

	Year Ended December 31,
	2019			2018			2017

	(in millions)
Current tax expense (benefit):
U.S.	$	86		$	(346	)	$	(47	)
State and local	2			7			11
Foreign	879			681			594
Total current tax expense (benefit)	967			342			558
Deferred tax expense (benefit):
U.S.(1)	57			80			(2,552		)
State and local	(1		)	1			0
Foreign(1)	(76		)	399			556
Total deferred tax expense (benefit)	(20		)	480			(1,996		)
Total income tax expense (benefit) on income (loss) before equity in earnings of operating joint ventures	947			822			(1,438		)
Income tax expense (benefit) on equity in earnings of operating joint ventures	43			31			33
Income tax expense (benefit) on discontinued operations	0			0			0
Income tax expense (benefit) reported in equity related to:
Other comprehensive income (loss)	3,811			(1,812		)	784
Stock-based compensation programs	0			0			(2		)
Total income taxes	$	4,801		$	(959	)	$	(623	)



	Year Ended December 31,
	2019			2018			2017

	(in millions)
Expected federal income tax expense (benefit)	$	1,068		$	1,015		$	2,270
Non-taxable investment income	(270		)	(246		)	(369		)
Foreign taxes at other than U.S. rate	225			349			(249		)
Low-income housing and other tax credits	(118		)	(112		)	(126		)
Changes in tax law	0			(321		)	(2,858		)
Other	42			137			(106		)
Reported income tax expense (benefit)	$	947		$	822		$	(1,438	)
Effective tax rate	18.6		%	17.0		%	(22.2		)%

The effective tax rate is the ratio of “Total income tax expense (benefit)” divided by “Income before income taxes and equity in earnings of operating joint ventures.” The Company’s effective tax rate for fiscal years 2019, 2018 and 2017 was 18.6%, 17.0% and (22.2)%, respectively. The following is a description of items that had the most significant impact on the difference between the Company’s statutory U.S. federal income tax rate of 21% applicable for 2019 and 2018 and 35% applicable for 2017, and the Company’s effective tax rate during the periods presented:

Tax Act of 2017 - On December 22, 2017, the Tax Act of 2017 was enacted into U.S. law. As a result, the Company recognized a $2,880 million tax benefit in “Total income tax expense (benefit)” in the Company’s Consolidated Statements of Operations for the year ended December 31, 2017. In accordance with SEC Staff Accounting Bulletin 118, in 2017 the Company recorded the effects of the Tax Act of 2017 using reasonable estimates due to the need for further analysis of the provisions within the Tax Act of 2017 and collection, preparation and analysis of relevant data necessary to complete the accounting. During 2018, the Company completed the collection, preparation and analysis of data relevant to the Tax Act of 2017, and interpreted any additional guidance issued by the IRS, U.S. Department of the Treasury, or other standard-setting organizations, and recognized a $153 million reduction in income tax expense primarily related to refinements of our provisional estimates of earnings of affiliated foreign companies subject to the one-time toll charge.



	Twelve Months Ended December 31, 2017			Twelve Months Ended December 31, 2018			Total
	(in millions)
Deferred tax revaluation from tax law change	$	(1,592	)	$	7		$	(1,585	)
Adoption of modified territorial system	(1,785		)	(24		)	(1,809		)
Deemed repatriation	497			(136		)	361
Total provision for income tax expense (benefit)	$	(2,880	)	$	(153	)	$	(3,033	)

2018 Industry Issue Resolution (IIR). In August 2018, the IRS released a Directive to provide guidance on the tax reserving for guaranteed benefits within variable annuity contracts and principle-based reserves on certain life insurance contracts. Adopting the methodology specified in the Directive resulted in an accelerated deduction for the Company’s 2017 tax return, that would have otherwise been deductible in future years. Prior to the adoption of this Directive, the Company accounted for these future deductions as deferred tax assets measured using the current 21% corporate income tax rate. Upon adoption of the Directive, the tax benefits were revalued using the 35% tax rate applicable for the 2017 tax year and resulted in a reduction in income tax expense of $198 million.

South Korea Tax Reform Bill. On December 19, 2017, South Korea enacted a 2018 tax reform bill that adds a new 25% corporate income tax bracket for taxable income in excess of ₩300 billion for tax years beginning on or after January 1, 2018. Taxable income in excess of ₩20 billion but less than ₩300 billion continues to be subject to a 22% corporate income tax. In addition, corporations continue to be subject to a local income surtax of 10% of the computed corporate income tax before the application of tax credits and exemptions (i.e., 2.5% for the tax base in excess of ₩300 billion, 2.2% for the tax base between ₩20 billion and ₩300 billion). After taking into account this 10% local income tax surcharge on corporate tax, the 2018 tax reform bill increased the top corporate income tax rate in South Korea from 24.2% to 27.5%. As a result, the Company recognized a $26 million tax expense in 2017 related to remeasuring Korea’s deferred tax assets and liabilities.

