METLIFE INC

On December 22, 2017, President Trump signed into law U.S. Tax Reform. U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018. U.S. Tax Reform moves the United States from a worldwide tax system to a participation exemption system by providing corporations a 100% dividends received deduction (“DRD”) for dividends distributed by a controlled foreign corporation. To transition to that new system, U.S. Tax Reform imposes a one-time deemed repatriation tax on unremitted earnings and profits at a rate of 8.0% for illiquid assets and 15.5% for cash and cash equivalents.

The incremental financial statement impact related to U.S. Tax Reform was as follows:



	U.S. Tax Reform
	(In millions)
Income (loss) from continuing operations before provision for income tax	$	(289	)
Provision for income tax expense (benefit):
Deemed repatriation	170
Deferred tax revaluation	(1,790		)
Total provision for income tax expense (benefit)	(1,620		)
Income (loss) from continuing operations, net of income tax	1,331
Income tax (expense) benefit related to items of other comprehensive income (loss)	144
Increase to net equity from U.S. Tax Reform	$	1,475

In accordance with SAB 118 issued by the SEC in December 2017, the Company has recorded provisional amounts for certain items for which the income tax accounting is not complete. For these items, the Company has recorded a reasonable estimate of the tax effects of U.S. Tax Reform. The estimates will be reported as provisional amounts during a measurement period, which will not exceed one year from the date of enactment of U.S. Tax Reform. The Company may reflect adjustments to its provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts.

The following items are considered provisional estimates due to complexities and ambiguities in U.S. Tax Reform which resulted in incomplete accounting for the tax effects of these provisions. Further guidance, either legislative or interpretive, and analysis will be required to complete the accounting for these items:


•	Deemed Repatriation Transition Tax - The Company has recorded a $170 million charge for this item. This charge is in addition to the $180 million charge recorded in the third quarter of 2017 resulting from the post-Separation review of the Company’s capital needs. The total transition tax liability recorded for the year ended December 31, 2017 is $350 million.

•

Global Intangible Low-Tax Income - U.S. Tax Reform imposes a minimum tax on global intangible low-tax income, which is generally the excess income of foreign subsidiaries over a 10% rate of routine return on tangible business assets. The Company has not yet formally adopted an accounting policy for this item. For the year ended December 31, 2017, the Company did not record a tax charge and tax incurred in future periods related to global intangible low-tax income will be recorded in the period incurred.


•	Compensation and Fringe Benefits - U.S. Tax Reform limits certain employer deductions for fringe benefit and related expenses and also repeals the exception allowing the deduction of certain performance-based compensation paid to certain senior executives. The Company has recorded an $8 million tax charge, included within the deferred tax revaluation.

•

Alternative Minimum Tax Credits - U.S. Tax Reform eliminates the corporate alternative minimum tax and allows for minimum tax credit carryforwards to be used to offset future regular tax or to be refunded over the next few years. However, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued for corporations claiming refundable prior year alternative minimum tax credits are subject to a sequestration rate of 6.6%. The application of this fee to refunds in future years is subject to further guidance. Additionally, the sequestration reduction rate in effect at the time is subject to uncertainty. The Company has recorded a $9 million tax charge included within the deferred tax revaluation.

•

Tax Credit Partnerships - Certain tax credit partnership investments derive returns in part from income tax credits. The Company recognizes changes in tax attributes at the partnership level when reported by the investee in its financial information. U.S. Tax Reform may impact the tax attributes of tax credit partnerships. However, investee financial information is not yet available to enable the Company to determine the impacts of U.S. Tax Reform. Accordingly, the Company has applied prior law to these equity method investments in accordance with SAB 118. During the one year measurement period under SAB 118, the impacts of U.S. Tax Reform will be recognized as the investee financial information is made available.

U.S. Tax Reform requires the Company to recognize a transition tax on all previously unremitted foreign earnings at December 31, 2017. However, the Company has not provided for U.S. deferred taxes on the remaining excess of book bases over tax bases of certain investments in foreign subsidiaries that are essentially permanent in duration. It is not practicable to estimate the amount of remaining deferred tax liability related to the Company’s remaining basis difference in these foreign subsidiaries.

