INCOME TAXES

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



	Six Months Ended			Fiscal Year End
	December 31, 2015			June 27, 2015			June 28, 2014			June 29, 2013
Pre-tax income (loss):
Ireland	$	(346.9	)	$	(821.2	)	$	(369.3	)	$	—
Other	323.7			1,069.2			641.9			607.7
Total pre-tax income (loss)	(23.2		)	248.0			272.6			607.7
Provision for income taxes:
Current:
Ireland	1.4			(2.0		)	2.2			—
United States - federal	59.2			77.0			44.0			125.0
United States - state	3.2			6.9			9.3			10.7
Other foreign	40.4			54.1			49.1			24.3
Subtotal	104.2			136.0			104.6			160.1
Deferred (credit):
Ireland	(27.7		)	7.5			(24.2		)	—
United States - federal	(32.5		)	(17.5		)	7.8			16.6
United States - state	(3.3		)	(0.8		)	(5.8		)	—
Other foreign	(69.5		)	(5.2		)	(15.1		)	(10.9		)
Subtotal	(133.0		)	(16.0		)	(37.3		)	5.7
Total provision for income taxes	$	(28.8	)	$	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:



	Six Months Ended		Fiscal Year Ended
	December 31, 2015		June 27, 2015		June 28, 2014		June 29, 2013

Provision at statutory rate	12.5	%	12.5	%	12.5	%	35.0	%
Ireland tax on non-trading differences	80.8		(10.3	)	2.8		—
Expenses not deductible for tax purposes/ deductions not expensed for book, net	(151.7	)	15.5		12.1		(0.6	)
U.S. Operations:
State income taxes, net of federal benefit	(15.3	)	(1.0	)	(0.2	)	1.1
Foreign tax credit	—		—		0.2		(0.1	)
Research and development credit	5.1		(0.8	)	(0.5	)	(0.5	)
Other	(43.3	)	5.6		(0.8	)	(1.0	)
Other foreign differences (earnings taxed at other than applicable statutory rate)	394.8		(16.6	)	(16.0	)	(8.7	)
Worldwide operations:
Valuation allowance changes	(148.6	)	25.0		2.9		—
Audit impacts	—		—		—		(1.2	)
Change in unrecognized taxes	(10.1	)	18.5		15.0		3.3
Rate change impacts	—		—		(3.3	)	—
Effective income tax rate	124.2	%	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 $3.7 billion at December 31, 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) were as follows:



	Six Months Ended			Fiscal Year Ended
	December 31, 2015			June 27, 2015			June 28, 2014
Deferred income tax asset (liability):
Depreciation and amortization	$	(1,808.5	)	$	(1,889.0	)	$	(982.6	)
Inventory basis differences	21.0			30.2			43.9
Accrued liabilities	58.1			67.2			84.3
Allowance for doubtful accounts	1.3			0.9			0.9
Research and development	63.7			62.8			3.7
Loss carryforwards	243.6			242.7			47.1
Share-based compensation	20.6			14.3			14.3
Foreign tax credit	10.6			10.6			10.6
Federal benefit of unrecognized tax positions	22.8			26.3			20.7
Interest carryforwards	334.6			259.7			253.3
Other, net	14.7			29.7			59.6
Subtotal	(1,017.5		)	(1,144.6		)	(444.2		)
Valuation allowance for loss and credit carryforwards	(491.6		)	(519.2		)	(198.4		)
Net deferred income tax asset (liability):	$	(1,509.1	)	$	(1,663.8	)	$	(642.6	)

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



	Six Months Ended			Fiscal Year Ended
	December 31, 2015			June 27, 2015			June 28, 2014
Assets	$	54.6		$	161.9		$	86.4
Liabilities	(1,563.7		)	(1,825.7		)	(729.0		)
Net deferred income tax (liability) asset	$	(1,509.1	)	$	(1,663.8	)	$	(642.6	)

At December 31, 2015, we had gross carryforwards as follows: worldwide federal net operating losses, excluding U.S. states, of $823.7 million, U.S. state net operating losses of $422.5 million, worldwide federal capital losses of $19.3 million, U.S. state credits of $1.5 billion, and U.S. federal credits of $269.1 million. At December 31, 2015, gross valuation allowances had been provided for worldwide federal net operating loss carryforwards, excluding U.S. states, in the amount of $603.6 million, $388.4 million for U.S. state net operating loss carryforwards, $19.3 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 2034, U.S. capital loss carryforward expires through 2016 and U.S. federal credit carryforwards of $30.2 million, $167.8 million and $37.2 million expire through 2022, 2025 and 2027, respectively, with the remaining U.S. credits having no expiration. U.S. state net operating loss carryforwards expire through 2034, and U.S. state credit carryforwards expire through 2029. Of the non-U.S. net operating loss carryforwards, $10.2 million, $2.1 million, $22.0 million, $2.6 million, $0.1 million and $3.4 million expire through 2017, 2018, 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 (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:
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:
Settlements with taxing authorities	(1.4		)
Lapse of statutes of limitation	(1.7		)
Balance at June 27, 2015	318.6
Additions:
Positions related to the current year	17.9
Reductions:
Positions related to prior years	(38.8		)
Settlements with taxing authorities	(15.3		)
Balance at December 31, 2015	$	282.4

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 $52.1 million, $65.7 million, and $45.3 million as of December 31, 2015, June 27, 2015, and June 28, 2014, respectively.

The total liability for uncertain tax positions was $334.7 million, $384.3 million, and $205.4 million as of December 31, 2015, June 27, 2015, and June 28, 2014, respectively, before considering the federal tax benefit of certain state and local items, of which $206.1 million, $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 audit of fiscal years ended June 27, 2009 and June 26, 2010. 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. The IRS denied our request for a refund. In the next several months we are likely to file a complaint in federal district court claiming a refund for these amounts. The payment was recorded in the third quarter of fiscal year 2015 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.

The IRS is auditing our fiscal years ended June 25, 2011 and June 30, 2012, and may make adjustments consistent with their claims for the 2009-10 audit period. Subsequent to December 31, 2015 the Belgium Tax Authority notified us that all Belgium locations will be audited for the years ending December 31, 2013 and December 31, 2014.

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 December 31, 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 $3.0 million.

Tax Rate Changes

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. For all other entities that do not qualify for this reduced rate, the tax rate was increased from 25% to 26.5%. However, additional legislation was passed in January 2016, effective immediately, reducing the tax rate from 26.5% back to 25%.

In July 2013, the United Kingdom passed legislation reducing the statutory rate to 21% and 20% effective April 1, 2014 and April 1, 2015, respectively. These rates are applicable to Perrigo as of June 30, 2013 and favorably impacted the effective tax rate in the amount of $4.7 million for our fiscal year ended June 28, 2014. Additionally, in November 2015, the United Kingdom passed legislation further reducing the statutory rate to 19% and 18% beginning April 1, 2017 and April 1, 2020, respectively. These rates are applicable to Perrigo as of December 31, 2015 and favorably impacted the effective tax rate in the amount of $1.4 million for the six months ended December 31, 2015.

In December 2013, Mexico enacted legislation to rescind the scheduled rate reductions and maintain the 30% corporate tax rate for 2014 and future years. This rate was applicable to Perrigo as of June 30, 2013.