Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income from continuing operations before income tax

Income before income tax from continuing operations and the provision for income tax from continuing operations consist of the following (in millions):



Years ended December 31	2017			2016			2015
Income before income taxes:
U.K.	$	(420	)	$	(201	)	$	144
U.S.	(765		)	(329		)	(283		)
Other	1,870			1,931			1,567
Total	$	685		$	1,401		$	1,428
Income tax expense (benefit):
Current:
U.K.	$	1		$	(54	)	$	42
U.S. federal	48			88			22
U.S. state and local	18			7			32
Other	201			207			245
Total current tax expense	$	268		$	248		$	341
Deferred tax expense (benefit):
U.K.	$	(5	)	$	59		$	(39	)
U.S. federal	12			(110		)	(94		)
U.S. state and local	(35		)	(9		)	(4		)
Other	10			(40		)	(29		)
Total deferred tax benefit	$	(18	)	$	(100	)	$	(166	)
Total income tax expense	$	250		$	148		$	175

Reconciliation of the income tax provisions based on the U.S. statutory corporate tax rate to the provisions reflected in the Consolidated Financial Statements

The reconciliation to the provisions from continuing operations reflected in the Consolidated Financial Statements is as follows:



Years ended December 31	2017	2016	2015
Statutory tax rate	19.3%	20.0%	20.3%
U.S. state income taxes, net of U.S. federal benefit	(1.5)	0.4	0.1
Taxes on international operations ⁽¹⁾	(30.3)	(12.2)	(8.8)
Nondeductible expenses	3.4	1.4	2.5
Adjustments to prior year tax requirements	2.0	(1.2)	(1.5)
Adjustments to valuation allowances	(1.8)	(2.2)	(1.4)
Change in uncertain tax positions	1.6	3.2	1.4
Excess tax benefits related to shared based compensation ⁽²⁾	(8.0)	—	—
U.S. Tax Reform impact ⁽³⁾	51.2	—	—
Other — net	0.6	1.2	(0.3)
Effective tax rate	36.5%	10.6%	12.3%

(1)

The Company determines the adjustment for taxes on international operations based on the difference between the statutory tax rate applicable to earnings in each foreign jurisdiction and the enacted rate of 19.3%, 20.0% and 20.3% at December 31, 2017, 2016, and 2015, respectively. The benefit to the Company’s effective income tax rate from taxes on international operations relates to benefits from lower-taxed global operations, primarily due to the use of global funding structures. Restructuring charges and the impairment and amortization of tradenames, primarily in the U.S., were the significant drivers of the change from 2016 to 2017.


(2)	With the adoption of ASU 2016-09 in 2017, excess tax benefits and deficiencies from share-based payment transactions are recognized as income tax expense or benefit in the Company’s Consolidated Statements of Income. Refer to Note 2 “Summary of Significant Accounting Principles and Practices” for additional details.


(3)	Due to the Tax Reform Act, provisional estimates were accrued as of December 31, 2017 for the Transition Tax and the re-measurement of U.S. deferred tax assets and liabilities from 35% to 21%.

Components of Aon's deferred tax assets and liabilities

The components of the Company’s deferred tax assets and liabilities are as follows (in millions):



As of December 31	2017			2016
Deferred tax assets:
Employee benefit plans	$	424		$	661
Net operating/capital loss and tax credit carryforwards	362			398
Other accrued expenses	65			102
Investment basis differences	35			48
Deferred revenue	20			57
Tradename Liability	12			—
Lease and Service Guarantees	6			—
Brokerage fee arrangements	4			66
Accrued Interest	1			166
Other	48			60
Total	977			1,558
Valuation allowance on deferred tax assets	(136		)	(130		)
Total	$	841		$	1,428
Deferred tax liabilities:
Intangibles and property, plant and equipment	$	(436	)	$	(978	)
Unremitted earnings	(39		)	(29		)
Deferred costs	(32		)	(20		)
Unrealized foreign exchange gains	(22		)	(26		)
Other accrued expenses	(12		)	(101		)
Other	(38		)	(50		)
Total	$	(579	)	$	(1,204	)
Net deferred tax asset	$	262		$	224

Deferred income taxes (assets and liabilities netted by jurisdiction) as classified in the Consolidated Statements of Financial Position

Deferred income taxes (assets and liabilities have been netted by jurisdiction) have been classified in the Consolidated Statements of Financial Position as follows (in millions):



As of December 31	2017			2016
Deferred tax assets — non-current	$	389		$	325
Deferred tax liabilities — non-current	(127		)	(101		)
Net deferred tax asset	$	262		$	224

Summary of operating and capital loss carryforwards

The Company had the following operating and capital loss carryforwards (in millions):



As of December 31	2017		2016
U.K.
Operating loss carryforwards	$	675	$	325
Capital loss carryforwards	415		294

U.S.
Federal operating loss carryforwards	$	36	$	193
State operating loss carryforwards	412		474

Other Non-US
Operating loss carryforwards	$	392	$	350
Capital loss carryforwards	232		218

Reconciliation of the beginning and ending amount of unrecognized tax benefits

The following is a reconciliation of the Company’s beginning and ending amount of uncertain tax positions (in millions):



	2017			2016
Balance at January 1	$	278		$	238
Additions based on tax positions related to the current year	25			36
Additions for tax positions of prior years	12			20
Reductions for tax positions of prior years	(26		)	(12		)
Settlements	(6		)	—
Business combinations	—			2
Lapse of statute of limitations	(7		)	(5		)
Foreign currency translation	4			(1		)
Balance at December 31	$	280		$	278