Entity information:
NOTE 5. INCOME TAXES
Pre-tax income applicable to U.S. and foreign operations is as follows: 
(Millions of dollars)
Year Ended December 31,
2017
 
2016
 
2015
United States
$
1,003

 
$
954

 
$
980

Foreign
1,284

 
1,094

 
1,180

Total income before income taxes
$
2,287

 
$
2,048

 
$
2,160


    
U.S. Tax Cuts and Jobs Act (Tax Act)
On December 22, 2017 the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act). This comprehensive tax legislation significantly revises the U.S. corporate income tax rules by, among other things, lowering the corporate income tax rate from 35% to 21%, implementing a territorial tax system and imposing a one-time tax on accumulated earnings of foreign subsidiaries. Given the substantial uncertainties surrounding the Tax Act and the short period of time between December 22, 2017 and December 31, 2017 to calculate the U.S. Federal, U.S. state, and non-U.S. tax impacts of the Tax Act, the Company is accounting for its income tax charge on a provisional (estimated) basis as allowed by SEC Staff Accounting Bulletin No. 118. The Company’s net provisional income tax charge of $394 million has three main components: (i) an estimated $467 million U.S. federal and state tax charge for deemed repatriation of accumulated foreign earnings; (ii) an estimated $260 million charge for foreign withholding taxes related to anticipated future repatriation of foreign earnings; and (iii) an estimated $333 million deferred tax benefit for the revaluation of net deferred tax liabilities from 35% to the new 21% tax rate. The $467 million U.S. federal and state tax charge for deemed repatriation of accumulated foreign earnings includes $422 million of deemed repatriation tax payable over eight years, of which $388 million is classified as of December 31, 2017 as other long-term liabilities on the consolidated balance sheets (see Note 7).
During 2018, the Company will continue to evaluate the Tax Act, additional guidance from the Internal Revenue Service, its historical foreign earnings and taxes and other items that could impact its net provisional tax charge. Additionally, the Company will continue to review its foreign capital structures, organizational cash needs and the foreign withholding tax cost of planned repatriation. As new information becomes available, the Company will update its provisional estimate and record any changes to its income tax expense at that time. Further, the Tax Act enacted new provisions related to the taxation of foreign earnings, known as GILTI. The Company has elected as an accounting policy to account for GILTI as period costs when incurred.

The following is an analysis of the provision for income taxes: 
(Millions of dollars)
Year Ended December 31,
2017 (a)
 
2016
 
2015
Current tax expense
 
 
 
 
 
U.S. federal
$
565

 
$
266

 
$
205

State and local
84

 
32

 
33

Foreign
374

 
266

 
275

 
1,023

 
564

 
513

Deferred tax expense (benefit)
 
 
 
 
 
U.S. federal
(221
)
 
3

 
71

State and local
19

 
7

 
10

Foreign
205

 
(23
)
 
18

 
3

 
(13
)
 
99

Total income taxes
$
1,026

 
$
551

 
$
612

 



(a)
Includes the following amounts related to the Tax Act:
 
Current
 
Deferred
 
Total
U.S. federal
$
414

 
$
(333
)
 
$
81

State and local
53

 
—

 
53

Foreign
60

 
200

 
260

Total tax act
$
527

 
$
(133
)
 
$
394



An analysis of the difference between the provision for income taxes and the amount computed by applying the U.S. statutory income tax rate to pre-tax income follows: 
(Dollar amounts in millions)
Year Ended December 31,
2017
 
2016
 
2015
U.S. statutory income tax rate
$
801

 
35.0
 %
 
$
717

 
35.0
 %
 
$
756

 
35.0
 %
State and local taxes – net of federal benefit
32

 
1.4
 %
 
28

 
1.4
 %
 
28

 
1.3
 %
U.S. tax credits and deductions (a)
(27
)
 
(1.2
)%
 
(32
)
 
(1.6
)%
 
(40
)
 
(1.9
)%
Foreign tax differentials (b)
(145
)
 
(6.3
)%
 
(140
)
 
(6.8
)%
 
(121
)
 
(5.6
)%
Share Based Compensation
(35
)
 
(1.5
)%
 
(20
)
 
(1.0
)%
 
—

 
—
 %
Tax Act
394

 
17.2
 %
 
—

 
—
 %
 
—

 
—
 %
Other – net
6

 
0.3
 %
 
(2
)
 
(0.1
)%
 
(11
)
 
(0.5
)%
Provision for income taxes
$
1,026

 
44.9
 %
 
$
551

 
26.9
 %
 
$
612

 
28.3
 %
 
________________________
(a)
U.S. tax credits and deductions relate to manufacturing deductions and to the research and experimentation tax credit.
(b)
Primarily related to differences between the U.S. tax rate of 35% and the statutory tax rate in the countries where Praxair operates. Other permanent items and tax rate changes were not significant.

