HERTZ GLOBAL HOLDINGS, INC

Income Tax (Provision) Benefit

The components of income (loss) before income taxes for the periods were as follows (in millions):

Hertz Global



	Years Ended December 31,
	2017			2016			2015
Domestic	$	(680	)	$	(535	)	$	(84	)
Foreign	105			65			216
Total income (loss) from continuing operations before income taxes	$	(575	)	$	(470	)	$	132

Hertz



	Years Ended December 31,
	2017			2016			2015
Domestic	$	(675	)	$	(534	)	$	(84	)
Foreign	105			65			216
Total income (loss) from continuing operations before income taxes	$	(570	)	$	(469	)	$	132

The total income tax provision (benefit) consists of the following (in millions):

Hertz Global and Hertz



	Years Ended December 31,
	2017			2016			2015
Current:
Federal	$	—		$	22		$	(49	)
Foreign	19			48			57
State and local	1			12			(2		)
Total current	20			82			6
Deferred:
Federal	(900		)	(131		)	34
Foreign	10			1			(23		)
State and local	(32		)	52			—
Total deferred	(922		)	(78		)	11
Total provision (benefit)	$	(902	)	$	4		$	17

US Tax Reform

On December 22, 2017, President Trump signed the TCJA, Pub. L. No. 115-97, the first major overhaul of the United States tax system in thirty years. The TCJA contains significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing for certain business assets, (iii) the one‑time transition tax related to the transition of U.S. international tax from a worldwide tax system to a modified territorial tax system, (iv) the repeal of the Like-Kind-Exchange deferral rules as applicable to personal property, including rental vehicles, (v) additional limitations on the deductibility of interest expense, and (vi) expanded limitations on executive compensation.

Provisional Amounts

The company recognized the income tax effects of the TCJA in its 2017 financial statements in accordance with guidance issued under SAB 118.

At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the TCJA; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. We expect the U.S. Treasury to issue additional guidance that clarifies provisions of the TCJA and we will account for the provisions as released and in accordance with guidance issued under SAB 118. The Company recognized a provisional net tax benefit of $679 million, which is included as a component of income tax expense from continuing operations. Below is a discussion of the material provisional items in the tax provision.

Deferred tax assets and liabilities: The Company remeasured certain deferred tax assets and liabilities based on the federal rate at which they are expected to reverse in the future, which is generally 21%. The Company also remeasured the state rate at which certain deferred tax assets and liabilities are expected to reverse in the future associated with the reduction in the future federal benefit from state deferred tax assets and liabilities from 35% to 21%. However, the Company is still analyzing certain aspects of the TCJA and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of the Company's deferred tax balance was a tax benefit of $679 million, including the remeasurement of its valuation allowance.

Foreign tax effects: The one-time transition tax is based on the Company's total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes. The Company has determined on a provisional basis that its E&P for all foreign subsidiaries is an overall deficit and, as a result, has not recorded a provisional amount for the one-time transition tax liability. The Company has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based, in part, on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets.

The Company has not yet made a policy election with respect to its treatment of potential GILTI. Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the TCJA associated with GILTI and the expected impact of GILTI on the Company in the future.

We continue to evaluate whether to assert indefinite reinvestment on a part or all of our foreign earnings as of December 31, 2017 and will record the tax effects of any change in our provision amounts in accordance with guidance issued under SAB 118.

State tax effects: As noted above, the Company remeasured certain deferred tax assets and liabilities to account for the reduction in the future federal benefit from state deferred tax assets and liabilities. Furthermore, the Company has recorded a provisional amount for the state impact of accelerated depreciation under TCJA based on each state’s historical conformity with pre-TCJA accelerated depreciation law. In addition, the Company has incorporated the impact of TCJA into its analysis of the realizability of state deferred tax assets.

Other Federal effects: The TCJA repealed the corporate alternative minimum tax ("AMT") and allowed taxpayers to recover 50% of AMT credit carry forwards in 2018, 2019, and 2020. Any remaining AMT credit carry forward existing in 2021 can be fully refunded. As of December 31, 2017, the Company has an AMT credit carry forward of $40 million and estimates refunds of $20 million, $10 million, $5 million, and $5 million, in tax years 2018, 2019, 2020, and 2021, respectively. However, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, such refunds of AMT are subject to sequestration which is currently 6.6% of the requested refunds. Therefore, the Company reduced its expected receivable by $3 million. Further, the Company recorded a provisional reduction to deferred tax assets related to 100% bonus depreciation for qualified assets placed into service after September 27, 2017. The provisional amounts require further analysis due to the volume of contracts and data required to complete the computations.

