Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. Components of income before income taxes consist of the following:



	Year Ended December 31,
	2018		2017		2016
United States	$	2,151.7	$	1,964.7	$	1,650.9
Foreign	401.8		113.8		(321.1		)
	$	2,553.5	$	2,078.5	$	1,329.8

Components of income tax expense consist of the following:



		Year Ended December 31,
		2018			2017			2016
Current:
	Federal	$	223.7		$	560.3		$	787.0
	State	4.8			(4.1		)	8.8
	Foreign	20.6			4.8			(1.4		)
	Total current tax expense	249.1			561.0			794.4
Deferred:
	Federal	687.6			317.1			(377.4		)
	State	(1.9		)	(1.3		)	13.4
	Foreign	(825.7		)	3.2			3.9
	Total deferred tax (benefit) expense	(140.0		)	319.0			(360.1		)
		$	109.1		$	880.0		$	434.3

On December 22, 2017, the bill known as the "Tax Cuts and Jobs Act" (the "Act") was signed into law. The Act, which became effective with respect to most of its provisions as of January 1, 2018, significantly revised U.S. corporate income tax laws by, among other things, reducing the U.S. federal corporate income tax rate from 35% to 21%, changing the taxation of foreign earnings (including taxation of certain global intangible low-taxed income ("GILTI")), allowing for a foreign-derived intangible income deduction and immediate expensing for qualified assets, repealing the deduction for domestic manufacturing, and imposing further limitations on the deductibility of executive compensation. As a result of the Act being signed into law, the Company recognized a provisional charge of $326.2 million in the fourth quarter of 2017 related to the re-measurement of its U.S. net deferred tax assets at the lower enacted corporate tax rate. The provisional charge recorded in the fourth quarter of 2017 was an estimate, and the measurement of deferred tax assets was subject to further analysis, such as developing interpretations and clarifications of the provisions of the Act. During 2018, we recorded an income tax benefit of $68.0 million as an adjustment to the provisional amount recorded as of December 31, 2017, which was partly attributable to our election to record deferred tax assets and liabilities for expected amounts of GILTI inclusions. Our assessment of the re-measurement of U.S. net deferred tax assets at the lower enacted corporate tax rate is now complete.

A reconciliation of the U.S. statutory income tax rate to the Company's effective income tax rate is as follows:



	Year Ended December 31,
	2018		2017		2016
U.S. federal statutory tax rate	21.0	%	35.0	%	35.0	%
Impact of change in U.S. corporate tax rate (the Act)	(2.7	)	15.7		—
Sale of non-inventory related assets between foreign subsidiaries	(6.3	)	—		—
Stock-based compensation	(2.5	)	(9.0	)	(10.9	)
Taxation of non-U.S. operations	(1.9	)	0.7		8.8
Income tax credits	(2.6	)	(1.3	)	(1.2	)
Non-deductible Branded Prescription Drug Fee	0.6		1.7		1.9
Foreign-derived intangible income deduction	(1.0	)	—		—
Domestic production activities deduction	—		(2.6	)	(2.8	)
State and local income taxes	0.1		0.1		1.3
Other permanent differences	(0.4	)	2.0		0.6
Effective income tax rate	4.3	%	42.3	%	32.7	%

In 2018, the difference between the U.S. federal statutory rate of 21% and the Company's effective tax rate of 4.3% was primarily attributable to the impact of the Company's sale of non-inventory related assets between foreign subsidiaries (including the associated impact of global intangible low-taxed income), as well as the federal tax credit for research activities, stock-based compensation, income earned in foreign jurisdictions with tax rates lower than the U.S. federal statutory rate, and the tax benefit associated with tax planning in connection with the Act. In 2017, the difference between the U.S. federal statutory rate of 35% and the Company's effective tax rate of 42.3% was primarily attributable to the negative impact of the charge related to the re-measurement of the Company's U.S. net deferred tax assets upon the enactment of the Act (see above), partly offset by the tax benefit associated with stock-based compensation. In 2016, the difference between the U.S. federal statutory rate of 35% and the Company's effective tax rate of 32.7% was primarily attributable to the tax benefit associated with stock-based compensation, partly offset by the negative impact of losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate.

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 income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:



	As of December 31,
	2018			2017
Deferred tax assets:
Deferred compensation	$	458.2		$	391.0
Fixed assets and intangible assets	107.8			—
Deferred revenue	20.2			102.4
Accrued expenses	53.3			38.3
Other	33.3			26.5
	672.8			558.2
Valuation allowance	—			(4.2		)
Total deferred tax assets	672.8			554.0

Deferred tax liabilities:
Fixed assets and intangible assets	—			(44.6		)
Other	(2.7		)	(3.1		)
Total deferred tax liabilities	(2.7		)	(47.7		)
Net deferred tax assets	$	670.1		$	506.3

The Company's 2013 through 2017 federal income tax returns remain open to examination by the IRS. The Company's 2013 and 2015 federal income tax returns are currently under audit by the IRS. In general, the Company's state income tax returns from 2015 to 2017 remain open to examination. The United States and many states generally have statutes of limitation ranging from 3 to 5 years; however, those statutes could be extended due to the Company's net operating loss and tax credit carryforward positions in a number of the Company's tax jurisdictions. In general, tax authorities have the ability to review income tax returns for loss periods in which the statute of limitation has previously expired to adjust the net operating loss carryforward or tax credits generated in those years.

The following table summarizes the gross amounts of unrecognized tax benefits. The amount of unrecognized tax benefits that, if settled, would impact the effective tax rate is $189.5 million, $146.2 million, and $107.2 million as of December 31, 2018, 2017, and 2016, respectively.



	2018			2017			2016
Balance as of January 1	$	146.2		$	117.2		$	116.6
Gross increases related to current year tax positions	51.4			49.0			45.6
Gross increases (decreases) related to prior year tax positions	5.6			(5.6		)	(42.3		)
Gross decrease due to settlements, recapture, filed returns, and lapse of statutes of limitation	(13.7		)	(14.4		)	(2.7		)
Balance as of December 31	$	189.5		$	146.2		$	117.2

In 2018, 2017 and 2016, the increases in unrecognized tax benefits primarily related to the Company's calculation of certain tax credits and other items related to the Company's international operations. In 2018, there was a decrease in unrecognized tax benefits related to a settlement of the audit of the 2012 U.S. federal tax return and a lapse in the 2014 federal statute of limitations. In 2017 and 2016, there was a decrease in unrecognized tax benefits related to a settlement of a disputed state tax matter. In 2018, 2017, and 2016, accrued interest related to unrecognized tax benefits recorded by the Company was not material. The Company does not believe that it is reasonably possible that the resolution of tax exposures within the next twelve months will have a material impact on its unrecognized tax benefits as of December 31, 2018.