INCOME TAXES

Components of income (loss) before income taxes—U.S. and outside U.S. components of income (loss) before income taxes were as follows:



	Year Ended December 31,
(In millions)	2017		2016		2015
United States	$	284.3	$	154.3	$	152.0
Outside United States	395.4		397.1		(1.5		)
Income before income taxes	$	679.7	$	551.4	$	150.5

Provision for income tax—The provision for income taxes consisted of:



	Year Ended December 31,
(In millions)	2017		2016			2015
Current:
United States	$	30.2	$	54.1		$	10.8
Outside United States	373.7		298.3			189.8
Total current	403.9		352.4			200.6
Deferred:
United States	71.4		(7.2		)	46.6
Outside United States	70.2		(164.9		)	(110.7		)
Total deferred	141.6		(172.1		)	(64.1		)
Provision for income taxes	$	545.5	$	180.3		$	136.5

Deferred tax assets and liabilities—Significant components of deferred tax assets and liabilities were as follows:



	December 31,
(In millions)	2017			2016
Deferred tax assets attributable to:
Accrued expenses	$	155.2		$	49.3
Non-deductible interest	85.9			—
Foreign tax credit carryforwards	34.9			—
Net operating loss carryforwards	390.7			225.9
Inventories	13.4			—
Research and development credit	7.5			—
Provisions for pensions and other long-term employee benefits	86.4			56.2
Contingencies related to contracts	111.3			188.3
Other contingencies	33.5			63.1
Fair value losses/gains	12.4			103.1
Other	11.1			15.1
Deferred tax assets	942.3			701.0
Valuation allowance	(430.0		)	(172.7		)
Deferred tax assets, net of valuation allowance	512.3			528.3
Deferred tax liabilities attributable to:
Revenue in excess of billings on contracts accounted for under the percentage of completion method	41.2			—
U.S. tax on foreign subsidiaries’ undistributed earnings not indefinitely reinvested	4.9			—
Foreign exchange	21.5			—
Property, plant and equipment, intangibles and other assets	403.3			101.1
Margin recognition on construction contracts	6.4			4.1
Deferred tax liabilities	477.3			105.2
Net deferred tax assets	$	35.0		$	423.1

At December 31, 2017 and 2016, the carrying amount of net deferred tax assets and the related valuation allowance included the impact of foreign currency translation adjustments.

Non-deductible interest. At December 31, 2017, deferred tax assets include tax benefits of related to certain intercompany interest costs which are not currently deductible, but which may be deductible in future periods. If not utilized, these costs will become permanently nondeductible beginning in 2025. Management believes that it is more likely than not that we will not be able to deduct these costs before expiration of the carry forward period; therefore, we have established a valuation allowance against the related deferred tax assets.

Foreign tax credit carryforwards. At December 31, 2017, deferred tax assets included U.S. foreign tax credit carryforwards of $34.9 million, which, if not utilized, will begin to expire in 2024. Realization of these deferred tax assets is dependent on the generation of sufficient U.S. taxable income prior to the above date. Based on long-term forecasts of operating results, management believes that it is more likely than not that our U.S. earnings over the forecast period will not result in sufficient U.S. taxable income to fully realize these deferred tax assets; therefore, we have established a valuation allowance against the related deferred tax assets. In its analysis, management has considered the effect of deemed dividends and other expected adjustments to U.S. earnings that are required in determining U.S. taxable income. Non-U.S. earnings subject to U.S. tax, including deemed dividends for U.S. tax purposes, were $1.4 billion in 2017 and nil in both 2016 and 2015.

Net operating loss carryforwards. As of December 31, 2017, deferred tax assets included tax benefits related to net operating loss carryforwards. If not utilized, these net operating loss carryforwards will begin to expire in 2018. Management believes it is more likely than not that we will not be able to utilize certain of these operating loss carryforwards before expiration; therefore, we have established a valuation allowance against the related deferred tax assets.

The majority of the net operating loss carryforwards came from a Brazil entity for $315.6 million, a Saudi Arabia entity for $196.8 million, a Mexico entity for $127.0 million, a France entity for $93.2 million, a U.K. entity for $121.0 million, and a Finland entity for $57.7 million. Except where there is a statutory carryforward loss time limit (i.e. Finland and Mexico), all of these tax loss carryforwards extend indefinitely.

Unrecognized tax benefits—The following table presents a summary of changes in our unrecognized tax benefits and associated interest and penalties⁽¹⁾:



(In millions)	Federal, State and Foreign Tax			Accrued Interest and Penalties		Total Gross Unrecognized Income Tax Benefits
Balance at December 31, 2015	$	—		$	—	$	—
Additions for tax positions related to prior years	—			—		—
Additions for tax positions related to current year	16.6			—		16.6
Reductions for tax positions due to settlements	—			—		—
Balance at December 31, 2016	$	16.6		$	—	$	16.6
Reductions for tax positions related to prior years	(13.6		)	—		(13.6		)
Additions for tax positions related to current year	39.5			3.8		43.3
Reductions for tax positions due to settlements	(0.2		)	—		(0.2		)
Additions for tax positions related to purchase accounting	48.1			2.1		50.2
Balance at December 31, 2017	$	90.4		$	5.9	$	96.3

⁽¹⁾We did not have any unrecognized tax benefits prior to 2016.

At December 31, 2017, 2016 and 2015, there were $96.3 million, $16.6 million and nil, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

It is reasonably possible that within twelve months, a significant portion of the above unrecognized tax benefits related to certain tax reporting positions taken in prior periods could decrease due to either the expiration of the statute of limitations in certain jurisdictions, or the resolution of current income tax examinations, or both.