Non-Taxable Investment Income. The U.S. Dividends Received Deduction (“DRD”) reduces the amount of dividend income subject to U.S. tax and accounts for most of the non-taxable investment income shown in the table above. More specifically, the U.S. DRD constitutes $122 million of the total $270 million of 2019 non-taxable investment income, $127 million of the total $246 million of 2018 non-taxable investment income, and $280 million of the total $369 million of 2017 non-taxable investment income. The DRD for the current period was estimated using information from 2018, current year investment results, and current year’s equity market performance. The actual current year DRD can vary based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from fund investments, changes in the account balances of variable life and annuity contracts, and the Company’s taxable income before the DRD.

Foreign Taxes at Other Than U.S. Rates. The statutory income tax rate in the Company’s two largest non-U.S. tax jurisdictions is approximately 28% in Japan and 24.2% in Korea as compared to the U.S. federal income tax rate of 21% applicable for 2019 and 2018 and 35% applicable for 2017.

The 952 Election. The Company made a tax election, effective for the 2017 and later tax years, to subject earnings from its insurance operations in Brazil to tax in the U.S. in the tax year earned, net of related foreign tax credits. This election has the effect of reducing the rate at which the Company will incur taxes on these earnings from the approximately 45% tax rate in Brazil to the 21% tax rate in the U.S., which in turn will reduce the amount of associated income tax expense in 2018 and thereafter. In conjunction with this election, the Company remeasured its related deferred tax assets from the previous 45% rate in Brazil to the new rate of 21% in the U.S., which resulted in additional income tax expense at the time of election. The net effect of the lower tax rate and the remeasurement of the deferred tax assets was a net increase in income tax expense of $34 million in 2018 and a net decrease in income tax expense of $3 million in 2019. In October 2019, the IRS issued a legal memorandum, applicable to all taxpayers, in which the IRS argues that the election became inoperable in 1998. The Company disagrees with the IRS’s position and intends to defend its position. If the Company is ultimately not successful, it will not be able to claim a U.S. tax credit for the Brazil taxes in excess of the U.S. tax rate, and thus will have a higher tax expense over time.

Low-Income Housing and Other Tax Credits. These amounts include incentives within the U.S. tax code for the development of affordable housing aiming at low-income Americans. The Company routinely makes such investments that generate a tax credit which reduces the Company’s effective tax rate.

Other. This line item represents insignificant reconciling items that are individually less than 5% of the computed expected federal income tax expense (benefit) and have therefore been aggregated for purposes of this reconciliation in accordance with relevant disclosure guidance.



	As of December 31,
	2019			2018

	(in millions)
Deferred tax assets:
Insurance reserves	$	730		$	0
Policyholders’ dividends	1,365			733
Net operating and capital loss carryforwards	189			155
Refundable AMT credits	0			205
Employee benefits	973			693
Investments	0			1,002
Other	113			39
Deferred tax assets before valuation allowance	3,370			2,827
Valuation allowance	(136		)	(117		)
Deferred tax assets after valuation allowance	3,234			2,710
Deferred tax liabilities:
Insurance reserves	0			719
Net unrealized investment gains	11,109			5,961
Deferred policy acquisition costs	3,799			3,888
Investments	138			0
Value of business acquired	262			461
Deferred tax liabilities	15,308			11,029
Net deferred tax liability	$	(12,074	)	$	(8,319	)

The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowances, will be realized.

A valuation allowance has been recorded against deferred tax assets related to federal, state and local taxes and foreign operations. Adjustments to the valuation allowance are made to reflect changes in management’s assessment of the amount of the deferred tax asset that is realizable and the amount of deferred tax asset actually realized during the year. The valuation allowance includes amounts recorded in connection with deferred tax assets as follows:



	Federal		State			Foreign Operations			Total
	(in millions)
Balance at January 1, 2017	$	0	$	138		$	25		$	163
Charged to costs and expenses	0		63			3			66
Other adjustments	0		(5		)	(10		)	(15		)
Balance at December 31, 2017	0		196			18			214
Charged to costs and expenses	0		24			(6		)	18
Other adjustments	0		(114		)	(1		)	(115		)
Balance at December 31, 2018	0		106			11			117
Charged to costs and expenses	3		34			(5		)	32
Other adjustments	0		(13		)	0			(13		)
Balance at December 31, 2019	$	3	$	127		$	6		$	136



