INCOME TAXES

Income before provision for income taxes for the years ended December 31, 2016, 2015, and 2014, consisted of the following (in millions):



	Years Ended December 31,
	2016		2015		2014
U.S.	$	653.0	$	425.1	$	353.0
Foreign	327.8		333.4		196.0
Total income before provision for income taxes	$	980.8	$	758.5	$	549.0

The provision for income taxes for the years ended December 31, 2016, 2015, and 2014 consisted of the following (in millions):



	Years Ended December 31,
	2016		2015			2014
Current
Federal	$	207.0	$	148.7		$	150.5
State	13.4		8.4			7.0
Foreign	5.4		7.6			7.5
	$	225.8	$	164.7		$	165.0
Deferred
Federal	$	18.3	$	7.5		$	(30.9	)
State	0.6		0.5			(0.6		)
Foreign	0.2		(3.0		)	(3.3		)
	$	19.1	$	5.0		$	(34.8	)
Total income tax expense	$	244.9	$	169.7		$	130.2

Income tax expense differs from amounts computed by applying the statutory federal income rate of 35% for the years ended December 31, 2016, 2015, and 2014 as a result of the following (in millions):



	Years Ended December 31,
	2016			2015			2014
Federal tax at statutory rate	$	343.3		$	265.5		$	192.2
Increase (reduction) in tax resulting from:
State taxes, net of federal benefits	14.0			8.9			6.4
Foreign rate differential	(86.2		)	(67.4		)	(47.4		)
Research and development credit	(7.8		)	(6.4		)	(5.0		)
Share-based compensation not benefited	3.6			6.9			7.7
Domestic production activities deduction	(8.0		)	(5.3		)	(4.6		)
Reversal of unrecognized tax benefits	(15.8		)	(6.4		)	(20.3		)
Reversal of share-based compensation from intercompany charges	—			(25.0		)	—
Other	1.8			(1.1		)	1.2
Total income tax expense	$	244.9		$	169.7		$	130.2

Deferred income taxes reflect tax carry forwards and the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (in millions):



	December 31,
	2016			2015
Deferred tax assets:
Share-based compensation expense	$	122.2		$	140.5
Expenses deducted in later years for tax purposes	47.4			47.1
Research and other credits	15.6			13.5
Other	9.8			7.5
Gross deferred tax assets	$	195.0		$	208.6
Valuation allowance	(17.2		)	(15.2		)
Deferred tax assets	$	177.8		$	193.4
Deferred tax liabilities:
Fixed assets	$	(25.2	)	$	(24.0	)
Intangible assets	(2.3		)	(2.0		)
Other	(0.2		)	(0.5		)
Deferred tax liabilities	$	(27.7	)	$	(26.5	)
Net deferred tax assets	$	150.1		$	166.9

The Company has not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of its foreign subsidiaries as of December 31, 2016, because the Company intends to indefinitely reinvest such earnings outside the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability may be reduced by any foreign income taxes previously paid on these earnings. As of December 31, 2016, the cumulative amount of earnings upon which U.S. income taxes have not been provided was approximately $1,454.2 million. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable at this time. The Company has a tax holiday in effect for its business operations in Switzerland which will continue until the end of year 2017 to the extent certain terms and conditions continue to be met. This tax holiday provides for a lower rate of taxation in Switzerland based on various thresholds of investment and employment in such jurisdiction. As of December 31, 2016, the Company remained in compliance with the terms of the holiday. At the end of the tax holiday, Swiss taxable income may be taxed at a higher rate depending on the applicable federal and cantonal rules. Tax benefit from the Swiss tax holiday for the year ended December 31, 2016, was approximately $10.0 million, or $0.25 per diluted share.

As of December 31, 2016, and 2015, the Company had valuation allowances of $17.2 million and $15.2 million, respectively, primarily related to California deferred tax assets generated by California R&D credit forwards which have no expiration period. The Company recorded a valuation allowance against its California deferred tax assets as it is more likely than not these deferred tax assets will not be realized as a result of the computation of California taxes under the single sales factor.

The Company recorded a net increase of its gross unrecognized tax benefits of approximately $13.6 million during the year ended December 31, 2016. The net increase was primarily due to increases related to 2016 uncertain tax positions, partially offset by the reversal of gross unrecognized tax benefits in connection with the expiration of certain statutes of limitation in various jurisdictions. The Company had gross unrecognized tax benefits of approximately $106.0 million, $92.4 million, and $75.5 million as of December 31, 2016, 2015, and 2014, respectively, which if recognized, would result in a reduction of the Company’s effective tax rate. The Company included interest expense accrued on unrecognized tax benefits as a component of its income tax expense. As of December 31, 2016, 2015, and 2014, gross interest related to unrecognized tax benefits accrued was approximately $3.7 million, $2.9 million, and $2.5 million, respectively. The Company classified a majority of its net unrecognized tax benefits and related interest in Other accrued liabilities on the Consolidated Balance Sheets.

A reconciliation of the beginning and ending amounts of gross unrecognized income tax benefits for the years ended December 31, 2016, 2015, and 2014 are as follows (in millions):



	Years Ended December 31,
	2016			2015			2014
Beginning balance	$	92.4		$	75.5		$	74.0
Increases related to tax positions taken during the current year	29.9			28.9			22.3
Increases related to tax positions taken during a prior year	—			0.3			—
Decreases related to tax positions taken during a prior year	(0.5		)	—			—
Decreases related to settlements with tax authorities	—			(11.4		)	(19.1		)
Decreases related to expiration of statute of limitations	(15.8		)	(0.9		)	(1.7		)
Ending balance	$	106.0		$	92.4		$	75.5

The Company files federal, state and foreign income tax returns in many U.S. and OUS jurisdictions. Years before 2013 are closed for the significant jurisdictions. Certain of the Company’s unrecognized tax benefits could change due to activities of various tax authorities, including potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect the Company’s effective tax rate in the period in which they change. While it is reasonably possible that a benefit could be recorded, due to the uncertainty related to the timing and potential outcome of audits, the Company cannot estimate the range of reasonably possible change in unrecognized tax benefits that may occur in the next 12 months.

The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. The outcome of these audits cannot be predicted with certainty. The Company's management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the Company’s provision for income taxes. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.