
Note 6.	Income Taxes

The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate to income before provision for income taxes due to the following:



	Three Months Ended
	March 30,			March 31,
(In millions)	2019			2018

Statutory Federal Income Tax Rate	21		%	21		%

Provision for Income Taxes at Statutory Rate	$	172		$	133

Increases (Decreases) Resulting From:
Foreign rate differential	(36		)	(51		)
Foreign exchange loss on inter-company debt refinancing	(62		)	—
Income tax credits	(72		)	(41		)
Global intangible low-taxed income	70			32
Foreign-derived intangible income	(12		)	(9		)
Singapore tax holiday	(7		)	(8		)
Transition tax and other impacts of U.S. tax reform	(20		)	70
Reversal of tax reserves, net	(5		)	(49		)
Excess tax benefits from stock options and restricted stock units	(36		)	(25		)
Other, net	10			3

Provision for income taxes	$	2		$	55

The company has operations and a taxable presence in approximately 50 countries outside the U.S. Some of these countries have lower tax rates than the U.S. The company’s ability to obtain a benefit from lower tax rates outside the U.S. is dependent on its relative levels of income in countries outside the U.S. and on the statutory tax rates in those countries.

In the first quarter of 2019, the company recorded a $62 million income tax benefit related to a foreign exchange loss for tax purposes on certain intercompany financing arrangements. In addition, the company recorded a net tax benefit of $27 million in the first quarter of 2019, consisting of an incremental benefit of $20 million and a $7 million reduction of related unrecognized tax benefits, to adjust the impacts of U.S. tax reform based on final regulations issued by the U.S. Treasury in January 2019.

The company has significant activities in Singapore and has received considerable tax incentives. The local taxing authority granted the company pioneer company status which provides an incentive encouraging companies to undertake activities that have the effect of promoting economic or technological development in Singapore. This incentive equates to a tax exemption on earnings associated with most of the company’s manufacturing activities in Singapore and continues through December 31, 2026. In 2019 and 2018, the impact of this tax holiday decreased the annual effective tax rates by 0.9 percentage points and 1.3 percentage points, respectively, and increased diluted earnings per share by approximately $0.02 and $0.02, respectively.

Unrecognized Tax Benefits

As of March 30, 2019, the company had $1.43 billion of unrecognized tax benefits substantially all of which, if recognized, would reduce the effective tax rate.

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



(In millions)	2019

Balance at Beginning of Year	$	1,442
Additions for tax positions of current year	2
Reductions for tax positions of prior years	(7		)
Settlements	(5		)

Balance at End of Period	$	1,432