6. Income taxes

Income before Income Taxes

	U.S.		Non-U.S.		Total
2015	$	3,218	$	998	$	4,216
2014		2,684		1,190		3,874
2013		1,507		1,247		2,754

Provision (Benefit) for Income Taxes

	U.S. Federal			Non-U.S.		U.S. State		Total
2015
Current	$	1,110		$	168	$	7	$	1,285
Deferred		(72	)		14		3		(55	)
Total	$	1,038		$	182	$	10	$	1,230

2014
Current	$	911		$	194	$	9	$	1,114
Deferred		(73	)		11		1		(61	)
Total	$	838		$	205	$	10	$	1,053

2013
Current	$	291		$	247	$	4	$	542
Deferred		17			33		—		50
Total	$	308		$	280	$	4	$	592

Principal reconciling items from income tax computed at the statutory federal rate follow:

	For Years Ended December 31,
	2015			2014			2013
Computed tax at statutory rate	$	1,476		$	1,356		$	964
Non-U.S. effective tax rates		(167	)		(212	)		(156	)
U.S. tax benefit for manufacturing		(69	)		(51	)		(66	)
U.S. R&D tax credit		(56	)		(59	)		(129	)
Non-deductible expenses		13			6			13
Impact of changes to uncertain tax positions		8			3			(14	)
Other		25			10			(20	)
Total provision for income taxes	$	1,230		$	1,053		$	592

The total provision for 2013 in the reconciliation above includes $79 million of discrete tax benefits primarily for the reinstatement of the U.S. R&D tax credit retroactive to 2012.

Our annual effective tax rate benefits from lower rates (compared to the U.S. statutory rate) applicable to our operations in many of the jurisdictions in which we operate and from U.S. tax benefits. These lower non-U.S. tax rates are generally statutory in nature, without expiration and available to companies that operate in those taxing jurisdictions. Also included in the non-U.S. effective tax rates reconciling item above are benefits from tax holidays of $60 million, $44 million and $40 million in 2015, 2014 and 2013, respectively. The tax benefits relate to our operations in Malaysia and the Philippines, and expire in 2018 and 2017, respectively. The terms of the Malaysia tax holiday are currently under governmental review as required for the end of the first five years of the holiday period. We do not expect any potential change in the holiday to have a material impact on the financial statements.

The primary components of deferred income tax assets and liabilities were as follows:

	December 31,
	2015			2014
Deferred income tax assets:
Stock-based compensation	$	244		$	229
Deferred loss and tax credit carryforwards		226			289
Accrued expenses		215			246
Inventories and related reserves		147			156
Retirement costs for defined benefit and retiree health care		87			80
Other		101			87
Total deferred income tax assets, before valuation allowance		1,020			1,087
Valuation allowance		(186	)		(195	)
Total deferred income tax assets, after valuation allowance		834			892
Deferred income tax liabilities:
Acquisition-related intangibles and fair-value adjustments		(565	)		(672	)
International earnings		(105	)		(104	)
Total deferred income tax liabilities		(670	)		(776	)
Net deferred income tax asset	$	164		$	116

The deferred income tax assets and liabilities based on tax jurisdictions are presented on the Consolidated Balance Sheets as follows:

	December 31,
	2015			2014
Noncurrent deferred income tax assets	$	201		$	180
Noncurrent deferred income tax liabilities		(37	)		(64	)
Net deferred income tax asset	$	164		$	116

As a result of our early adoption of ASU 2015-17, Balance Sheet Classification of Deferred Taxes, we have adjusted the presentation of deferred taxes on the Consolidated Balance Sheets. We have retrospectively adjusted the 2014 Consolidated Balance Sheets to conform to the 2015 presentation by reclassifying current deferred income tax assets and liabilities to noncurrent deferred income tax assets and liabilities. The effect of applying the new standard, as shown in the following table, is the result of netting Current deferred income tax assets with Noncurrent deferred income tax liabilities, by tax jurisdiction. See Note 2 for additional information.