The provision for income tax from continuing operations was as follows:



	Years Ended December 31,
	2017			2016			2015
	(In millions)
Current:
Federal	$	(246	)	$	520		$	632
State and local	5			3			10
Foreign	891			628			556
Subtotal	650			1,151			1,198
Deferred:
Federal	(2,373		)	(827		)	194
Foreign	253			369			198
Subtotal	(2,120		)	(458		)	392
Provision for income tax expense (benefit)	$	(1,470	)	$	693		$	1,590

The Company’s income (loss) from continuing operations before income tax expense (benefit) from domestic and foreign operations were as follows:



	Years Ended December 31,
	2017		2016		2015
	(In millions)
Income (loss) from continuing operations:
Domestic	$	684	$	185	$	1,874
Foreign	2,852		4,096		3,777
Total	$	3,536	$	4,281	$	5,651

The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported for continuing operations was as follows:



	Years Ended December 31,
	2017			2016			2015
	(In millions)
Tax provision at U.S. statutory rate	$	1,238		$	1,498		$	1,977
Tax effect of:
Dividend received deduction	(67		)	(69		)	(71		)
Tax-exempt income	(97		)	(86		)	(70		)
Prior year tax (1)	(27		)	(13		)	559
Low income housing tax credits	(278		)	(270		)	(221		)
Other tax credits	(102		)	(98		)	(67		)
Foreign tax rate differential (2), (3), (4)	(95		)	(332		)	(555		)
Change in valuation allowance	(8		)	(9		)	5
Separation tax benefits	(540		)	—			—
U.S. Tax Reform impact (5)	(1,519		)	—			—
Other, net	25			72			33
Provision for income tax expense (benefit)	$	(1,470	)	$	693		$	1,590

__________________


(1)	As discussed further below, for the year ended December 31, 2015, prior year tax includes a $557 million non-cash charge related to an uncertain tax position.

(2)

For the year ended December 31, 2017, foreign tax rate differential includes a net tax charge of $180 million as a result of repatriation. Included in the net tax charge of $180 million is a $444 million tax charge related to the repatriation of approximately $3.0 billion of pre-2017 earnings following the post-Separation review of the Company’s capital needs. This charge was partially offset by a $264 million tax benefit associated with dividends from other non-U.S. operations. This charge was recorded prior to U.S. Tax Reform and is incremental to the $170 million repatriation transition tax recorded for the year ended December 31, 2017.


(3)	For the year ended December 31, 2016, foreign tax rate differential includes a tax benefit of $110 million in Japan related to a change in tax rate, offset by a tax charge of $19 million in Chile related to a change in tax rate.

(4)

For the year ended December 31, 2015, foreign tax rate differential includes tax benefits of $174 million related to a Japan tax rate change, $61 million related to restructuring in Chile, $57 million related to the repatriation of earnings from Japan, $41 million related to certain non-portfolio net investment gains that were non-taxable and $31 million related to the devaluation of the peso in Argentina. These benefits were partially offset by charges of $23 million related to the impact of foreign exchange on investment gains in Argentina.


(5)	U.S. Tax Reform impact of ($1.5) billion excludes ($101) million of tax provision at the U.S. statutory rate for a total tax reform benefit of ($1.6) billion.

Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:



	December 31,
	2017			2016
	(In millions)
Deferred income tax assets:
Policyholder liabilities and receivables	$	2,654		$	2,029
Net operating loss carryforwards	512			1,420
Employee benefits	802			1,045
Capital loss carryforwards	6			9
Tax credit carryforwards	1,322			1,375
Litigation-related and government mandated	160			268
Other	657			743
Total gross deferred income tax assets	6,113			6,889
Less: Valuation allowance	189			161
Total net deferred income tax assets	5,924			6,728
Deferred income tax liabilities:
Investments, including derivatives	2,772			2,940
Intangibles	1,321			1,213
Net unrealized investment gains	4,783			5,423
DAC	3,206			3,619
Other	609			425
Total deferred income tax liabilities	12,691			13,620
Net deferred income tax asset (liability)	$	(6,767	)	$	(6,892	)

The Company also has recorded a valuation allowance benefit of $8 million related to certain state and foreign net operating loss carryforwards for the year ended December 31, 2017. In addition, a $19 million increase was related to foreign currency movement and a $17 million increase was recorded as a balance sheet reclassification with other deferred tax assets for the year ended December 31, 2017. The valuation allowance reflects management’s assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign and state net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable.

The following table sets forth the domestic, state, and foreign net operating loss carryforwards and the domestic capital loss carryforwards for tax purposes at December 31, 2017.



	Net Operating Loss Carryforwards						Capital Loss Carryforwards
	Domestic		State		Foreign		Domestic
	(In millions)
Expiration:
2018-2022	$	1	$	49	$	46	$	27
2023-2027	—		64		28		—
2028-2032	8		13		—		—
2033-2037	2,095		2		—		—
Indefinite	—		—		397		—
	$	2,104	$	128	$	471	$	27

The following table sets forth the general business credits, foreign tax credits, and other credit carryforwards for tax purposes at December 31, 2017.



