Income Taxes

(Loss) income from continuing operations, before taxes for the years ended December 31 was as follows:



	2017			2016			2015
United States	$	(147.6	)	$	(403.0	)	$	(230.3	)
Foreign	268.3			434.2			253.0
Total	$	120.7		$	31.2		$	22.7

The provision for income taxes for the years ended December 31 was as follows:



	2017			2016			2015
Federal:
Current	$	—		$	—		$	—
Deferred	(34.0		)	—			668.3
Total Federal	(34.0		)	—			668.3
Foreign:
Current	130.6			128.5			173.9
Deferred	3.8			(4.2		)	(24.3		)
Total Foreign	134.4			124.3			149.6
State and Local:
Current	.3			.3			.7
Deferred	—			—			.6
Total State and other	.3			.3			1.3
Total	$	100.7		$	124.6		$	819.2

The effective tax rate for the years ended December 31 was as follows:



	2017		2016		2015
Statutory federal rate	35.0	%	35.0	%	35.0	%
State and local taxes, net of federal tax benefit	.2		.6		2.5
Tax on foreign income	6.0		(24.4	)	141.4
Tax on uncertain tax positions	(3.6	)	34.1		8.2
Venezuela deconsolidation, devaluation and highly inflationary accounting	—		23.9		168.1
Reorganizations	—		(93.6	)	(173.5	)
U.S. Tax Reform	(24.7	)	—		—
Net change in valuation allowances	62.4		375.1		3,395.6
Imputed royalties and associated non-deductible expenses	9.5		50.3		41.2
Research credits	(1.3	)	(5.4	)	(8.9	)
Other	(.1	)	3.8		(.8	)
Effective tax rate	83.4	%	399.4	%	3,608.8	%

As a result of the enactment of the Tax Cuts and Jobs Act in the U.S., the Company recognized a net income tax benefit of $29.9 associated with the following items which are reflected in the “U.S. Tax Reform” line above: $33.5 for a valuation allowance release associated with minimum tax credits which can be utilized and/or refunded in the future and $3.6 for an uncertain tax position for potential withholding taxes on the repatriation of unremitted earnings. In addition, there was no impact on our financial position or results associated with each of the following: a write-off of deferred tax assets due to the rate change from 35% to 21% and their associated valuation allowance of $161.4; a reversal of deferred tax liabilities and recording of a valuation allowance of $66.7 associated with unremitted earnings; establishment of deferred tax assets for other miscellaneous withholding tax items and their associated valuation allowance of $5.5; and a one-time tax on offshore earnings and the associated utilization of foreign tax credits of $2.9.

Included in the net change in valuation allowance above, we released valuation allowances of $25.5 associated with a number of markets in Europe, Middle East & Africa as a result of a business model change related to the move of the Company's headquarters from the U.S. to the UK.

In the fourth quarter of 2015, the Company recognized a benefit of $18.7 associated with the initial stages of implementation of foreign tax planning strategies which is reflected within the "Reorganizations" line above. We completed the implementation of these tax planning strategies and recognized an additional benefit of $29.3 in the first quarter of 2016.

Deferred tax assets (liabilities) resulting from temporary differences in the recognition of income and expense for tax and financial reporting purposes at December 31 consisted of the following:



	2017			2016
Deferred tax assets:
Tax loss and deduction carryforwards	$	2,022.1		$	2,033.0
Tax credit carryforwards	981.0			874.0
All other future deductions	471.0			744.0
Valuation allowance	(3,217.7		)	(3,296.0		)
Total deferred tax assets	256.4			355.0
Deferred tax liabilities	$	(74.9	)	$	(215.1	)
Net deferred tax assets	$	181.5		$	139.9

Deferred tax assets (liabilities) at December 31 were classified as follows:



	2017			2016
Deferred tax assets:
Other assets	$	203.8		$	162.1
Total deferred tax assets	203.8			162.1
Deferred tax liabilities:
Long-term income taxes	$	(22.3	)	$	(22.2	)
Total deferred tax liabilities	(22.3		)	(22.2		)
Net deferred tax assets	$	181.5		$	139.9

At December 31, 2017, we had recognized deferred tax assets of $981.0 relating to tax credit carryforwards (U.S. foreign tax credits, minimum tax credits, research and experimentation credits and other tax credits) for which a valuation allowance of $946.7 has been provided. The tax credit carryforwards consist of U.S. foreign tax credits of $912.6 which are subject to expiration between 2018 and 2027; U.S. minimum tax credits of $35.9 which are not subject to expiration; U.S. research and experimentation credits of $19.6 which are subject to expiration between 2027 and 2037 and other tax credits of $12.9 which are subject to expiration between 2018 and 2032.

At December 31, 2017, we had recognized deferred tax assets of $2,022.1 relating to foreign and state tax loss carryforwards for which a valuation allowance of $1,961.5 has been provided. The deferred tax assets relating to tax loss carryforwards consist of $1,922.2 of foreign tax loss carryforwards, for which a valuation allowance of $1,861.6 has been provided, and $99.9 of state tax loss carryforwards, for which a valuation allowance of $99.9 has been provided.

The foreign tax loss carryforwards at December 31, 2017 were $7,448.4, of which $7,060.4 are not subject to expiration and $388.0 are subject to expiration between 2018 and 2034. The state tax loss carryforwards at December 31, 2017, after taking into consideration the estimated effects of pre-apportionment states, were $1,512.4 which are subject to expiration between 2018 and 2037.