Included in additions for tax positions related to purchase accounting is $45.2 million for potential adjustments for intercompany interest expense pertaining to a financing structure in Norway.

We operate in numerous jurisdictions around the world and could be subject to multiple tax audits at any given time. Most notably, the following tax years and thereafter remain subject to examination: 2006 for Norway, 2013 for Nigeria, 2012 for Brazil and 2014 for the United States.

As a result of the Merger, TechnipFMC plc is a public limited company incorporated under the laws of England and Wales. Therefore, our earnings are subject to the United Kingdom statutory rate of 19.3% beginning on the effective date of the Merger. Previously these earnings were subject to the French statutory rate of 34.4%. Our consolidated effective income tax rate information has been presented accordingly. The Merger transaction was generally a non-taxable event for the significant jurisdictions in which we operate. As of the date of the Merger, the Company recorded $306.3 million of deferred tax liability related to purchase accounting.

Effective income tax rate reconciliation—The effective income tax rate was different from the statutory federal income tax rate due to the following:



	Year Ended December 31,
	2017		2016		2015
Statutory income tax rate	19.3	%	34.4	%	38.0	%
Net difference resulting from:
Foreign earnings subject to different tax rates	18.2	%	(18.5	)%	28.4	%
Net change in unrecognized tax benefits	4.3	%	3.0	%	—	%
Adjustments on prior year taxes	(4.4	)%	2.4	%	(11.0	)%
Change in valuation allowance	19.3	%	13.1	%	36.9	%
Deferred tax asset/liability revaluation for tax rate change	1.4	%	(0.8	)%	1.8	%
U.S. transition tax	17.1	%	—	%	—	%
Other	5.1	%	(0.9	)%	(3.5	)%
Effective income tax rate	80.3	%	32.7	%	90.6	%

U.S. Tax Cuts and Jobs Act (TCJA) and Other Jurisdictional Tax Reform. Included in the 2017 provision for income taxes are taxes related to the deemed repatriation to the United States of foreign earnings. The Tax Cuts and Jobs Act (TCJA), signed into U.S. law on December 22, 2017, made significant changes to the U.S. federal income taxation of non-U.S. corporate subsidiaries that are controlled by one or more U.S. shareholders. As part of these changes, the TCJA required a onetime deemed repatriation of all accumulated non-U.S. earnings.

The TCJA generally requires that, for the last taxable year of a non-U.S. corporation beginning before January 1, 2018, all U.S. shareholders of such corporation that is at least 10-percent U.S.-owned must include in income their pro rata share of the

corporation’s accumulated post-1986 deferred foreign income that was not previously subject to U.S. tax. Accordingly, the Company recorded income tax expense of approximately $148.7 million in 2017 associated with the deemed repatriation of approximately $2.9 billion of non-U.S. earnings that were not previously subject to U.S. tax. The company has recorded no current tax payable associated with the deemed repatriation.

Also included in the 2017 provision for income taxes is the result of the revaluation of deferred tax attributes as a result of changes in corporate tax rates as part of jurisdictional tax reform. The tax expense from the revaluation of U.S. deferred tax attributes is $18.9 million. The tax benefit from the revaluation of deferred tax attributes in other foreign jurisdictions is $9.7 million.

As of January 17, 2017, the Company had recorded a deferred tax asset of $77.7 million related to the carryforward of U.S.foreign tax credits. This deferred tax asset was offset by a valuation allowance of $77.7 million, resulting in a net carrying value of the deferred tax asset related to the carryforward of U.S. foreign tax credits of zero as of January 17, 2017. The deemed repatriation allowed for the utilization of $32.1 million of these foreign tax credit carryforwards. Accordingly, the Company recorded a tax benefit of $32.1 million in the fourth quarter of 2017 related to the utilization of these tax assets. As of December 31, 2017, the Company has recorded a deferred tax asset of $34.9 million related to the carryforward of U.S. foreign tax credits. This deferred tax asset is offset by a valuation allowance of $34.9 million, resulting in a net carrying value of the deferred tax asset associated with the carryforward of the U.S. foreign tax credits of zero as of December 31, 2017.

As a result of the deemed repatriation, U.S. income tax has been provided on all undistributed earnings of non-U.S. subsidiaries of the Company’s U.S. affiliates as of December 31, 2017. The cumulative balance of these undistributed earnings was approximately $2.9 billion as of December 31, 2017.

We are currently evaluating provisions of United States tax reform enacted in December 2017. In the fourth quarter of 2017, we recorded a provision to income taxes for our preliminary assessment of the impact of tax reform. As we do not have all the necessary information to analyze all income tax effects of tax reform, this is a provisional amount which we believe represents a reasonable estimate of the accounting implications of this tax reform. We will continue to evaluate tax reform and adjust the provisional amounts as additional information is obtained. The ultimate impact of tax reform may differ from our provisional amounts due to changes in our interpretations and assumptions, as well as additional regulatory guidance that may be issued. We expect to complete our detailed analysis no later than the fourth quarter of 2018.

As of the date of the Merger, the cumulative balance of legacy FMC Technologies foreign earnings with respect to which no provision for U.S. income taxes has been recorded was $2.3 billion. Although the parent company of TechnipFMC has since changed jurisdictions, the undistributed foreign earnings previously reported would still be liable for U.S. income taxes. In light of 2017’s tax reform, the entirety of the previously untaxed foreign earnings have been taxed via the deemed repatriation accounted for and included in the transition tax which eliminates the company’s liability on such earnings.

Income tax holidays. We benefit from income tax holidays in Singapore and Malaysia which will expire after 2018 for Singapore and 2020 for Malaysia. For the year ended December 31, 2017, these tax holidays reduced our provision for income taxes by $4.4 million, or $0.01 per share on a diluted basis.