	Tax Credit Carryforwards
	General Business Credits		Foreign Tax Credits		Other
	(In millions)
Expiration:
2018-2022	$	—	$	42	$	—
2023-2027	—		200		—
2028-2032	236		1		—
2033-2037	832		—		—
Indefinite	—		21		263
	$	1,068	$	264	$	263

The Company files income tax returns with the U.S. federal government and various state and local jurisdictions, as well as foreign jurisdictions. The Company is under continuous examination by the IRS and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to U.S. federal, state, or local income tax examinations for years prior to 2007, except for i) 2000 through 2002 where the IRS disallowance relates to certain tax credits claimed, for which in April 2015, the Company received a Statutory Notice of Deficiency (the “Notice”) and paid the tax thereon in September 2015 (see note (1) below); and ii) 2003 through 2006, where the IRS disallowance relates predominantly to certain tax credits claimed and the Company is engaged with IRS Appeals. Management believes it has established adequate tax liabilities and final resolution for the years 2000 through 2006 is not expected to have a material impact on the Company’s consolidated financial statements. The IRS audit cycle for the years 2007-2009, which began in December of 2015, is scheduled to conclude in 2018. In material foreign jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2009.

The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. For example, federal tax legislation could impact unrecognized tax benefits. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.

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



	Years Ended December 31,
	2017			2016			2015
	(In millions)
Balance at January 1,	$	1,146		$	1,259		$	719
Additions for tax positions of prior years (1)	70			24			574
Reductions for tax positions of prior years	(101		)	(112		)	(24		)
Additions for tax positions of current year	33			23			24
Reductions for tax positions of current year	(3		)	—			—
Settlements with tax authorities	(43		)	(48		)	(34		)
Balance at December 31, (1)	$	1,102		$	1,146		$	1,259
Unrecognized tax benefits that, if recognized, would impact the effective rate	$	1,073		$	1,112		$	1,215

__________________

(1)

The significant increase in 2015 is related to a non-cash charge the Company recorded to net income of $792 million, net of tax. The charge was related to an uncertain tax position and was comprised of a $557 million charge included in provision for income tax expense (benefit) and a $362 million ($235 million, net of tax) charge included in other expenses. This charge is the result of the Company’s consideration of certain decisions of the U.S. Court of Appeals for the Second Circuit upholding the disallowance of foreign tax credits claimed by other corporate entities not affiliated with the Company. The Company’s action relates to tax years from 2000 to 2009, during which MLIC held non-U.S. investments in support of its life insurance business through a United Kingdom investment subsidiary that was structured as a joint venture at the time.

The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties are included in income tax expense.

Interest was as follows:



	Years Ended December 31,
	2017		2016			2015
	(In millions)
Interest recognized on the consolidated statements of operations (1)	$	37	$	(41	)	$	388

			December 31,
			2017			2016
			(In millions)
Interest included in other liabilities on the consolidated balance sheets			$	659		$	623

__________________


(1)	The significant increase in 2015 is related to the non-cash charge discussed above.

The Company had insignificant penalties for the years ended December 31, 2017, 2016 and 2015.

There has been no change in the Company’s position on the disallowance of its foreign tax credits by the IRS. The Company continues to contest the disallowance of these foreign tax credits by the IRS as management believes the facts strongly support the Company’s position. The Company will defend its position vigorously and does not expect any additional charges related to this matter.

Also related to the aforementioned foreign tax credit matter, on April 9, 2015, the IRS issued the Notice to the Company. The Notice asserted that the Company owes additional taxes and interest for 2000 through 2002 primarily due to the disallowance of foreign tax credits. The transactions that are the subject of the Notice continue through 2009, and it is likely that the IRS will seek to challenge these later periods. On September 18, 2015, the Company paid the assessed tax and interest of $444 million for 2000 through 2002. On November 19, 2015, $9 million of this amount was refunded from the IRS as an overpayment of interest. On May 30, 2017, the Company filed a claim for refund with the IRS for the remaining tax and interest.

Prior to U.S. Tax Reform, the DRD related to variable life insurance and annuity contracts was generally based on a company-specific percentage referred to as the company’s share. The calculation of this amount was subject to significant dispute between taxpayers and the IRS. U.S. Tax Reform eliminated this dispute by fixing the calculation to a specific percentage subsequent to 2017.

For the years ended December 31, 2017, 2016, and 2015, the Company recognized an income tax benefit of $61 million, $63 million and $66 million, respectively, related to the separate account DRD. The 2017 and 2016 benefit each included an expense of $1 million related to a true-up of the 2016 and 2015 tax returns. The 2015 benefit included a benefit of $1 million related to a true-up of the 2014 tax return.