Note 16—Taxes

"Provision for taxes" consisted of the following:

($ in millions)	2015			2014		2013
Current taxes		1,005			1,130		1,258
Deferred taxes		(217	)		72		(136	)

Tax expense from continuing operations		788			1,202		1,122


Tax expense (benefit) from discontinued operations		(2	)		1		(8	)

Tax expense from continuing operations is reconciled below from the Company's weighted-average global tax rate (rather than from the Swiss domestic statutory tax rate) as the parent company of the ABB Group, ABB Ltd, is domiciled in Switzerland and income generated in jurisdictions outside of Switzerland (hereafter "foreign jurisdictions") which has already been subject to corporate income tax in those foreign jurisdictions is, to a large extent, tax exempt in Switzerland. There is no requirement in Switzerland for any parent company of a group to file a tax return of the consolidated group determining domestic and foreign pre-tax income. As the Company's consolidated income from continuing operations is predominantly earned outside of Switzerland, corporate income tax in foreign jurisdictions largely determines the weighted-average global tax rate of the Company.

The reconciliation of "Tax expense from continuing operations" at the weighted-average tax rate to the effective tax rate is as follows:

($ in millions, except % data)	2015			2014			2013
Income from continuing operations before taxes		2,840			3,896			4,066
Weighted-average global tax rate		21.8	%		23.8	%		22.7	%
Income taxes at weighted-average tax rate		619			929			922
Items taxed at rates other than the weighted-average tax rate		(36	)		146			110
Impact of non-deductible goodwill allocated to divested businesses		9			77			—
Changes in valuation allowance, net		57			52			31
Effects of changes in tax laws and enacted tax rates		—			(52	)		1
Other, net		139			50			58

Tax expense from continuing operations		788			1,202			1,122


Effective tax rate for the year		27.7	%		30.9	%		27.6	%

In 2015, the benefit reported in "Items taxed at rates other than the weighted-average tax rate" predominantly included $50 million related to tax credits arising from research and development activities. In 2014 and 2013, the expense reported in "Items taxed at rates other than the weighted-average tax rate" predominantly related to tax credits arising in foreign jurisdictions for which the technical merits did not allow a benefit to be taken.

In 2015, 2014 and 2013, "Changes in valuation allowance, net" included reductions in valuation allowances recorded in certain jurisdictions where the Company determined that it was more likely than not that such deferred tax assets (recognized for net operating losses and temporary differences in those jurisdictions) would be realized, as well as increases in the valuation allowance in certain other jurisdictions. In 2015, the "Changes in valuation allowance, net" included an expense of $21 million related to certain of the Company's operations in Asia. In 2014, the "Changes in valuation allowance, net" included an expense of $31 million related to certain of the Company's operations in South America and in 2013, the "Changes in valuation allowance, net" included an expense of $104 million related to certain of the Company's operations in Central Europe and South America, as well as a benefit of $42 million related to certain of the Company's operations in Central Europe.

In 2014, the "Effects of change in tax laws and enacted tax rates" included a benefit of $62 million related to enacted changes in double tax treaties.

In 2015, 2014 and 2013, "Other, net" of $139 million, $50 million and $58 million, respectively, included expenses of $52 million, $45 million and $71 million, respectively, in relation to items that were deducted for financial accounting purposes, but were not tax deductible, such as interest expense, local taxes on productive activities, disallowed meals and entertainment expenses and other similar items. In 2015, "Other, net" included a net charge of $74 million due to the interpretation of tax law and double tax treaty agreements by competent tax authorities.

In 2014, "Provision for taxes" included $279 million relating to income taxes recorded on $543 million of net gains from sale of businesses. This expense is primarily included in "Income taxes at weighted-average tax rate" and "Impact of non-deductible goodwill allocated to divested businesses".

Deferred income tax assets and liabilities consisted of the following:

	December 31,
($ in millions)	2015			2014
Deferred tax assets:
Unused tax losses and credits		623			644
Provisions and other accrued liabilities		887			825
Pension		528			671
Inventories		267			297
Property, plant and equipment and other non-current assets		282			265
Other		89			112

Total gross deferred tax asset		2,676			2,814
Valuation allowance		(606	)		(600	)

Total gross deferred tax asset, net of valuation allowance		2,070			2,214
Deferred tax liabilities:
Property, plant and equipment		(279	)		(343	)
Intangibles and other non-current assets		(721	)		(766	)
Pension and other accrued liabilities		(143	)		(191	)
Inventories		(91	)		(118	)
Other current assets		(139	)		(149	)
Unremitted earnings		(523	)		(612	)
Other		(84	)		(76	)

Total gross deferred tax liability		(1,980	)		(2,255	)

Net deferred tax asset (liability)		90			(41	)