	2014 As Reported			Effect of Applying New Standard			2014 As Adjusted
Current deferred income tax assets	$	347		$	(347	)	$	—
Noncurrent deferred income tax assets		172			8			180
Current deferred income tax liabilities		(4	)		4			—
Noncurrent deferred income tax liabilities		(399	)		335			(64	)
Net deferred income tax asset	$	116		$	—		$	116

We make an ongoing assessment regarding the realization of U.S. and non-U.S. deferred tax assets. This assessment is based on our evaluation of relevant criteria, including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, taxable income in prior carryback years and expectations for future taxable income. Changes in valuation allowance balances in the years 2015, 2014 and 2013 of $9 million, $24 million and $2 million, respectively, had no impact on Net income.

We have U.S. and non-U.S. tax loss carryforwards of approximately $35 million, none of which will expire before the year 2025.

A provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend payments from these subsidiaries are expected to result in additional tax liability. The remaining undistributed earnings of approximately $8.35 billion at December 31, 2015, have been indefinitely reinvested outside of the United States; therefore, no U.S. tax provision has been made for taxes due upon remittance of these earnings. The indefinitely reinvested earnings of our non-U.S. subsidiaries are primarily invested in working capital and property, plant and equipment. Determination of the amount of unrecognized deferred income tax liability is not practical because of the complexities associated with its hypothetical calculation.

Cash payments made for income taxes, net of refunds, were $1.167 billion, $1.104 billion and $569 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Uncertain tax positions

We operate in a number of tax jurisdictions, and our income tax returns are subject to examination by tax authorities in those jurisdictions who may challenge any item on these tax returns. Because the matters challenged by authorities are typically complex, their ultimate outcome is uncertain. Before any benefit can be recorded in the financial statements, we must determine that it is “more likely than not” that a tax position will be sustained by the appropriate tax authorities. We recognize accrued interest related to uncertain tax positions and penalties as components of OI&E.

The changes in the total amounts of uncertain tax positions are summarized as follows:

	2015			2014			2013
Balance, January 1	$	108		$	91		$	184
Additions based on tax positions related to the current year		11			10			7
Additions for tax positions of prior years		3			52			19
Reductions for tax positions of prior years		(21	)		(9	)		(10	)
Settlements with tax authorities		(17	)		(36	)		(96	)
Expiration of the statute of limitations for assessing taxes		—			—			(13	)
Balance, December 31	$	84		$	108		$	91

Interest income (expense) recognized in the year ended December 31	$	8		$	6		$	(10	)

Interest receivable (payable) as of December 31	$	9		$	—		$	(5	)

The liability for uncertain tax positions is a component of Deferred credits and other liabilities on our Consolidated Balance Sheets.

All of the $84 million liability for uncertain tax positions as of December 31, 2015, is comprised of positions that, if recognized, would impact the tax rate. If these tax liabilities are ultimately realized, $12 million of existing deferred tax assets would also be realized, related to refunds from counterparty jurisdictions resulting from procedures for relief from double taxation. It is reasonably possible that the liability could increase in 2016 by up to $150 million for a tax depreciation-related position. The increase would offset the tax benefit realized with no net profit impact.

All of the $108 million liability for uncertain tax positions as of December 31, 2014, is comprised of positions that, if recognized, would impact the tax rate. If these tax liabilities are ultimately realized, $56 million of existing deferred tax assets would also be realized, primarily related to refunds from counterparty jurisdictions resulting from procedures for relief from double taxation.

As of December 31, 2015, the statute of limitations remains open for U.S. federal tax returns for 2010 and following years. Audit activities related to our U.S. federal tax returns through 2009 have been completed except for certain pending tax treaty procedures for relief from double taxation and the review of refunds claimed on amended returns for years prior to 2010. The procedures for relief from double taxation pertain to U.S. federal tax returns for the years 2006 through 2009.

In non-U.S. jurisdictions, the years open to audit represent the years still open under the statute of limitations. With respect to major jurisdictions outside the United States, our subsidiaries are no longer subject to income tax audits for years before 2007.