The principal items of the U.S. and foreign net deferred tax assets and liabilities are as follows (in millions):

Hertz Global and Hertz



	Years Ended December 31,
	2017			2016
Deferred Tax Assets:
Employee benefit plans	$	27		$	64
Net operating loss carry forwards	1,343			1,669
Federal, state and foreign local tax credit carry forwards	24			59
Accrued and prepaid expenses	90			251
Total Deferred Tax Assets	1,484			2,043
Less: Valuation Allowance	(305		)	(230		)
Total Net Deferred Tax Assets	1,179			1,813
Deferred Tax Liabilities:
Depreciation on tangible assets	(1,576		)	(2,673		)
Intangible assets	(764		)	(1,232		)
Total Deferred Tax Liabilities	(2,340		)	(3,905		)
Net Deferred Tax Liability	$	(1,161	)	$	(2,092	)

The above amounts at December 31, 2016 exclude deferred taxes of the Company’s Brazil Operations which are included in assets held for sale in the accompanying consolidated balance sheet at December 31, 2016. The Brazil Operations were sold in August 2017, as further described in Note 4, "Acquisitions and Divestitures."

Hertz Global and Hertz

As of December 31, 2017, deferred tax assets of $873 million were recorded for U.S. federal net operating losses (“Federal NOL") carry forwards of $4,156 million. The TCJA modified the Federal NOL rules, permitting Federal NOLs generated in tax years after December 31, 2017, to offset only 80% of taxable income. Federal NOLs generated in tax years before January 1, 2018 are not subject to the limit. As a result, the Company must track separately its pre-January 1, 2018 and its post-December 31, 2017 Federal NOLs. Post-December 31, 2017 Federal NOLs may be carried forward indefinitely. The total pre-January 1, 2018 Federal NOL carry forwards are $4,156 million. Upon adoption in January 2017 of recently issued accounting pronouncement Accounting Standards Update 2016-09, "Improvements to Employee Share-Based Payment Accounting", (as described in Note 2, "Significant Accounting Policies"), the Company recognized as of the adoption date deferred tax assets of $49 million for excess tax benefits that were not previously recognized as the related tax deduction had not reduced taxes payable, and the Company recorded a cumulative-effect adjustment to accumulated deficit in the accompanying consolidated balance sheets. Pre-January 1, 2018 Federal NOLs begin to expire in 2029. State net operating losses ("State NOL") have generated a deferred tax asset of $290 million. As of December 31, 2017, a valuation allowance of $101 million was recorded against these state deferred tax assets because they relate to states that have historical losses where it is more likely than not that the state net operating loss carry forwards may not be utilized in the future. The State NOLs expire over various years beginning in 2018 depending upon when they were generated and the particular jurisdiction.

As of December 31, 2016, deferred tax assets of $1,324 million were recorded for Federal NOL carry forwards of $3,782 million. The total Federal NOL carry forwards are $3,914 million of which $132 million relate to excess tax deductions associated with stock compensation plans, which have yet to reduce taxes payable. The Federal NOLs begin to expire in 2029. State NOLs, exclusive of the effects of the excess tax deductions, have generated a deferred tax asset of $190 million. As of December 31, 2016, a valuation allowance of $56 million was recorded against these deferred tax assets because they relate to separate states that have historical losses where it is more likely than not that the State NOL carry forwards may not be utilized in the future. The State NOLs expire over various years beginning in 2017 depending upon when they were generated and the particular jurisdiction.

As of December 31, 2017, deferred tax assets of $180 million were recorded for foreign net operating losses ("Foreign NOL") carry forwards of $655 million. A valuation allowance of $126 million at December 31, 2017 was recorded against these deferred tax assets because those assets relate to jurisdictions that have historical losses and it is more likely than not that a portion of the Foreign NOL carry forwards may not be utilized in the future. Additionally, a valuation allowance of $50 million was recorded against other deferred tax assets in these jurisdictions.

As of December 31, 2016, deferred tax assets of $155 million were recorded for Foreign NOL carry forwards of $736 million. A valuation allowance of $108 million at December 31, 2016 was recorded against these deferred tax assets because those assets relate to jurisdictions that have historical losses and it is more likely than not that a portion of the Foreign NOL carry forwards may not be utilized in the future. Additionally, a valuation allowance of $47 million was recorded against other deferred tax assets in these jurisdictions.

As of December 31, 2017 and 2016, deferred tax assets of $9 million and $2 million were recorded for U.S. Federal Net Capital Losses, respectively. As of December 31, 2017 and 2016, a valuation allowance of $9 million and $2 million was recorded on U.S. Federal Net Capital Losses, respectively.

