McDermott International, Inc. is a Panamanian corporation that earns all of its income outside of Panama and, as a result, is not subject to income tax in Panama. During 2018, McDermott changed its tax residency to the U.K. subsequent to the Combination. We operate in various taxing jurisdictions around the world. Each of these jurisdictions has a regime of taxation that varies, not only with respect to nominal rate, but also with respect to the basis on which these rates are applied. These variations, aligned with the changes in our mix of income or loss from these jurisdictions, may contribute to shifts, sometimes significant, in our effective tax rate.

	Year Ended December 31,
	2018		2017		2016
	(In millions)
Other than U.S.:
Current	$	82	$	62	$	44
Deferred		22		7		(2	)
Total provision for income taxes	$	104	$	69	$	42

	Year Ended December 31,
	2018			2017		2016
	(In millions)
U.S.	$	(2,450	)	$	123	$	(125	)
Other than U.S.		(121	)		126		207
(Loss) income before provision for income taxes	$	(2,571	)	$	249	$	82

The following is a reconciliation of the U.K. statutory federal tax for 2018 and Panama statutory federal tax rate for 2017 and 2016 to the consolidated effective tax rates:

	Year Ended December 31,
	2018			2017			2016
Federal statutory rate (U.K. 2018; Panama 2017 and 2016)		19	%		25	%		25	%
Goodwill impairment		(14	%)		-			-
Non-Panama operations		-			16	%		(14	%)
Change in valuation allowance for deferred tax assets - the U.S.		(7	%)		(18	%)		49	%
Change in valuation allowance for deferred tax assets - Others		(3	%)		3	%		(25	%)
Audit settlements and reserves		-			1	%		14	%
Other (primarily tax on unremitted earnings)		1	%		1	%		2	%
Effective tax rate		(4	%)		28	%		51	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, as well as operating loss and tax credit carryforwards.

	December 31,
	2018			2017
	(In millions)
Deferred tax assets:
Net operating loss carryforward and other credits	$	294		$	209
State net operating loss carryforward and other credits		248			20
Non-U.S. net operating losses		189			-
Accounts receivable basis difference		161			-
Partnership investments		153			-
Depreciation and amortization		64			-
Disallowed interest		51			-
Pension liability		49			7
Accrued liabilities for incentive compensation		32			16
Contract Revenue & Cost/Long-term contracts		17
Insurance and legal reserves		17
Other		32			2
Total deferred tax assets		1,307			254
Valuation allowance for deferred tax assets		(1,307	)		(200	)
Deferred tax assets	$	-		$	54

Deferred tax liabilities:
Investments in foreign subsidiaries		33			22
Depreciation and amortization		7			26
Long-term contracts		-			14
Other		7			2
Total deferred tax liabilities		47			64

Net deferred tax liabilities	$	(47	)	$	(10	)

Deferred tax assets and liabilities are recorded net by tax jurisdiction in the accompanying Consolidated Balance Sheets. Deferred tax assets and liabilities were as follows:

	December 31,
	2018			2017
	(In millions)
Deferred tax assets	$	-		$	18

Deferred tax liabilities		47			28

Net deferred tax liabilities	$	(47	)	$	(10	)

The U.S. tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and established new taxes on certain foreign sourced earnings. At December 31, 2017, we made a provisional estimate of the effects of the Act on our existing deferred tax balances and the effects of the one-time transition tax. We completed our analysis of the effects of the Act during 2018 and have determined that any change from the provisional calculation at year end December 31, 2017 is nominal.

At December 31, 2018, we had a VA of approximately $1.3 billion for DTAs that we expect cannot be realized through carrybacks, future reversals of existing taxable temporary differences or based on our estimate of future taxable income. After completion of the Combination in 2018, we incurred losses primarily resulting from goodwill impairment (See Note 9, Goodwill and Other Intangible Assets) and project charges (see Note 4, Revenue Recognition). As a result of such losses, we have a cumulative consolidated loss for the three years ended December 31, 2018. Accordingly, in assessing the positive and negative evidence related to the likelihood of utilizing the U.S. DTAs, and giving consideration to all such evidence, we believe we are precluded from using projections of future book income to support our DTAs because we believe the negative evidence outweighs the positive and have concluded that it is not more likely than not that we would utilize our DTAs as of December 31, 2018.

	Year Ended December 31,
	2018		2017			2016
	(In millions)
Balance at beginning of period	$	200	$	335		$	336
Addition due to the Combination		836		-			-
Charged to costs and expenses		250		(32	)		15
Charged to other accounts		21		(103	)		(16	)
Balance at end of period	$	1,307	$	200		$	335

Our net operating loss DTAs, valuation allowance and expiration dates for Non-U.S., U.S. and State DTAs were as follows:

At December 31, 2018, we did not provide deferred income taxes for temporary differences of our subsidiaries which are indefinitely reinvested. The reversal of those temporary differences could result in additional tax; however, at this time it is not practicable to estimate the amount of any unrecognized deferred income tax liabilities largely due to the changing composition of the EU. Deferred income taxes are provided as necessary with respect to earnings that are not indefinitely reinvested.

We operate under a tax holiday in Malaysia, effective through December 31, 2020, which may be extended for an additional five years if we satisfy certain requirements. The Malaysian tax holiday reduced our foreign income tax expense by $17.5 million and $7 million in 2018 and 2017, respectively. The benefit of the tax holiday on net income per share (diluted) was $0.12 for 2018.

We conduct business globally and, as a result, we or our various affiliated entities file income tax returns in a number of jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Malaysia, Australia, Indonesia, Singapore, Saudi Arabia, Kuwait, India, Qatar, Brunei, the U.K., Canada and the United States. With few exceptions, we are no longer subject to tax examinations for years prior to 2011.

	Year Ended December 31,
	2018			2017			2016
	(In millions)
Balance at beginning of period	$	39		$	41		$	36
Changes due to the Combination		14			-			-
Changes due to exchange rate fluctuations		(1	)		1			-
Increases based on tax positions taken in the current year		2			1			2
Increases based on tax positions taken in prior years		9			4			8
Decreases based on tax positions taken in prior years		(5	)		(2	)		(5	)
Decreases due to settlements		-			(6	)		-
Balance at end of period	$	58		$	39		$	41

Approximately $49 million of the balance of unrecognized tax benefits at December 31, 2018 would, absent any VAs, reduce tax expense if recognized. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. At December 31, 2018, 2017 and 2016, we had recorded liabilities of approximately $20 million, $24 million and $20 million, respectively, for the payment of tax-related interest and penalties.