At December 31, 2017, as a result of our U.S. liquidity profile, we continue to assert that our foreign earnings are not indefinitely reinvested. Accordingly, we adjusted our deferred tax liability to account for our 2017 undistributed earnings of foreign subsidiaries and for the tax effect of earnings that were actually repatriated to the U.S. during the year. The net impact on the deferred tax liability associated with the Company’s undistributed earnings is a decrease of $64.4, resulting in a deferred tax liability balance of $22.6 related to the incremental tax cost on approximately $1.5 billion of undistributed foreign earnings at December 31, 2017. The $64.4 decrease was primarily a result of the enactment of the Tax Cuts and Jobs Act in the U.S.

At December 31, 2017, the valuation allowance primarily represents amounts for substantially all U.S. deferred tax assets, certain foreign tax loss carryforwards and certain other foreign deferred tax assets. The recognition of deferred tax assets was based on the evaluation of current and estimated future profitability of the operations, reversal of deferred tax liabilities and the likelihood of utilizing tax credit and/or loss carryforwards. Tax planning strategies were also considered and evaluated as support for the realization of deferred tax assets. Where these sources of income existed along with sufficient positive evidence that indicated it was more likely than not that such sources of income could be relied upon, then the deferred tax assets were not reduced by a valuation allowance.

Following a valuation allowance recorded in 2014 to reduce our U.S. deferred tax assets to an amount that is "more likely than not" to be realized, during 2015, the Company recorded an additional valuation allowance for the remaining U.S. deferred tax assets of $669.7. The increase in the valuation allowance resulted from management’s determination that it was no longer more likely than not to realize the tax benefits expected to be obtained from tax planning strategies associated with an anticipated accelerated receipt in the U.S. of foreign source income. As the U.S. dollar had further strengthened against currencies of some of our key markets during 2015, the benefits associated with the Company’s tax planning strategies were no longer sufficient for the Company to continue to conclude that its tax planning strategies were prudent. In the absence of any alternative prudent tax planning strategies and other sources of future taxable income, it was determined that a full valuation allowance should be recorded. Although the Company continues to expect that it will generate taxable income from intercompany transactions and consequently, tax liability in the U.S., the Company is expected to offset its current and future tax liability with foreign tax credits, and as a result, the expected level of future taxable income and tax liability is not adequate to realize the benefit of previously recorded deferred tax assets. Although the Company may not be able to recognize a financial statement benefit associated with its deferred tax assets, the Company will continue to manage and plan for the utilization of its deferred tax assets to avoid the expiration of deferred tax assets that have limited lives.

Uncertain Tax Positions

At December 31, 2017, we had $48.6 of total gross unrecognized tax benefits of which approximately $46.0 would favorably impact the provision for income taxes, if recognized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:




Balance at December 31, 2014	$	56.7
Additions based on tax positions related to the current year	3.5
Additions for tax positions of prior years	5.7
Reductions for tax positions of prior years	(1.5		)
Reductions due to lapse of statute of limitations	(.4		)
Reductions due to settlements with tax authorities	(11.0		)
Balance at December 31, 2015	53.0
Additions based on tax positions related to the current year	1.8
Additions for tax positions of prior years	9.4
Reductions for tax positions of prior years	(2.8		)
Reductions due to lapse of statute of limitations	(.7		)
Reductions due to settlements with tax authorities	(2.0		)
Balance at December 31, 2016	58.7
Additions based on tax positions related to the current year	1.4
Additions for tax positions of prior years	17.6
Reductions for tax positions of prior years	(7.9		)
Reductions due to lapse of statute of limitations	(3.1		)
Reductions due to settlements with tax authorities	(18.0		)
Balance at December 31, 2017	$	48.6

We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. We did not record any expenses for interest and penalties, net of taxes during the year ended December 31, 2017, and recorded expenses $2.5 and $2.8 for interest and penalties, net of taxes during the years ended December 31, 2016 and 2015, respectively. At December 31, 2017 and December 31, 2016 we had $9.9 and $9.3, respectively, recorded for interest and penalties, net of tax benefit. The unrecognized tax benefits, including interest and penalties, were classified within long-term income taxes in our Consolidated Balance Sheets.

We file income tax returns in the U.S. and foreign jurisdictions. As of December 31, 2017, the tax years that remained subject to examination by major tax jurisdiction for our most significant subsidiaries were as follows:



Jurisdiction		Open Years
Brazil		2012-2017
Mexico		2012-2017
Philippines		2014-2017
Poland		2012-2017
Russia		2014-2017
United Kingdom		2016-2017
United States (Federal)		2016-2017

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $5 to $8 within the next twelve months due to the closure of tax years by expiration of the statute of limitations, audit closures and settlements

Given the timing of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, the SEC issued guidance under SAB 118 directing taxpayers to consider the impact of the new legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effects resulting from the change in law. Except for the impact of remeasuring our deferred tax assets at the 21% rate, we accounted for all other impacts of the new legislation, including but not limited to effects on existing deferred taxes and valuation allowances, a one-time tax on offshore earnings, potential changes to and impact of our indefinite reinvestment assertion, and the measurement of deferred taxes on foreign unremitted earnings, on a provisional basis on our financial statements. The amounts reported represent our best estimate given the data we have available and based on our interpretation of the U.S. legislation. The U.S. Treasury is expected to issue guidance on the application of certain provisions that may impact our calculations. We are still accumulating data to finalize the underlying calculations and will finalize these provisional amounts, taking into account any clarifying interpretations expected from Treasury, by December 22, 2018 in accordance with SAB 118.