(10) INCOME TAXES

The components of our income before provision for (benefit from) income taxes for the fiscal years ended March 31, 2018, 2017 and 2016 are as follows (in millions):



	Year Ended March 31,
	2018		2017		2016
Domestic	$	440	$	382	$	133
Foreign	1,009		828		744
Income before provision for (benefit from) income taxes	$	1,449	$	1,210	$	877

Provision for (benefit from) income taxes for the fiscal years ended March 31, 2018, 2017 and 2016 consisted of (in millions):



	Current		Deferred			Total
Year Ended March 31, 2018
Federal	$	138	$	197		$	335
State	4		9			13
Foreign	61		(3		)	58
	$	203	$	203		$	406
Year Ended March 31, 2017
Federal	$	86	$	96		$	182
State	3		9			12
Foreign	51		(2		)	49
	$	140	$	103		$	243
Year Ended March 31, 2016
Federal	$	69	$	(376	)	$	(307	)
State	5		(14		)	(9		)
Foreign	36		1			37
	$	110	$	(389	)	$	(279	)

Our effective tax rate and resulting provision for income taxes for the year ended March 31, 2018 was significantly impacted by the U.S. Tax Cuts and Jobs Act (the “U.S. Tax Act”), enacted on December 22, 2017. The U.S. Tax Act significantly revised the U.S. corporate income tax system by, among other things, lowering U.S. corporate income tax rate to 21 percent, generally implementing a territorial tax system and imposing a one-time transition tax on the deemed repatriation of undistributed earnings of foreign subsidiaries (the “Transition Tax”).

Reasonable estimates of the impacts of the U.S. Tax Act are provided in accordance with SEC guidance that allows for a measurement period of up to one year after the enactment date of the U.S. Tax Act to finalize the recording of the related tax impacts. We expect to complete the accounting under the U.S. Tax Act as soon as practicable, but in no event later than one year from the enactment date of the U.S. Tax Act.

We recorded a provisional tax expense of $235 million related to the U.S. Tax Act for the year ended March 31, 2018, $192 million of which relates to the Transition Tax. During the three months ended March 31, 2018, we adjusted the provisional amount initially recorded for the Transition Tax by recognizing an additional $41 million charge. We also recorded immaterial adjustments to certain other tax items. These adjustments were based on our further analysis of the U.S. Tax Act and certain changes to current year earnings estimates and assertions. These amounts remain provisional. The final calculation of taxes attributable to the U.S. Tax Act may differ from our estimates, potentially materially, due to, among other things, changes in interpretations of the U.S. Tax Act, our further analysis of the U.S. Tax Act, or any updates or changes to estimates that we have utilized to calculate the transition impacts.

The U.S. Tax Act creates new U.S. taxes on foreign earnings. Our provision for income taxes for the year ended March 31, 2018 provisionally does not reflect any deferred tax impacts of the U.S. taxes on foreign earnings. Because of the complexity of the rules regarding the new tax on foreign earnings, we are continuing to evaluate this accounting policy election.

Upon adoption of ASU 2016-09 at the beginning of fiscal year 2018, we reflected excess tax benefits of $43 million for the year ended March 31, 2018 in the Consolidated Statement of Income as a component of the provision for income taxes. For fiscal years 2017 and 2016, excess tax benefits of $65 million and $83 million, respectively, were recognized in additional paid-in-capital in the Condensed Consolidated Balance Sheets.

The differences between the statutory tax expense rate and our effective tax expense (benefit) rate, expressed as a percentage of income before provision for (benefit from) income taxes, for the fiscal years ended March 31, 2018, 2017 and 2016 were as follows:



	Year Ended March 31,
	2018		2017		2016
Statutory federal tax expense rate	31.5	%	35.0	%	35.0	%
State taxes, net of federal benefit	0.8	%	1.0	%	0.5	%
Differences between statutory rate and foreign effective tax rate	(19.1	)%	(19.3	)%	(22.1	)%
Valuation allowance	—	%	—	%	(51.7	)%
Tax reform	16.2	%	—	%	—	%
Excess tax benefit	(3.0	)%	—	%	—	%
Research and development credits	(1.4	)%	(0.7	)%	(0.6	)%
Unremitted earnings of foreign subsidiaries	—	%	2.2	%	4.9	%
Non-deductible stock-based compensation	2.7	%	2.3	%	3.1	%
Other	0.3	%	(0.4	)%	(0.9	)%
Effective tax expense (benefit) rate	28.0	%	20.1	%	(31.8	)%

We generated income in lower tax jurisdictions primarily related to our European and Asia Pacific businesses that are headquartered in Switzerland.