Included in:
"Deferred taxes"—current assets		881			902
"Deferred taxes"—non-current assets		423			511
"Deferred taxes"—current liabilities		(249	)		(289	)
"Deferred taxes"—non-current liabilities		(965	)		(1,165	)

Net deferred tax asset (liability)		90			(41	)

Certain entities have deferred tax assets related to net operating loss carry-forwards and other items. As recognition of these assets in certain entities did not meet the more likely than not criterion, valuation allowances have been recorded and amount to $606 million and $600 million, at December 31, 2015 and 2014, respectively. "Unused tax losses and credits" at December 31, 2015 and 2014, in the table above, included $127 million and $151 million, respectively, for which the Company has established a full valuation allowance as, due to limitations imposed by the relevant tax law, the Company determined that, more likely than not, such deferred tax assets would not be realized.

At December 31, 2015 and 2014, deferred tax liabilities totaling $523 million and $612 million, respectively, have been provided for primarily in respect of withholding taxes, dividend distribution taxes or additional corporate income taxes (hereafter "withholding taxes") on unremitted earnings which will be payable in foreign jurisdictions on the repatriation of earnings to Switzerland. Income which has been generated outside of Switzerland and has already been subject to corporate income tax in such foreign jurisdictions is, to a large extent, tax exempt in Switzerland. Therefore, generally no or only limited Swiss income tax has to be provided for on the repatriated earnings of foreign subsidiaries.

Certain countries levy withholding taxes on dividend distributions. Such taxes cannot always be fully reclaimed by the shareholder, although they have to be declared and withheld by the subsidiary. In 2015 and 2014, certain taxes arose in certain foreign jurisdictions for which the technical merits do not allow utilization of benefits. At December 31, 2015 and 2014, foreign subsidiary retained earnings subject to withholding taxes upon distribution of approximately $500 million and $100 million, respectively, were considered as permanently reinvested, as these funds are used for financing current operations as well as business growth through working capital and capital expenditure in those countries and, consequently, no deferred tax liability was recorded.

At December 31, 2015, net operating loss carry-forwards of $2,144 million and tax credits of $92 million were available to reduce future taxes of certain subsidiaries. Of these amounts, $1,285 million of loss carry-forwards and $73 million of tax credits will expire in varying amounts through 2035. The largest amount of these carry-forwards related to the Company's Central Europe operations.

Unrecognized tax benefits consisted of the following:

($ in millions)	Unrecognized tax benefits			Penalties and interest related to unrecognized tax benefits			Total
Classification as unrecognized tax items on January 1, 2013		669			127			796
Net change due to acquisitions and divestments		17			2			19
Increase relating to prior year tax positions		43			36			79
Decrease relating to prior year tax positions		(30	)		—			(30	)
Increase relating to current year tax positions		90			4			94
Decrease relating to current year tax positions		(1	)		—			(1	)
Decrease due to settlements with tax authorities		(18	)		(5	)		(23	)
Decrease as a result of the applicable statute of limitations		(46	)		(13	)		(59	)
Exchange rate differences		9			3			12

Balance at December 31, 2013, which would, if recognized, affect the effective tax rate		733			154			887
Net change due to acquisitions and divestments		(3	)		1			(2	)
Increase relating to prior year tax positions		25			39			64
Decrease relating to prior year tax positions		(24	)		(7	)		(31	)
Increase relating to current year tax positions		85			—			85
Decrease relating to current year tax positions		(1	)		—			(1	)
Decrease due to settlements with tax authorities		(19	)		(10	)		(29	)
Decrease as a result of the applicable statute of limitations		(36	)		(19	)		(55	)
Exchange rate differences		(55	)		(12	)		(67	)

Balance at December 31, 2014, which would, if recognized, affect the effective tax rate		705			146			851
Increase relating to prior year tax positions		52			38			90
Decrease relating to prior year tax positions		(33	)		(3	)		(36	)
Increase relating to current year tax positions		155			—			155
Decrease due to settlements with tax authorities		(38	)		(13	)		(51	)
Decrease as a result of the applicable statute of limitations		(62	)		(15	)		(77	)
Exchange rate differences		(35	)		(8	)		(43	)

Balance at December 31, 2015, which would, if recognized, affect the effective tax rate		744			145			889

In 2015, 2014 and 2013, the "Increase relating to current year tax positions" included a total of $127 million, $56 million and $62 million, respectively, in taxes related to the interpretation of tax law and double tax treaty agreements by competent tax authorities.

At December 31, 2015, the Company expected the resolution, within the next twelve months, of uncertain tax positions related to pending court cases amounting to $17 million for taxes, penalties and interest. Otherwise, the Company had not identified any other significant changes which were considered reasonably possible to occur within the next twelve months.

At December 31, 2015, the earliest significant open tax years that remained subject to examination were the following:

Region	Year
Europe		2007
The Americas		2012
Asia, Middle East & Africa		2006