Entity information:
INCOME TAXES
We are subject to Canadian and United States federal, state, and local income taxes as well as other foreign income taxes. The domestic (Canada) and foreign components of our "Income before income taxes" (and after removing our "Equity in net loss of non-consolidated affiliates") are as follows (in millions).
 
 
 
Year Ended March 31,
 
 
2017
 
2016
 
2015
Domestic (Canada)
 
$
(286
)
 
$
(313
)
 
$
(267
)
Foreign (all other countries)
 
491

 
324

 
434

Pre-tax income before equity in net loss of non-consolidated affiliates
 
$
205

 
$
11

 
$
167


The components of the "Income tax provision" are as follows (in millions).
 
 
Year Ended March 31,
 
 
2017
 
2016
 
2015
Current provision:
 
 
 
 
 
 
Domestic (Canada)
 
$
8

 
$
5

 
$
4

Foreign (all other countries)
 
139

 
134

 
98

Total current
 
147

 
139

 
102

Deferred provision (benefit):
 
 
 
 
 
 
Domestic (Canada)
 
—

 
—

 
—

Foreign (all other countries)
 
4

 
(93
)
 
(88
)
Total deferred
 
4

 
(93
)
 
(88
)
Income tax provision
 
$
151

 
$
46

 
$
14


The reconciliation of the Canadian statutory tax rates to our effective tax rates are shown below (in millions, except percentages). 
 
 
Year Ended March 31,
 
 
2017
 
2016
 
2015
Pre-tax income before equity in net loss on non-consolidated affiliates
 
$
205

 
$
11

 
$
167

Canadian Statutory tax rate
 
25
%
 
25
%
 
25
%
Provision at the Canadian statutory rate
 
$
51

 
$
3

 
$
42

Increase (decrease) for taxes on income (loss) resulting from:
 
 
 
 
 
 
Exchange translation items
 
9

 
16

 
(22
)
Exchange remeasurement of deferred income taxes
 
8

 
(8
)
 
(31
)
Change in valuation allowances
 
67

 
104

 
95

Tax credits
 
(14
)
 
(22
)
 
(22
)
Income items not subject to tax
 
(3
)
 
—

 
2

State tax benefit, net
 
1

 
(10
)
 
(7
)
Dividends not subject to tax
 
(23
)
 
(52
)
 
(52
)
Enacted tax rate changes
 
1

 
5

 
(1
)
Tax rate differences on foreign earnings
 
36

 
4

 
7

Uncertain tax positions
 
6

 
7

 
10

Prior year adjustments
 
4

 
(2
)
 
2

Income tax settlements
 
6

 
—

 
(6
)
Other — net
 
2

 
1

 
(3
)
Income tax provision
 
$
151

 
$
46

 
$
14

Effective tax rate
 
73
%
 
411
%
 
8
%


    
Our effective tax rate differs from the Canadian statutory rate primarily due to the following factors: (1) pre-tax foreign currency gains or losses with no tax effect and the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, which is shown above as exchange translation items; (2) the remeasurement of deferred income taxes due to foreign currency changes, which is shown above as exchange remeasurement of deferred income taxes; (3) changes in valuation allowances; and (4) differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions shown above as tax rate differences on foreign earnings.
We continue to maintain valuation allowances in Canada and certain foreign jurisdictions primarily related to tax losses where we believe it is more likely than not that we will be unable to utilize those losses. The impact on our income tax provision of the change in these valuation allowances during the year ended March 31, 2017 was an increase of $67 million.
We earn tax credits in a number of the jurisdictions in which we operate. Primarily comprised of foreign tax credits in the U.K. of $7 million in the current year and empire zone credits in New York of $4 million. The impact on our income tax provision of credits during the year ended March 31, 2017 was a benefit of $14 million. However, legislation enacted in New York state on March 31, 2014 established a zero percent statutory income tax rate for manufacturers. As a result, the current year empire zone credits in New York are offset with a corresponding valuation allowance of $4 million.
We receive the benefits of favorable tax holidays in various jurisdictions, which resulted in a $3 million reduction to tax expense for the year ended March 31, 2017, and phase out as of December 31, 2020.
Deferred Income Taxes
Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes, and the impact of available net operating loss (NOL) and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered.    

Our deferred income tax assets and deferred income tax liabilities are as follows (in millions).
 
 
March 31,
 
 
2017
 
2016
Deferred income tax assets:
 
 
 
 
Provisions not currently deductible for tax purposes
 
$
459

 
$
396

Tax losses/benefit carryforwards, net
 
724

 
741

Depreciation and amortization
 
45

 
41

Other assets
 
4

 
(1
)
Total deferred income tax assets
 
1,232

 
1,177

Less: valuation allowance
 
(680
)
 
(613
)
Net deferred income tax assets
 
$
552

 
$
564

Deferred income tax liabilities:
 
 
 
 
Depreciation and amortization
 
$
442

 
$
457

Inventory valuation reserves
 
84

 
64

Monetary exchange gains, net
 
14

 
15

Other liabilities
 
24

 
30

Total deferred income tax liabilities
 
$
564

 
$
566

Net deferred income tax liabilities
 
$
12

 
$
2


ASC 740 requires that we reduce our deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. After consideration of all evidence, both positive and negative, management concluded that it is more likely than not that we will be unable to realize a portion of our deferred tax assets and that valuation allowances of $680 million and $613 million were necessary as of March 31, 2017 and 2016, respectively.
It is reasonably possible that our estimates of future taxable income may change within the next 12 months, resulting in a change to the valuation allowance in one or more jurisdictions.


