Entity information:
INCOME TAXES

Earnings before income taxes for the years ended December 31 were taxed within the following jurisdictions:
In millions
 
2017
 
2016
 
2015
United States
 
$
166.5

 
$
129.9

 
$
123.1

Non-U.S.
 
229.2

 
165.1

 
86.2

Total
 
$
395.7

 
$
295.0

 
$
209.3



The components of the Provision for income taxes for the years ended December 31 were as follows:
In millions
 
2017
 
2016
 
2015
Current tax expense:
 
 
 
 
 
 
United States
 
$
78.8

 
$
43.8

 
$
53.4

Non-U.S.
 
15.0

 
13.8

 
3.5

Total:
 
93.8

 
57.6

 
56.9

Deferred tax expense (benefit):
 
 
 
 
 
 
United States
 
41.2

 
14.4

 
2.1

Non-U.S.
 
(16.0
)
 
(8.2
)
 
(4.4
)
Total:
 
25.2

 
6.2

 
(2.3
)
Total tax expense (benefit):
 
 
 
 
 
 
United States
 
120.0

 
58.2

 
55.5

Non-U.S.
 
(1.0
)
 
5.6

 
(0.9
)
Total
 
$
119.0

 
$
63.8

 
$
54.6



The Provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. statutory income tax rate to pretax income, as a result of the following differences:
 
 
Percent of pretax income
  
 
2017
 
2016
 
2015
Statutory U.S. rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
Increase (decrease) in rates resulting from:
 
 
 
 
 
 
Non-U.S. tax rate differential (1)
 
(20.0
)
 
(17.4
)
 
(11.1
)
State and local income taxes (1)
 
1.8

 
2.0

 
2.8

Reserves for uncertain tax positions
 
0.8

 
2.0

 
(3.4
)
Tax on unremitted earnings
 
0.8

 
1.2

 
1.5

Tax Reform Act
 
13.5

 
—

 
—

Venezuela devaluation
 
—

 
—

 
0.9

Production incentives
 
(0.9
)
 
(0.6
)
 
(1.0
)
Other adjustments
 
(0.9
)
 
(0.6
)
 
1.4

Effective tax rate
 
30.1
 %
 
21.6
 %
 
26.1
 %
(1)
Net of changes in valuation allowances

On December 22, 2017, the Tax Reform Act became law, resulting in broad and complex changes to the U.S. tax code which impact the Company's consolidated financial statements during the year ended December 31, 2017 including, but not limited to (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries that may electively be paid over eight years, and (3) requiring a review of the future realizability of deferred tax balances.

The Tax Reform Act reduces the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. The Tax Reform Act also puts in place new tax laws which include, but are not limited to (1) a Base Erosion Anti-abuse Tax (BEAT), which is a new minimum tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a provision designed to tax currently global intangible low taxed income (GILTI), (4) a provision that may limit the amount of currently deductible interest expense, (5) the repeal of the domestic production incentives, (6) limitations on the deductibility of certain executive compensation, and (7) limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.

Shortly after the Tax Reform Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which provides guidance on accounting for the Tax Reform Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Reform Act under ASC Topic 740. In accordance with SAB 118, the company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting under ASC Topic 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete, the Company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined. If a company cannot determine a provisional estimate to be included in the financial statements, the company should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the Tax Reform Act being enacted. If a company is unable to provide a reasonable estimate of the impacts of the Tax Reform Act in a reporting period, a provisional amount must be recorded in the first reporting period in which a reasonable estimate can be determined.

The Company has recorded a provisional discrete net tax charge of $53.5 million related to the Tax Reform Act in the year ended December 31, 2017. This net charge primarily consists of a net charge of $24.5 million due to the remeasurement of deferred tax accounts to reflect the corporate rate reduction impact to the Company's net deferred tax balances, a net charge of $22.8 million due to the future realizability of certain deferred tax balances, and a net charge for the transition tax of $5.0 million, as more fully described below.