As of December 31, 2017, Foreign NOL carry forwards of $655 million include $595 million which have an indefinite carry forward period and associated deferred tax assets of $164 million. The remaining Foreign NOLs of $60 million are subject to expiration beginning in 2024 and have associated deferred tax assets of $16 million.

As of December 31, 2016, Foreign NOL carry forwards of $736 million include $679 million which have an indefinite carry forward period and associated deferred tax assets of $139 million. The remaining Foreign NOLs of $57 million are subject to expiration beginning in 2024 and have associated deferred tax assets of $16 million.

In determining valuation allowances, an assessment of positive and negative evidence was performed regarding realization of the net deferred tax assets in accordance with Topic 740-10, “Accounting for Income Taxes”. This assessment included the evaluation of cumulative earnings and losses in recent years, scheduled reversals of net deferred tax liabilities, the availability of carry forwards and the remaining period of the respective carry forward, future taxable income and any applicable tax-planning strategies that are available.

Based on the assessment as of December 31, 2017, total valuation allowances of $305 million were recorded against deferred tax assets. Although realization is not assured, the Company has concluded that it is more likely than not the remaining deferred tax assets of $1,179 million will be realized and as such, no valuation allowance has been provided on these assets.

Based on the assessment as of December 31, 2016, total valuation allowances of $230 million were recorded against deferred tax assets. Although realization is not assured, the Company has concluded that it is more likely than not the remaining deferred tax assets of $1,813 million will be realized and as such, no valuation allowance has been provided on these assets.

As of December 31, 2017, deferred tax assets of $23 million were recorded for various U.S. federal and state credits. The deferred tax balance includes the reclassification of AMT credits of $40 million to its tax receivable account resulting from the TCJA's repeal of the corporate AMT and enactment of AMT credit refunds beginning in 2018. Based on the assessment, as of December 31, 2017, total valuation allowances of $19 million were recorded against deferred tax assets relating to these credits. The state tax credits expire over various years beginning in 2018 depending upon when they were generated and the particular jurisdiction.

As of December 31, 2016, deferred tax assets of $54 million were recorded for U.S. federal AMT credits and various state tax credits. Based on the assessment, as of December 31, 2016, total valuation allowances of $10 million were recorded against deferred tax assets relating to these credits. The state tax credits expire over various years beginning in 2018 depending upon when they were generated and the particular jurisdiction.

The significant items in the reconciliation of the statutory and effective income tax rates consisted of the following:

Hertz Global



	Years Ended December 31,
	2017		2016		2015
Statutory Federal Tax Rate	35	%	35	%	35	%
Foreign tax rate differential	2		2		(20	)
State and local income taxes, net of federal income tax benefit	6		3		(5	)
Change in state apportionment and statutory rates, net of federal income tax benefit	6		(7	)	5
Tax Reform	118		—		—
Federal and foreign permanent differences	—		(1	)	5
Withholding taxes	(2	)	(2	)	5
Uncertain tax positions	—		—		(5	)
Change in valuation allowance	(7	)	(11	)	(35	)
Benefit from sale of non-U.S. operations	—		—		17
Change in foreign statutory rates	—		(3	)	1
Goodwill impairment	—		(12	)	—
Sale of CAR Inc. common stock	—		—		14
Stock option shortfalls	(1	)	(3	)	—
All other items, net	—		(2	)	(4	)
Effective Tax Rate	157	%	(1	)%	13	%

The effective tax rate for the year ended December 31, 2017 was 157% as compared to (1)% for the year ended December 31, 2016, with an income tax benefit of $902 million and an income tax provision of $4 million, respectively. The $906 million decrease in the tax provision is largely due to the benefit from the TCJA in 2017 and the provision of goodwill impairment in 2016. In addition, contributing factors to the reduced tax expense include a decrease in pretax operating results, the composition of operating results by jurisdiction, a change state statutory effective tax rates, and an increase in the valuation allowance relating to losses in certain U.S. and non-U.S. jurisdictions.

The effective tax rate for the year ended December 31, 2016 was (1)% as compared to 13% for the year ended December 31, 2015, with an income tax provision of $4 million and $17 million, respectively. The $13 million decrease in the tax provision is due to a decrease in pretax operating results, the composition of operating results by jurisdiction, an increase in the valuation allowance relating to losses in certain U.S. and non-U.S. jurisdictions, as well as changes in statutory effective tax rates. The year ended December 31, 2016 also includes a non-deductible impairment of goodwill on Europe vehicle rental operations.