    
As of March 31, 2017, we had net operating loss carryforwards of approximately $614 million (tax effected) and tax credit carryforwards of $110 million, which will be available to offset future taxable income and tax liabilities, respectively. The carryforwards will begin expiring in fiscal year 2018. As of March 31, 2017, valuation allowances of $531 million, $90 million and $59 million had been recorded against net operating loss carryforwards, tax credit carryforwards and other deferred tax assets, respectively, where it appeared more likely than not that such benefits will not be realized. The net operating loss carryforwards are predominantly in Canada, the U.S., Italy, Germany, Switzerland, China and the U.K.
As of March 31, 2016, we had net operating loss carryforwards of approximately $638 million (tax effected) and tax credit carryforwards of $103 million, which will be available to offset future taxable income and tax liabilities, respectively. The carryforwards will begin expiring in fiscal 2017 with some amounts being carried forward indefinitely. As of March 31, 2016, valuation allowances of $468 million, $88 million and $57 million had been recorded against net operating loss carryforwards, tax credit carryforwards and other deferred tax assets, respectively, where it appeared more likely than not that such benefits will not be realized. The net operating loss carryforwards are predominantly in Canada, the U.S., Italy, Germany, Switzerland, China and the U.K.
 
Although realization is not assured, management believes it is more likely than not that all the remaining net deferred tax assets will be realized. In the near term, the amount of deferred tax assets considered realizable could be reduced if we do not generate sufficient taxable income in certain jurisdictions.
As of March 31, 2017, we had cumulative earnings of approximately $2.7 billion for which we had not provided Canadian income tax or withholding taxes because we consider them to be indefinitely reinvested. We acknowledge that we would need to accrue and pay taxes should we decide to repatriate cash and short term investments generated from earnings of our foreign subsidiaries that are considered indefinitely reinvested. Except for those jurisdictions where we have already distributed and paid taxes on the earnings, we have reinvested and expect to continue to reinvest undistributed earnings of foreign subsidiaries indefinitely. Cash and cash equivalents held by foreign subsidiaries that are indefinitely reinvested are used to cover expansion and short-term cash flow needs of such subsidiaries. The amounts considered indefinitely reinvested would be subject to possible Canadian taxation only if remitted as dividends. However, due to our full valuation allowance position of $601 million in Canada, in excess of $496 million of net operating loss carryforwards, exempt surpluses for Canadian tax purposes, $46 million of tax credits and other deferred tax assets of $59 million, a portion of the cumulative earnings would not be taxed if distributed. Due to the complex structure of our international holdings, and the various methods available for repatriation, quantification of the deferred tax liability, if any, associated with these undistributed earnings is not practicable.
Tax Uncertainties
As of March 31, 2017 and 2016, the total amount of unrecognized benefits that, if recognized, would affect the effective income tax rate in future periods based on anticipated settlement dates is $36 million and $34 million, respectively.
Tax authorities continue to examine certain other of our tax filings for fiscal years 2005 through 2014. As a result of further settlement of audits, judicial decisions, the filing of amended tax returns or the expiration of statutes of limitations, our reserves for unrecognized tax benefits, as well as reserves for interest and penalties, may decrease in the next 12 months by an amount up to approximately $16 million. With few exceptions, tax returns for all jurisdictions for all tax years before 2005 are no longer subject to examination by taxing authorities.
Our policy is to record interest and penalties related to unrecognized tax benefits in the income tax provision (benefit). As of March 31, 2017, 2016 and 2015, we had $5 million, $4 million and $5 million accrued, respectively, for interest and penalties. For the year ended March 31, 2017, we recognized $1 million expense related to accrued interest and penalties. For the years ended March 31, 2016 and 2015 we recognized a tax expense and benefit of $2 million and $1 million, respectively, related to changes in accrued interest and penalties.





A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions): 
 
 
Year Ended March 31,
 
 
2017
 
2016
 
2015
Beginning balance
 
$
34

 
$
37

 
$
39

Additions based on tax positions related to the current period
 
5

 
6

 
7

Additions based on tax positions of prior years
 
—

 
3

 
3

Reductions based on tax positions of prior years
 
—

 
(6
)
 
(1
)
Settlements
 
(1
)
 
(10
)
 
(3
)
Foreign exchange
 
(2
)
 
4

 
(8
)
Ending Balance
 
$
36

 
$
34

 
$
37


 
Income Taxes Payable
Our consolidated balance sheets include income taxes payable (net) of $46 million and $42 million as of March 31, 2017 and 2016, respectively. Of these amounts, $28 million and $13 million are reflected in “Accrued expenses and other current liabilities” as of March 31, 2017 and 2016, respectively.