Reduction in U.S. Corporate Rate: The Tax Reform Act reduces the U.S. federal statutory corporate tax rate to 21 percent in years beginning on or after January 1, 2018. The Company has recorded a provisional adjustment to the net deferred tax balances, with a corresponding discrete net tax charge of $24.5 million in the current period. While the Company can make a reasonable estimate of the impact of the reduction in corporate rate, the Company is continuing to analyze the temporary differences that existed on the date of enactment.

Future Realizability of Certain Deferred Tax Balances: The Tax Reform Act contains provisions that may limit or restrict the future realizability of certain existing deferred tax balances. The Company has recorded a provisional valuation allowance related to interest limitation carryforwards and other adjustments to the net deferred tax assets, with a corresponding discrete net tax charge of $22.8 million in the current period. While the Company can make a reasonable estimate of the valuation allowance, the Company is awaiting further interpretative guidance and is continuing to gather additional information to refine its assessment. To the extent transition rules and interpretative guidance is clarified, some or all of the valuation allowance may reverse in a subsequent period.

Transition Tax: The transition tax is levied on the previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company's foreign subsidiaries. In order to determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. The Company has made a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of $5.0 million which the Company expects to elect to pay over eight years. This amount is presented in current and Other long-term liabilities. However, the Company is awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information to more precisely compute the amount of the transition tax.

The majority of the Company's earnings are considered permanently reinvested. The $5.0 million transition tax will result in certain previously untaxed non-U.S. earnings being included in the U.S. federal and state 2017 taxable income. As a result of the Tax Reform Act, the Company is currently analyzing its global working capital requirements and the potential tax liabilities that would be incurred if certain non-U.S. subsidiaries made distributions, which include local country withholding tax and potential U.S. state taxation. For these reasons, the Company is not yet able to reasonably estimate the effect of this provision of the Tax Reform Act and has not recorded any incremental withholding or state tax liabilities on its investment in its non-U.S. subsidiaries.

The Company is also currently analyzing other provisions of the Tax Reform Act that come into effect in 2018. These provisions include BEAT, eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the treatment of amounts in accumulated other comprehensive income, the new provision that could limit the amount of deductible interest expense, and the limitations on the deductibility of certain executive compensation.

At December 31, a summary of the deferred tax accounts were as follows:
In millions
 
2017
 
2016
Deferred tax assets:
 
 
 
 
Inventory and accounts receivable
 
$
17.0

 
$
18.3

Fixed assets and intangibles
 
2.6

 
2.0

Postemployment and other benefit liabilities
 
29.9

 
42.0

Other reserves and accruals
 
12.5

 
16.0

Net operating losses, tax credits and other carryforwards
 
309.5

 
227.1

Other
 
4.2

 
5.3

Gross deferred tax assets
 
375.7

 
310.7

Less: deferred tax valuation allowances
 
(312.9
)
 
(225.5
)
Deferred tax assets net of valuation allowances
 
$
62.8

 
$
85.2

Deferred tax liabilities:
 
 
 
 
Fixed assets and intangibles
 
$
(101.7
)
 
$
(90.6
)
Postemployment and other benefit liabilities
 
(4.7
)
 
—

Unremitted earnings of foreign subsidiaries
 
(6.0
)
 
(4.2
)
Other
 
(7.4
)
 
(6.0
)
Gross deferred tax liabilities
 
(119.8
)
 
(100.8
)
Net deferred tax liabilities
 
$
(57.0
)
 
$
(15.6
)


At December 31, 2017, $6.0 million of deferred tax was recorded for certain undistributed earnings of non-U.S. subsidiaries. Historically, no deferred taxes have been provided for any portion of the remaining undistributed earnings of the Company's subsidiaries since these earnings have been, and will continue to be, permanently reinvested in these subsidiaries. For many reasons, including the number of legal entities and jurisdictions involved, the complexity of the Company's legal entity structure, the complexity of tax laws in the relevant jurisdictions and the impact of projections of income for future years to any calculations, the Company believes it is not practicable to estimate, within any reasonable range, the amount of additional taxes which may be payable upon the distribution of earnings.

