Entity information:
TAXATION

The company's (provision) for income taxes for the years ended December 31, 2017, 2016 and 2015 is summarized as follows:
$ in millions
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal
(147.5
)
 
(161.0
)
 
(221.0
)
State
(30.2
)
 
(18.9
)
 
(23.4
)
Foreign
(142.2
)
 
(143.0
)
 
(161.4
)
 
(319.9
)
 
(322.9
)
 
(405.8
)
Deferred:


 


 


Federal
63.0

 
(21.1
)
 
11.9

State
(11.2
)
 
(0.9
)
 
(5.2
)
Foreign
(0.1
)
 
6.6

 
1.1

 
51.7

 
(15.4
)
 
7.8

Total income tax (provision)
(268.2
)
 
(338.3
)
 
(398.0
)

The net deferred tax recognized in the Consolidated Balance Sheets at December 31, 2017 and 2016, respectively, includes the following:
$ in millions
2017
 
2016
Deferred tax assets:
 
 
 
Deferred compensation arrangements
57.6

 
79.1

Accrued rent expenses
7.2

 
12.3

Tax loss carryforwards
94.6

 
64.8

Postretirement medical, pension and other benefits
16.6

 
24.4

Investment basis differences
32.8

 
58.3

Accrued bonus
8.8

 
64.8

Other
17.2

 
24.5

Total deferred tax assets
234.8

 
328.2

Valuation allowance
(94.7
)
 
(59.0
)
Deferred tax assets, net of valuation allowance
140.1

 
269.2

Deferred tax liabilities:

 


Deferred sales commissions
(11.0
)
 
(13.5
)
Goodwill and intangibles
(377.3
)
 
(509.6
)
Fixed assets
(19.2
)
 
(27.6
)
Other
(8.8
)
 
(9.2
)
Total deferred tax liabilities
(416.3
)
 
(559.9
)
Net deferred tax assets/(liabilities)
(276.2
)
 
(290.7
)

Deferred income tax assets and liabilities that relate to the same tax jurisdiction are recorded net on the consolidated balance sheet.The deferred tax asset is included in other assets and the deferred tax liability is separately presented on the consolidated balance sheet.

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act significantly revised the U.S. Tax Code by reducing the U.S. federal corporate tax rates and requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. At December 31, 2017, the company has not completed the accounting for the tax effects of enacting the 2017 Tax Act; however, the company has made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax. The company recognized a provisional income tax benefit of $130.7 million which is included as a component of the provision for income taxes. The company will continue to make and refine all the calculations as additional analysis is completed. In addition, as a more thorough understanding of the tax law is obtained, potential future guidance is issued, and management makes decisions as a result of the 2017 Tax Act, the estimates could potentially be affected.
Provisional Amounts

Deferred tax assets and liabilities: The company remeasured certain deferred tax assets and liabilities based on the tax rates at which they are expected to reverse in the future, typically 21% under the 2017 Tax Act. However, the company is still analyzing certain aspects of the legislation and refining its calculations. Any updates or changes could affect the measurement of these balances or give rise to new deferred tax amounts. The provisional income tax benefit recorded related to the remeasurement of the deferred tax balance was $130.7 million at December 31, 2017.

Foreign tax effects: The one-time transition tax is based on the total post-1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes. The company does not anticipate incurring an income tax liability and therefore no provision has been made. However, the company has not completed its analysis as to the existence of foreign subsidiaries it may be deemed to indirectly own (or partially own) through attribution or by way of its investment in various fund products which in turn may hold ownership in foreign subsidiaries where the transition tax may apply.  Therefore, our determination as to the need for a net transition tax liability may change once this analysis has been completed.

At December 31, 2017 the company had tax loss carryforwards accumulated in certain taxing jurisdictions in the aggregate of $413.3 million (2016: $243.8 million), approximately $35.2 million of which will expire between 2018 and 2020, $15.2 million of which will expire after 2020, with the remaining $362.9 million having an indefinite life. The increase in tax loss carryforwards from 2016 to 2017 of $169.5 million results from the acquisition of the European ETF business ($160.1 million) and the impact of foreign exchange translation on non-U.S. dollar denominated losses ($23.1 million) with the remainder of the movement due to additional losses not recognized ($15.8 million), offset with loss expiration and utilization ($30.0 million). A valuation allowance has been recorded against the deferred tax assets related to these losses where a history of losses in the respective tax jurisdiction makes it unlikely that the deferred tax asset will be realized.

A reconciliation between the statutory rate and the effective tax rate on income from operations for the years ended December 31, 2017, 2016 and 2015 is as follows:
 
2017
 
2016
 
2015
Statutory Rate
35.0
 %
 
35.0
 %
 
35.0
 %
Foreign jurisdiction statutory income tax rates
(9.6
)%
 
(8.1
)%
 
(9.2
)%
State taxes, net of federal tax effect
2.2
 %
 
1.6
 %
 
1.6
 %
Impact of the 2017 Tax Act
(9.3
)%
 
—
 %
 
—
 %
Change in valuation allowance for unrecognized tax losses
0.4
 %
 
(0.4
)%
 
(0.1
)%
Share Based Compensation

(0.3
)%
 
—
 %
 
—
 %
Other
1.2
 %
 
0.3
 %
 
1.8
 %
(Gains)/losses attributable to noncontrolling interests
(0.8
)%
 
(0.4
)%
 
0.1
 %
Effective tax rate per Consolidated Statements of Income
18.8
 %
 
28.0
 %
 
29.2
 %


The company's subsidiaries operate in several taxing jurisdictions around the world, each with its own statutory income tax rate. As a result, the blended average statutory tax rate will vary from year to year depending on the mix of the profits and losses of the company's subsidiaries. The majority of our profits are earned in the U.S. and the U.K.