Net deferred tax liabilities included in the consolidated balance sheet are comprised of the following: 
(Millions of dollars)
December 31,
2017
 
2016
Deferred tax liabilities
 
 
 
Fixed assets
$
1,128

 
$
1,522

Exchange gains
32

 
139

Goodwill
143

 
178

Other intangible assets
72


115

Foreign undistributed earnings
200

 
—

Other
61

 
62

 
$
1,636

 
$
2,016

Deferred tax assets
 
 
 
Carryforwards
$
209

 
$
284

Benefit plans and related (a)
257

 
404

Inventory
16

 
26

Accruals and other (b)
261

 
410

 
$
743

 
$
1,124

Less: Valuation allowances (c)
(76
)
 
(132
)
 
$
667

 
$
992

Net deferred tax liabilities
$
969

 
$
1,024

Recorded in the consolidated balance sheets as (See Note 7):
 
 
 
Other long-term assets
198

 
185

Deferred credits
1,167

 
1,209

 
$
969

 
$
1,024

________________________
(a)
Includes deferred taxes of $217 million and $352 million in 2017 and 2016, respectively, related to pension / OPEB funded status (see Notes 7 and 16).
(b)
Includes $130 million and $233 million in 2017 and 2016, respectively, related to research and development costs and $42 million and $45 million in 2017 and 2016, respectively, related to goodwill.
(c)
Summary of valuation allowances relating to deferred tax assets follows (millions of dollars):
 
 
2017
 
2016
 
2015
 
Balance, January 1,
$
(132
)
 
$
(123
)
 
$
(106
)
 
Income tax (charge) benefit (i)
59

 
(13
)
 
(20
)
 
Translation adjustments
(3
)
 
(2
)
 
4

 
Other, including write-offs
—

 
6

 
(1
)
 
Balance, December 31,
$
(76
)
 
$
(132
)
 
$
(123
)

(i)
2017 includes a $59 million benefit related to the utilization of foreign tax credits under the Tax Act.

Praxair evaluates deferred tax assets quarterly to ensure that estimated future taxable income will be sufficient in character (e.g., capital gain versus ordinary income treatment), amount and timing to result in their recovery. After considering the positive and negative evidence, a valuation allowance is established to reduce the assets to their realizable value when management determines that it is more likely than not (i.e., greater than 50% likelihood) that a deferred tax asset will not be realized. Considerable judgment is required in establishing deferred tax valuation allowances. At December 31, 2017, Praxair had $209 million of deferred tax assets relating to net operating losses (“NOLs”) and tax credits and $76 million of valuation allowances. These deferred tax assets include $93 million relating to NOLs of which $25 million are in the United States and $68 million are in Brazil. The U.S. NOLs expire through 2032 and the Brazil NOLs have no expiration. These NOLs have no valuation allowances.
The remaining deferred tax assets of $116 million relate to U.S. state ($50 million) and other foreign ($66 million) NOLs and credit carryforwards, which expire through 2033, and have valuation allowances totaling $76 million. These valuation allowances relate to certain foreign and U.S. state NOLs and are required because management has determined, based on financial projections and available tax strategies, that it is unlikely that the NOLs will be utilized before they expire. If events or circumstances change, valuation allowances are adjusted at that time resulting in an income tax benefit or charge.
In 2017, due to the Tax Act, the Company provided $467 million of U.S. income tax on approximately $13 billion of accumulated undistributed foreign earnings and $260 million of foreign withholding tax related to the planned repatriation of approximately $4 billion of such undistributed earnings. A provision has not been made for any additional foreign income tax at December 31, 2017 on approximately $9 billion of remaining undistributed foreign earnings because Praxair intends to reinvest these earnings indefinitely. While these earnings could become subject to additional foreign income tax if they are remitted as dividends, it is not practicable to estimate the unrecognized deferred tax liability on these undistributed earnings.

Uncertain Tax Positions
Unrecognized income tax benefits represent income tax positions taken on income tax returns but not yet recognized in the consolidated financial statements. The company has unrecognized income tax benefits totaling $54 million, $56 million and $68 million as of December 31, 2017, 2016 and 2015, respectively. If recognized, essentially all of the unrecognized tax benefits and related interest and penalties would be recorded as a benefit to income tax expense on the consolidated statement of income.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 
(Millions of dollars)
2017
 
2016
 
2015
Unrecognized income tax benefits, January 1
$
56

 
$
68

 
$
71

Additions for tax positions of prior years
48

 
6

 
21

Reductions for tax positions of prior years
(26
)
 
(15
)
 
(13
)
Reductions for settlements with taxing authorities (a)
(26
)
 
(2
)
 
(3
)
Foreign currency translation and other
2

 
(1
)
 
(8
)
Unrecognized income tax benefits, December 31
$
54

 
$
56

 
$
68

 
________________________
(a)
Settlements are uncertain tax positions that were effectively settled with the taxing authorities, including positions where the company has agreed to amend its tax returns to eliminate the uncertainty.
    
Praxair classifies interest income and expense related to income taxes as tax expense in the consolidated statement of income. Praxair recognized net interest expense of $8 million in 2017, net interest income of $10 million in 2016, and none in 2015. Praxair had $8 million and $6 million of accrued interest and penalties as of December 31, 2017 and December 31, 2016, respectively which were recorded in other long-term liabilities in the consolidated balance sheets (see Note 7).
As of December 31, 2017, the company remained subject to examination in the following major tax jurisdictions for the tax years as indicated below: 
Major tax jurisdictions
Open Years
North America
 
United States
2014 through 2017
Canada
2010 through 2017
Mexico
2011 through 2017
 
 
Europe
 
Germany
2011 through 2017
Italy
2013 through 2017
Spain
2004 through 2017
 
 
South America
 
Brazil
2005 through 2017
 
 
Asia
 
China
2012 through 2017
India
2006 through 2017
Korea
2012 through 2017
Thailand
2012 through 2017

The company is currently under audit in a number of tax jurisdictions. As a result, it is reasonably possible that some of these audits will conclude or reach the stage where a change in unrecognized income tax benefits may occur within the next twelve months. At that time, the company will record any adjustment to income tax expense as required. In 2017, the company settled its 2011 through 2013 U.S. income tax audit. Settlements were not material to the consolidated financial statements. The company is also subject to income taxes in many hundreds of state and local taxing jurisdictions that are open to tax examinations.