At December 31, 2017, the Company had the following tax losses and tax credit carryforwards available to offset taxable income in prior and future years:
 
In millions
 
Amount
 
Expiration
Period
U.S. Federal tax loss carryforwards
 
$
15.1

 
2027 & 2028
U.S. Federal and State credit carryforwards
 
22.2

 
2024-2027
U.S. State tax loss carryforwards
 
29.6

 
2018-2037
Non-U.S. tax loss carryforwards
 
$
1,013.0

 
2018-Unlimited


The U.S. state loss carryforwards were incurred in various jurisdictions. The non-U.S. loss carryforwards were incurred in various jurisdictions, predominantly in China, Ireland, Italy, Luxembourg and the United Kingdom.

The Company evaluates its deferred income tax assets to determine if valuation allowances are required or should be adjusted. U.S. GAAP requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a "more likely than not" standard. This assessment considers the nature, frequency and amount of recent losses, the duration of statutory carryforward periods and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.

Activity associated with the Company’s valuation allowance is as follows:
 
In millions
 
2017
 
2016
 
2015
Beginning balance
 
$
225.5

 
$
133.3

 
$
50.8

Increase to valuation allowance
 
96.9

 
109.0

 
82.2

Decrease to valuation allowance
 
(11.9
)
 
(13.9
)
 
(3.0
)
Foreign exchange translation
 
2.4

 
(3.3
)
 
(1.6
)
Accumulated other comprehensive income (loss)
 
—

 
0.4

 
4.9

Ending balance
 
$
312.9

 
$
225.5

 
$
133.3



During 2017, the valuation allowance increased by $87.4 million. This increase is the result of changes in jurisdictional profitability, country specific tax laws and changes in judgment and facts regarding the realizability of deferred tax assets.

The Company has total unrecognized tax benefits of $29.0 million and $32.0 million as of December 31, 2017, and December 31, 2016, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate are $27.4 million as of December 31, 2017. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
In millions
 
2017
 
2016
 
2015
Beginning balance
 
$
32.0

 
$
23.8

 
$
25.4

Additions based on tax positions related to the current year
 
6.4

 
9.1

 
3.9

Additions based on tax positions related to prior years
 
1.6

 
7.1

 
1.6

Reductions based on tax positions related to prior years
 
(5.0
)
 
(5.5
)
 
(3.0
)
Reductions related to settlements with tax authorities
 
(7.1
)
 
(0.6
)
 
—

Reductions related to lapses of statute of limitations
 
(1.2
)
 
(0.9
)
 
(1.4
)
Translation loss/(gain)
 
2.3

 
(1.0
)
 
(2.7
)
Ending balance
 
$
29.0

 
$
32.0

 
$
23.8



The Company records interest and penalties associated with the uncertain tax positions within its Provision for income taxes. The Company had reserves associated with interest and penalties, net of tax, of $4.9 million and $5.4 million at December 31, 2017 and 2016. For the years ended December 31, 2017 and 2016, the Company recognized $0.0 million and $0.3 million in net interest and penalties, net of tax, related to these uncertain tax positions.

The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits, excluding interest and penalties, could potentially be reduced by up to approximately $10.7 million during the next 12 months.

The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a tax authority with respect to that return. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, France, Germany, Italy, Mexico, the Netherlands and the United States. In general, the examination of the material tax returns of subsidiaries of the Company is complete for the years prior to 2003, with certain matters being resolved through appeals and litigation.

The Company had indemnity receivables in the amount of $5.7 million and $5.6 million included in Other noncurrent assets at December 31, 2017 and 2016, respectively, primarily related to additional competent authority relief filings.