In the fourth quarter of fiscal year 2016, we realized significant U.S. pre-tax income for both the fourth quarter and the fiscal year ended March 31, 2016. As a result, we released the valuation allowance against all of the U.S. federal deferred tax assets and a portion of the U.S. state deferred tax assets during the fourth quarter of fiscal year 2016.

Prior to the U.S. Tax Act, a substantial majority of undistributed earnings of our foreign subsidiaries were considered to be indefinitely reinvested. The U.S. Tax Act included a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, substantially all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax.

The components of net deferred tax assets, as of March 31, 2018 and 2017 consisted of (in millions):



	As of March 31,
	2018			2017
Deferred tax assets:
Accruals, reserves and other expenses	$	81		$	151
Tax credit carryforwards	121			276
Stock-based compensation	24			37
Net operating loss & capital loss carryforwards	23			25
Total	249			489
Valuation allowance	(138		)	(114		)
Deferred tax assets, net of valuation allowance	111			375
Deferred tax liabilities:
Amortization and depreciation	(27		)	(19		)
Unremitted earnings of foreign subsidiaries	—			(70		)
Prepaids and other liabilities	(2		)	(1		)
Total	(29		)	(90		)
Deferred tax assets, net of valuation allowance and deferred tax liabilities	$	82		$	285

As of March 31, 2018, we maintained a valuation allowance of $138 million, primarily related to certain U.S. state deferred tax assets and foreign capital loss carryovers, due to uncertainty about the future realization of these assets. In determining the amount of deferred tax assets that are more likely than not to be realized, we evaluated the potential to realize the assets through the utilization of tax loss and credit carrybacks, the reversal of existing taxable temporary differences, future taxable income exclusive of the reversal of existing taxable temporary differences, and certain tax planning strategies.

As of March 31, 2018, we have state net operating loss carry forwards of approximately $639 million of which approximately $10 million is attributable to various acquired companies. These carryforwards, if not fully realized, will begin to expire in 2019. We also have U.S. federal, California and Canada tax credit carryforwards of $8 million, $107 million and $6 million, respectively. The U.S. federal tax credit carryforwards will begin to expire in 2027. The California and Canada tax credit carryforwards can be carried forward indefinitely.

The total unrecognized tax benefits as of March 31, 2018, 2017 and 2016 were $457 million, $389 million and $331 million, respectively. A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows (in millions):



Balance as of March 31, 2015	$	254
Increases in unrecognized tax benefits related to prior year tax positions	33
Decreases in unrecognized tax benefits related to prior year tax positions	(4		)
Increases in unrecognized tax benefits related to current year tax positions	63
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(10		)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(4		)
Changes in unrecognized tax benefits due to foreign currency translation	(1		)
Balance as of March 31, 2016	331
Increases in unrecognized tax benefits related to prior year tax positions	3
Decreases in unrecognized tax benefits related to prior year tax positions	(3		)
Increases in unrecognized tax benefits related to current year tax positions	64
Decreases in unrecognized tax benefits related to settlements with taxing authorities	—
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(3		)
Changes in unrecognized tax benefits due to foreign currency translation	(3		)
Balance as of March 31, 2017	389
Increases in unrecognized tax benefits related to prior year tax positions	10
Decreases in unrecognized tax benefits related to prior year tax positions	(12		)
Increases in unrecognized tax benefits related to current year tax positions	75
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(7		)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(2		)
Changes in unrecognized tax benefits due to foreign currency translation	4
Balance as of March 31, 2018	$	457

As of March 31, 2018, approximately $248 million of the unrecognized tax benefits would affect our effective tax rate.

Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized in income tax expense in our Consolidated Statements of Operations. The combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current other liabilities was approximately $18 million as of March 31, 2018 and $14 million as of March 31, 2017.

We file income tax returns in the United States, including various state and local jurisdictions. Our subsidiaries file tax returns in various foreign jurisdictions, including Canada, France, Germany, Switzerland and the United Kingdom. The IRS is currently examining our returns for fiscal years 2009 through 2011, and we remain subject to income tax examination by the IRS for fiscal years after 2014.

We are also currently under income tax examination in the United Kingdom for fiscal years 2010 through 2015, Spain for fiscal years 2014 through 2015, and India for fiscal years 2009 through 2013. We remain subject to income tax examination for several other jurisdictions including in Germany for fiscal years after 2012, France for fiscal years after 2016, the United Kingdom for fiscal years after 2015, Canada for fiscal year after 2010, and Switzerland for fiscal years after 2008.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involves multiple tax periods and jurisdictions, it is reasonably possible that a reduction of up to $60 million of unrecognized tax benefits may occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.