Prologis, Inc.

NOTE 14. INCOME TAXES

Components of Earnings Before Income Taxes

The following table summarizes the components of earnings before income taxes for the years ended December 31 (in thousands):

	2017		2016		2015
Domestic	$	1,207,503	$	719,018	$	511,025
International		608,065		628,086		437,580
Earnings before income taxes	$	1,815,568	$	1,347,104	$	948,605

Summary of Current and Deferred Income Taxes

The following table summarizes the components of the provision for income taxes for the years ended December 31 (in thousands):

	2017			2016			2015
Current income tax expense (benefit):
U.S. federal	$	214		$	7,153		$	(11,633	)
International		45,185			38,493			27,494
State and local		14,215			14,443			12,286
Total current income tax expense		59,614			60,089			28,147

Deferred income tax expense (benefit):
U.S. federal		2,533			(3,306	)		(810	)
International		(7,538	)		(2,219	)		(4,247	)
Total deferred income tax benefit		(5,005	)		(5,525	)		(5,057	)
Total income tax expense	$	54,609		$	54,564		$	23,090

Current Income Taxes

Current income tax expense recognized during 2017 and 2016 was partially due to tax triggered upon the contribution of assets to our Europe, Mexico and Japan co-investment ventures and third-party sales. Current income tax expense recognized during 2015 was not materially impacted by contributions to our co-investment ventures and was netted against a current benefit as a result of the operating losses generated by our U.S. TRS.

For the years ended December 31, 2016 and 2015, we recognized a net expense of $0.3 million and $3.0 million for uncertain tax positions, respectively. For the year ended December 31, 2017, we did not recognize any expense for uncertain tax positions.

During the years ended December 31, 2017, 2016 and 2015, cash paid for income taxes, net of refunds, was $46.7 million, $29.3 million and $24.1 million, respectively.

Deferred Income Taxes

The deferred income tax benefits recognized in 2017, 2016 and 2015 were principally due to the reversal of deferred tax liabilities from the contribution and dispositions of properties. The deferred tax liabilities were originally recorded at the time of acquisition.

The following table summarizes the deferred income tax assets and liabilities at December 31 (in thousands):

	2017			2016
Gross deferred income tax assets:
NOL carryforwards	$	334,358		$	350,909
Basis difference – real estate properties		53,902			56,827
Basis difference – equity investments and intangibles		4,740			4,666
Section 163(j) interest limitation		26,280			40,766
Capital loss carryforward		10,566			25,145
Other – temporary differences		5,724			5,578
Total gross deferred income tax assets		435,570			483,891
Valuation allowance		(410,896	)		(456,699	)
Gross deferred income tax assets, net of valuation allowance		24,674			27,192
Gross deferred income tax liabilities:
Basis difference – real estate properties		63,246			70,914
Basis difference – equity investments and intangibles		1,114			6,864
Other – temporary differences		769			1,028
Total gross deferred income tax liabilities		65,129			78,806
Net deferred income tax liabilities	$	40,455		$	51,614

The Tax Cuts and Jobs Act, enacted on December 22, 2017, reduced the corporate federal tax rate in the U.S. to 21.0%, effective upon enactment. As such, deferred tax assets and liabilities were remeasured using the lower corporate federal tax rate at December 31, 2017. While we do not expect other material impacts, the new rules are complex and lack developed administrative guidance; thus, the impact of certain aspects of these provisions on us is currently unclear.

At December 31, 2017, we had NOL carryforwards as follows (in thousands):

	U.S.			Europe			Mexico			Japan			Other
Gross NOL carryforward	$	106,594		$	721,225		$	334,290		$	130,679		$	44,084
Tax-effected NOL carryforward		26,040			168,588			103,671			25,419			10,640
Valuation allowance		(26,040	)		(152,911	)		(103,671	)		(25,419	)		(10,640	)
Net deferred tax asset – NOL carryforward	$	-		$	15,677		$	-		$	-		$	-
Expiration periods	2022 – 2037			2018 – indefinite			2018 – 2028			2018 – 2026			2018 – indefinite

The deferred tax asset valuation allowance at December 31, 2017, was adequate to reduce the total deferred tax asset to an amount that we estimate will more likely than not be realized.

Liability for Uncertain Tax Positions

During the years ended December 31, 2017, 2016 and 2015, we believe that we have complied with the REIT requirements of the Internal Revenue Code. The statute of limitations for our tax returns is generally three years. As such, our tax returns that remain subject to examination would be primarily from 2014 and thereafter.

The liability for uncertain tax positions was $3.0 million for the years ended December 31, 2017 and 2016, and $3.3 million for the year ended December 31, 2015, and primarily consisted of estimated income tax liabilities in Mexico and included accrued interest and penalties.