Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Impact of Tax Cuts and Jobs Act of 2017

The following table presents the impact of the accounting for the enactment of the Tax Reform Act on income tax expense (benefit) from continuing operations in our Consolidated Statements of Income for the years ended December 31, 2018 and 2017.



Years ended December 31	2018			2017			Total
Transition tax ⁽¹⁾	$	36		$	264		$	300
Re-measurement of deferred tax balances ⁽²⁾	(8		)	86			78
Indefinite reinvestment assertion ⁽³⁾	1			(5		)	(4		)
Allocation of tax benefit from foreign tax credits ⁽⁴⁾	59			—			59
Total income tax expense (benefit)	$	88		$	345		$	433


(1)	Reflects the Transition Tax on the post-1986 earnings and profits and related foreign tax credits of U.S.-owned foreign subsidiaries as of November 2, 2017 and December 31, 2017, whichever is higher.


(2)	Reflects the re-measurement of deferred tax assets and liabilities as a result of the reduction in the U.S. corporate income tax rate from 35% to 21%.


(3)	Reflects the accrual for local country income taxes, state income taxes and withholding taxes as a result of the change in its indefinite reinvestment assertion such that the Company is generally no longer indefinitely reinvested on the earnings subject to the Transition Tax.


(4)	Reflects the allocation of tax expense from discontinued operations to continuing operations related to the utilization of foreign tax credits in the tax year ended December 31, 2017. Without the income from discontinued operations, these foreign tax credits would have required a valuation allowance.

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	2018			2017			2016
Income before income taxes:
U.K.	$	(240	)	$	(420	)	$	(201	)
U.S.	(601		)	(765		)	(329		)
Other	2,087			1,870			1,931
Total	$	1,246		$	685		$	1,401
Income tax expense (benefit):
Current:
U.K.	$	21		$	1		$	(54	)
U.S. federal	101			48			88
U.S. state and local	35			18			7
Other	214			201			207
Total current tax expense	$	371		$	268		$	248
Deferred tax expense (benefit):
U.K.	$	19		$	(5	)	$	59
U.S. federal	(165		)	12			(110		)
U.S. state and local	(56		)	(35		)	(9		)
Other	(23		)	10			(40		)
Total deferred tax benefit	$	(225	)	$	(18	)	$	(100	)
Total income tax expense	$	146		$	250		$	148

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	2018	2017	2016
Statutory tax rate	19.0%	19.3%	20.0%
U.S. state income taxes, net of U.S. federal benefit	(0.4)	(1.5)	0.4
Taxes on international operations ⁽¹⁾	(7.3)	(30.3)	(12.2)
Nondeductible expenses	2.7	3.4	1.4
Adjustments to prior year tax requirements	0.9	2.0	(1.2)
Adjustments to valuation allowances	3.8	(1.8)	(2.2)
Change in uncertain tax positions	0.9	1.6	3.2
Excess tax benefits related to shared based compensation ⁽²⁾	(3.6)	(8.0)	—
U.S. Tax Reform impact ⁽³⁾	7.1	51.2	—
Loss on disposition	(10.2)	—	—
Other — net	(1.2)	0.6	1.2
Effective tax rate	11.7%	36.5%	10.6%

(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 19.0%, 19.3% and 20.0% at December 31, 2018, 2017, and 2016, 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 and the tax holiday in Singapore. The impact decreased from 2017 to 2018 primarily as a result of the decrease in the U.S. federal tax rate.


(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.


(3)	The impact of the Tax Reform Act including the Transition Tax, the re-measurement of U.S. deferred tax assets and liabilities from 35% to 21%, withholding tax accruals, and the allocation of tax benefit between continuing operations and discontinued operations related to utilization of foreign tax credits.

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	2018			2017
Deferred tax assets:
Net operating loss, capital loss, interest, and tax credit carryforwards	$	563		$	362
Employee benefit plans	351			424
Other accrued expenses	98			65
Investment basis differences	28			35
Deferred revenue	29			20
Tradename liability	—			12
Lease and service guarantees	5			6
Brokerage fee arrangements	—			4
Other	46			49
Total	1,120			977
Valuation allowance on deferred tax assets	(171		)	(136		)
Total	$	949		$	841
Deferred tax liabilities:
Intangibles and property, plant and equipment	$	(310	)	$	(436	)
Deferred costs	(143		)	(32		)
Unremitted earnings	(30		)	(39		)
Unrealized foreign exchange gains	(26		)	(22		)
Other accrued expenses	(36		)	(12		)
Other	(24		)	(38		)
Total	$	(569	)	$	(579	)
Net deferred tax asset	$	380		$	262

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	2018			2017
Deferred tax assets — non-current	$	561		$	389
Deferred tax liabilities — non-current	(181		)	(127		)
Net deferred tax asset	$	380		$	262

Summary of operating and capital loss carryforwards

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



As of December 31	2018		2017
U.K.
Operating loss carryforwards	$	541	$	675
Capital loss carryforwards	400		415
Interest carryforwards	53		—

U.S.
Federal operating loss carryforwards	$	2	$	36
Federal capital loss carryforwards & carryback	367		—
Federal interest carryforwards	424		—

State operating loss carryforwards	$	315	$	412
State capital loss carryforwards & carryback	221		—
State interest carryforwards	227		—

Other Non-U.S.
Operating loss carryforwards	$	369	$	392
Capital loss carryforwards ⁽¹⁾	30		36
Interest carryforwards ⁽¹⁾	186		196


(1)	Prior to 2018, interest carryforwards in non-U.S. jurisdictions were classified within capital loss carryforwards. As of December 31, 2017, $196 million was reclassified from capital loss carryforwards to interest carryforwards.

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):



	2018			2017
Balance at January 1	$	280		$	278
Additions based on tax positions related to the current year	18			25
Additions for tax positions of prior years	10			12
Reductions for tax positions of prior years	(24		)	(26		)
Settlements	—			(6		)
Business combinations	1			—
Lapse of statute of limitations	(6		)	(7		)
Foreign currency translation	—			4
Balance at December 31	$	279		$	280