Income Taxes—The Company utilizes the asset and liability method of accounting for income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws. The components of the provision for income taxes were as shown below:



In millions	2013			2012			2011
U.S. federal income taxes:
Current	$	410		$	474		$	448
Deferred	84			250			(34		)
	494			724			414
Foreign income taxes:
Current	153			239			91
Deferred	35			(29		)	(82		)
Benefit of net operating loss carryforwards	(13		)	(30		)	(4		)
	175			180			5
State income taxes:
Current	64			64			60
Deferred	(16		)	5			(31		)
	48			69			29
	$	717		$	973		$	448

Income from continuing operations before income taxes for domestic and foreign operations was as follows:



In millions	2013		2012		2011
Domestic	$	1,444	$	2,207	$	1,270
Foreign	903		999		953
	$	2,347	$	3,206	$	2,223

The reconciliation between the U.S. federal statutory tax rate and the effective tax rate was as follows:



	2013		2012		2011
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of U.S. federal tax benefit	1.8		0.9		1.1
Differences between U.S. federal statutory and foreign tax rates	(3.4	)	(2.2	)	(2.8	)
Nontaxable foreign interest income	(3.5	)	(2.8	)	(4.2	)
Australian court decision	—		—		(7.5	)
Tax effect of foreign dividends	2.4		0.7		0.5
Tax relief for U.S. manufacturers	(1.3	)	(1.1	)	(1.3	)
Other, net	(0.4	)	(0.2	)	(0.6	)
Effective tax rate	30.6	%	30.3	%	20.2	%

Deferred U.S. federal income taxes and foreign withholding taxes have not been provided on the remaining undistributed earnings of certain international subsidiaries as these earnings are considered permanently invested. Undistributed earnings of these subsidiaries were approximately $9.0 billion and $8.3 billion as of December 31, 2013 and 2012, respectively. Upon repatriation of these earnings to the U.S. in the form of dividends or otherwise, the Company may be subject to U.S. income taxes and foreign withholding taxes. The actual U.S. tax cost would depend on income tax laws and circumstances at the time of distribution. Determination of the related tax liability is not practicable because of the complexities associated with the hypothetical calculation.

The components of deferred income tax assets and liabilities at December 31, 2013 and 2012 were as follows:



	2013						2012
In millions	Asset			Liability			Asset			Liability
Goodwill and intangible assets	$	312		$	(795	)	$	382		$	(901	)
Inventory reserves, capitalized tax cost and LIFO inventory	58			(5		)	68			(11		)
Investments	32			(288		)	37			(283		)
Plant and equipment	25			(106		)	14			(103		)
Accrued expenses and reserves	76			—			58			—
Employee benefit accruals	296			—			362			—
Foreign tax credit carryforwards	112			—			31			—
Net operating loss carryforwards	694			—			709			—
Capital loss carryforwards	91			—			37			—
Allowances for uncollectible accounts	14			—			17			—
Pension liabilities	—			(13		)	102			—
Deferred intercompany deductions	169			—			321			—
Other	124			(11		)	122			(16		)
Gross deferred income tax assets (liabilities)	2,003			(1,218		)	2,260			(1,314		)
Valuation allowances	(559		)	—			(475		)	—
Total deferred income tax assets (liabilities)	$	1,444		$	(1,218	)	$	1,785		$	(1,314	)

Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The valuation allowances recorded at December 31, 2013 and 2012 related primarily to certain net operating loss carryforwards and capital loss carryforwards.

At December 31, 2013, the Company had net operating loss carryforwards available to offset future taxable income in the U.S. and certain foreign jurisdictions, which expire as follows:



	Gross Carryforwards Related
In millions	to Net Operating Losses
2014	$	2
2015	3
2016	3
2017	10
2018	12
2019	9
2020	76
2021	74
2022	19
2023	15
2024	11
2025	10
2026	7
2027	12
2028	5
2029	6
2030	3
2031	2
2032	8
2033	—
Do not expire	2,134
	$	2,421

The Company has foreign tax credit carryforwards of $112 million as of December 31, 2013 that are available for use by the Company between 2014 and 2023.

The changes in the amount of unrecognized tax benefits during 2013, 2012 and 2011 were as follows:



In millions	2013			2012			2011
Beginning balance	$	249		$	437		$	718
Additions based on tax positions related to the current year	26			32			43
Additions for tax positions of prior years	40			62			74
Reductions for tax positions of prior years	(21		)	(163		)	(16		)
Settlements	(27		)	(125		)	(377		)
Foreign currency translation	1			6			(5		)
Ending balance	$	268		$	249		$	437

Included in the balance at December 31, 2013 are approximately $268 million of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate.

During the third quarter of 2013, the Company recorded a discrete tax charge of $40 million related to the tax treatment of intercompany financing transactions that impact the taxability of foreign earnings.

During the fourth quarter of 2012, the Company came to an agreement with the Internal Revenue Service on issues related predominately to intercompany transactions and global legal structure reorganization transactions identified by the Internal Revenue Service during its 2008-2009 audit. Based on this agreement, the Company decreased its unrecognized tax benefits related to this matter by approximately $125 million and recorded an unfavorable tax charge of $35 million.

The Company litigated a dispute with the Australian Tax Office over the tax treatment of an intercompany financing transaction between the U.S. and Australia. The case was heard before the Federal Court of Australia, Victoria, in September 2010. The proceedings resulted from the Company’s appeal of a decision by the Australian Tax Commissioner to disallow income tax deductions for the income tax years 2002 through 2005 and the assessment of withholding taxes for income tax year 2003. The Company also contested the Commissioner’s similar determination for income tax years 2006 and 2007; however, the parties agreed to follow the Court’s decision made on the earlier years. On February 4, 2011, the Federal Court of Australia, Victoria, decided in the Company’s favor with respect to a significant portion of the income tax deductions. The Court issued the final orders on February 18, 2011. Based on this decision, the Company decreased its unrecognized tax benefits related to this matter by approximately $197 million and recorded a favorable discrete non-cash tax benefit to reduce tax expense by $166 million in the first quarter of 2011. Subsequent to the 2011 ruling, the Australian Tax Office appealed the timing of certain of the deductions. In March 2012, the Court ruled in favor of the Australian Tax Office regarding the timing of the deductions, which did not have a material impact to the Company.

During the first quarter of 2011, the Company resolved an issue with the Internal Revenue Service in the U.S. related to a deduction for foreign exchange losses on an intercompany loan that resulted in a decrease in unrecognized tax benefits of approximately $179 million.

The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions including the Internal Revenue Service, Her Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. Due to the ongoing audits, the Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately $37 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues. The following table summarizes the open tax years for the Company’s major jurisdictions:



Jurisdiction		Open Tax Years
United States – Federal		2006-2013
United Kingdom		2011-2013
Germany		2006-2013
France		2004-2013
Australia		2009-2013

The Company recognizes interest and penalties related to income tax matters in income tax expense. The accrual for interest and penalties as of December 31, 2013 and 2012 was $21 million and $16 million, respectively.