Hertz



	Years Ended December 31,
	2017		2016		2015
Statutory Federal Tax Rate	35	%	35	%	35	%
Foreign tax rate differential	2		2		(20	)
State and local income taxes, net of federal income tax benefit	6		3		(5	)
Change in state statutory rates, net of federal income tax benefit	6		(7	)	5
Tax Reform	119		—		—
Federal and foreign permanent differences	—		(1	)	5
Withholding taxes	(2	)	(2	)	5
Uncertain tax positions	—		—		(5	)
Change in valuation allowance	(7	)	(11	)	(35	)
Benefit from sale of non-U.S. operations	—		—		17
Change in foreign statutory rates	—		(3	)	1
Goodwill impairment	—		(12	)	—
Sale of CAR Inc. common stock	—		—		14
Stock option shortfalls	(1	)	(3	)	—
All other items, net	—		(2	)	(4	)
Effective Tax Rate	158	%	(1	)%	13	%

The effective tax rate for the year ended December 31, 2017 was 158% as compared to (1)% for the year ended December 31, 2016, with an income tax benefit of $902 million and an income tax provision of $4 million, respectively. The $906 million decrease in the tax provision is largely due to the benefit from the TCJA in 2017 and the provision of goodwill impairment in 2016. In addition, contributing factors to the reduced tax expense include a decrease in pretax operating results, the composition of operating results by jurisdiction, a change in the state statutory effective tax rates, and an increase in the valuation allowance relating to losses in certain U.S. and non-U.S. jurisdictions.

Hertz Global and Hertz

The TCJA implemented a one-time transition tax on all accumulated foreign earnings not previously taxed in the U.S. Taxpayers must measure accumulated foreign earnings as of November 2, 2017 and December 31, 2017 and will be taxed on the higher amount. The law permits the accumulated earnings in one foreign subsidiary to be offset by an earnings deficit in an affiliated foreign subsidiary. In accordance with guidance issued under SAB 118, the Company has determined that, on a worldwide basis, it is in an earnings deficit position, resulting in no transition tax liability. The TCJA also enacted a 100% deduction for U.S. corporations receiving foreign-source dividends from corporations of which it owns at least 10%. While the dividends received deduction allows distributions from foreign subsidiaries to be free of U.S. federal tax, such distributions may still be subject to foreign income or withholding tax and state tax. We continue to evaluate whether to assert indefinite reinvestment on a part or all of our foreign earnings as of December 31, 2017 and will record the tax effects of any change in our provision amounts in accordance with guidance issued under SAB 118.

As of December 31, 2017, total unrecognized tax benefits were $43 million, of which $14 million, if settled, would positively impact the effective tax rate in future periods because of correlative adjustments associated with these liabilities. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(In millions)	2017			2016			2015
Balance at January 1	$	45		$	81		$	57
Increase (Decrease) attributable to tax positions taken during prior periods	(2		)	(35		)	16
Increase (Decrease) attributable to tax positions taken during the current year	3			—			9
Decrease attributable to settlements with taxing authorities	(3		)	(1		)	(1		)
Balance at December 31	$	43		$	45		$	81

The Company conducts business globally and, as a result, files one or more income tax returns in the U.S. and non-U.S. jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The open tax years for these jurisdictions span from 2003 to 2016. The Internal Revenue Service completed their audit of the Company's 2007 to 2009 and surveyed 2010 and 2011 tax returns and had no changes to the previously filed tax returns. Currently, the Company's 2014 and 2015 tax years are under audit by the Internal Revenue Service. Several U.S. state and other non-U.S. jurisdictions are under audit. With regard to these audits, it is reasonably possible that the amount of unrecognized tax benefits may change as the result of the completion of ongoing examinations, the expiration of the statute of limitations or other unforeseen circumstances. At this time, an estimate of the range of the reasonably possible change cannot be made. It is reasonable that approximately $4 million of unrecognized tax benefits may reverse within the next twelve months due to settlement with the relevant non-U.S. taxing authorities.

Net, after-tax interest and penalties related to the liabilities for unrecognized tax benefits are classified as a component of income tax (provision) benefit in the consolidated statement of operations. During the years ended December 31, 2017, 2016 and 2015, approximately $(1) million, $1 million and $4 million, respectively, in net, after-tax interest and penalties were recognized. As of December 31, 2017 and 2016, approximately $7 million and $8 million, respectively, of net, after-tax interest and penalties were accrued in the Company's consolidated balance sheet within accrued taxes.