The enacted U.K. statutory tax rate, for U.S. GAAP purposes, was 19% as of December 31, 2017. As of December 31, 2017, the U.S. federal statutory tax rate was 35%. The 2017 Tax Act enacted for U.S. GAAP purposes on December 22, 2017 reduces the U.S. federal statutory tax rate to 21% from January 1, 2018.

The division of income/(losses) before taxes between U.S. and foreign for the years ended December 31, 2017, 2016 and 2015 is as follows:
$ in millions (except percentages)
2017
 
2016
 
2015
U.S.
638.4

 
537.5

 
661.9

CIP - U.S.
0.1

 
2.4

 
26.0

Total U.S. income before income taxes
638.5

 
539.9

 
687.9

Foreign
754.8

 
652.0

 
746.3

CIP - Foreign
35.9

 
14.7

 
(72.1
)
Total Foreign income before income taxes
790.7

 
666.7

 
674.2

Income from continuing operations before income taxes
1,429.2

 
1,206.6

 
1,362.1


As a multinational corporation, the company operates in various locations around the world and we generate substantially all of our earnings from our subsidiaries. Under ASC 740-30 deferred tax liabilities are recognized for taxes that would be payable on the unremitted earnings of the company's subsidiaries, direct investments in CIP and joint ventures, except where it is our intention to continue to indefinitely reinvest the undistributed earnings. Our Canadian and U.S. subsidiaries continue to be directly owned by Invesco Holding Company Limited, a U.K. company, which is directly owned by Invesco Ltd. Our Canadian unremitted earnings, for which we are indefinitely reinvested, are estimated to be $988.0 million at December 31, 2017, compared with $897.2 million at December 31, 2016. If distributed as a dividend, Canadian withholding tax of 5.0% would be due. Dividends from our investment in the U.S. should not give rise to additional tax as we are not subject to withholding tax between the U.S. and U.K. Deferred tax liabilities in the amount of $1.4 million (2016: $0.9 million) for withholding tax on unremitted earnings have been recognized. These subsidiaries have regularly remitted earnings and we expect to continue to remit earnings in the foreseeable future. The U.K. dividend exemption should apply to the remainder of our U.K. subsidiary investments. There is no additional tax on dividends from the U.K. to Bermuda.

The company and its subsidiaries file annual income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and in numerous foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which the company has unrecognized tax benefits, is finally resolved. To the extent that the company has favorable tax settlements, or determines that accrued amounts are no longer needed due to a lapse in the applicable statute of limitations or other change in circumstances, such liabilities, as well as the related interest and penalty, would be reversed as a reduction of income tax expense (net of federal tax effects, if applicable) in the period such determination is made. At January 1, 2017, the company had approximately $10.5 million of gross unrecognized income tax benefits (UTBs), of which $9.5 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. A reconciliation of the change in the UTB balance from January 1, 2015, to December 31, 2017, is as follows:
$ in millions
Gross Unrecognized Income Tax Benefits
Balance at January 1, 2015
6.0

Additions for tax positions related to the current year
2.5

Additions for tax positions related to prior years
2.2

Other reductions for tax positions related to prior years
(1.1
)
Reductions for statute closings
—

Balance at December 31, 2015
9.6

Additions for tax positions related to the current year
0.9

Additions for tax positions related to prior years
0.1

Other reductions for tax positions related to prior years
(0.1
)
Reductions for statute closings
—

Balance at December 31, 2016
10.5

Additions for tax positions related to the current year
0.9

Additions for tax positions related to prior years
11.5

Other reductions for tax positions related to prior years
(0.2
)
Reductions for statute closings
(3.1
)
Balance at December 31, 2017
19.6



The company recognizes accrued interest and penalties, as appropriate, related to unrecognized tax benefits as a component of the income tax provision. At December 31, 2017, the total amount of gross unrecognized tax benefits was $19.6 million. 2017 movement is mainly due to a liability of $11.0 million being recorded as a result of an uncertain tax position arising from Illinois Tax Regulation changes enacted in the year and $3.1 million reduction related to the expiration of statute of limitations during the year. Of this total, $16.5 million (net of tax benefits in other jurisdictions and the federal benefit of state taxes) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. The Consolidated Balance Sheet includes accrued interest and penalties of $2.9 million at December 31, 2017, reflecting $1.2 million for accrued interest and penalties in 2017 (year ended December 31, 2016: $1.7 million of accrued interest and penalties, $0.5 million of settlement for accrued interest and penalties in 2015; year ended December 31, 2015: $1.2 million accrued interest and penalties, $0.9 million settlement of for accrued interests and penalties). As a result of the anticipated legislative changes and potential settlements with taxing authorities, it is reasonably possible that the company's gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $10.0 million. The company and its subsidiaries are periodically examined by various taxing authorities. With few exceptions, the company is no longer subject to income tax examinations by the primary tax authorities for years prior to 2010. Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. As of December 31, 2017, management had identified no other potential subsequent events that could have a significant impact on the unrecognized tax benefits balance.