties. We disagree with the IRS’s positions asserted in the notice of deficiency. In January 2015, we paid this amount, a prerequisite to being able to contest the IRS’s positions in U.S. Federal court, and in June 2015, we filed a request for a refund. In the event that the IRS denies our request for a refund, we intend to contest the IRS’s asserted positions in U.S. Federal court. The payment was recorded in the third fiscal quarter as a deferred charge on the balance sheet given our anticipated action to recover this amount. An unfavorable resolution of this matter could have a material impact on our consolidated financial statements in future periods. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. At this time, we cannot predict the outcome of any audit or related litigation.

Based on the final resolution of tax examinations, judicial or administrative proceedings, changes in facts or law, expirations of statute of limitations in specific jurisdictions or other resolutions of, or changes in, tax positions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those represented on the financial statements as of June 27, 2015. During the next 12 months, it is reasonably possible that such circumstances may occur that would have a material effect on previously unrecognized tax benefits. As a result, the total net amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings by a range estimated at $2.0 million to $15.0 million.

Tax Rate Changes and Exemptions in Israel

Prior to fiscal year 2011, certain of our Israel subsidiaries had been granted Privileged Enterprise status under the Law for the Encouragement of Capital Investments (1959). Income derived from such entities was entitled to various tax benefits beginning in the year the subsidiary first generated taxable income. These benefits applied to an entity depending on certain elections.

These benefits were generally granted with the understanding that cash dividends would not be distributed from the affected income. Should dividends be distributed out of tax exempt income, the subsidiary would be required to pay a 10% to 25% tax on the distribution. We do not currently intend to cause distribution of a dividend, which would involve additional tax liability in the foreseeable future; therefore, no provision has been made for such tax on post-acquisition earnings.

In fiscal year 2011, Israel enacted new tax legislation that reduced the effective tax rate to 10% for 2011 and 2012, 7% for 2013 and 2014, and 6% thereafter for certain qualifying entities that elect to be taxed under the new legislation. This legislation was rescinded as announced in the Official Gazette on August 5, 2013. The new legislation enacted a 9% rate for certain qualifying entities that elect to be taxed under the new legislation. We have two entities that had previously elected the new tax legislation for years after fiscal 2011. For all other entities that do not qualify for this reduced rate, the tax rate has been increased from 25% to 26.5%. These rates were applicable to us as of June 30, 2013.

In addition to the above benefits, we periodically apply for grants from the Office of the Chief Scientist in Israel's Ministry of Industry and Trade to assist us with development projects. The receipt of these grants subjects us to certain restrictions and pre-approval requirements, which may be conditioned by additional royalty payments with rights to transfer intellectual property and/or production abroad. All affected subsidiaries are currently in compliance with these conditions.