	As of December 31,
	2019		2018

	(in millions)
Federal net operating and capital loss carryforwards(1)	$	33	$	0
State net operating and capital loss carryforwards(2)	$	2,005	$	2,152
Foreign net operating and capital loss carryforwards(3)	$	203	$	99
Federal foreign tax credit carryforwards(4)	$	4	$	0

Consistent with the Tax Act of 2017, the Company provides applicable U.S. income tax for all unremitted earnings of the Company’s foreign affiliates. For certain foreign affiliates organized in withholding tax jurisdictions, the Company considers the unremitted foreign earnings of those affiliates to be indefinitely reinvested, and therefore does not provide for the withholding tax when calculating its current and deferred tax obligations. For certain other foreign affiliates organized in withholding tax jurisdictions, the Company does not consider unremitted earnings indefinitely reinvested, and therefore provides for foreign withholding tax when calculating its current and deferred tax obligations. The following table summarizes the Company’s indefinite reinvestment assertions for jurisdictions in which the Company operates that impose a withholding tax on dividends or may be subject to other foreign country tax upon a remittance:



Unremitted earnings are indefinitely reinvested	Unremitted earnings are not indefinitely reinvested
Insurance operations in Chile, China, and Taiwan and non-insurance operations in Korea and certain operations in Luxembourg	Insurance operations in Argentina, Indonesia, and Ghana, and non-insurance operations in China, Italy and Taiwan, as well as partially for the insurance operation in Korea

During the fourth quarter of 2017, in light of and for the period after the Tax Act of 2017, the Company determined that all unremitted earnings of the Company’s foreign operations are not considered indefinitely reinvested for purposes of determining U.S. tax liability, as well as determining whether the unremitted earnings of the Company’s foreign operations are considered indefinitely reinvested for purposes of determining its foreign withholding tax liability, as described above. Prior to the enactment of the Tax Act of 2017, for the Japanese insurance operations, the Company provided for U.S. income taxes on pre-2014 U.S. GAAP earnings, post-2013 realized and unrealized capital gains, and an additional amount from Gibraltar Life and Prudential Gibraltar Financial Life Insurance Co. Ltd. (“PGFL”), not to exceed the deferred tax asset recorded in the Statement of Financial Position as of the acquisition date for PGFL and the Star and Edison Businesses. The Company had no change to its U.S. tax in “Income (loss) before equity in earnings of operating joint ventures” during 2017. During the first and second quarters of 2018,

respectively, the Company determined that the earnings of its Polish and Italian insurance operation would be repatriated to the U.S. Accordingly, earnings of the Polish and Italian insurance operations were not considered indefinitely reinvested, and the Company recognized an income tax expense of $10 million during 2018. During the first and fourth quarters of 2018, the Company determined that a portion of the earnings of its Korean insurance operation would be repatriated to the U.S. Accordingly, a portion of the earnings of the Korean insurance operation were not considered indefinitely reinvested, and the Company recognized an income tax expense of $14 million in “Income (loss) before equity in earnings of operating joint ventures” during 2018. The Company made no changes with respect to its repatriation assumptions in 2019.

The following table sets forth the undistributed earnings of foreign subsidiaries, where the Company assumes indefinite reinvestment of such earnings and for which, in 2019, 2018, and 2017, U.S. deferred taxes have not been provided, and for which, in 2017 and 2018, foreign deferred withholding taxes have not been provided. The net tax liability that may arise if the 2019 earnings were remitted can range from $0 to $235 million which includes any foreign exchange impacts.



	At December 31,
	2019		2018		2017

	(in millions)
Undistributed earnings of foreign subsidiaries (assuming indefinite reinvestment for U.S. tax purposes)(1)	N/A		N/A		N/A
Undistributed earnings of foreign subsidiaries (assuming indefinite reinvestment only for Withholding or other non-U.S. Taxes)	$	2,764	$	2,475	$	2,603

The Company’s “Income (loss) before income taxes and equity in earnings of operating joint ventures” includes income from domestic operations of $1,985 million, $1,447 million and $2,541 million, and income (loss) from foreign operations of $3,101 million, $3,387 million and $3,945 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the IRS or other taxing authorities. The completion of review or the expiration of the Federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes.



	2019			2018			2017

	(in millions)
Balance at January 1,	$	20		$	45		$	26
Increases in unrecognized tax benefits—prior years	0			20			11
(Decreases) in unrecognized tax benefits—prior years	(2		)	0			(5		)
Increases in unrecognized tax benefits—current year	0			0			14
(Decreases) in unrecognized tax benefits—current year	0			0			0
Settlements with taxing authorities	0			(45		)	(1		)
Balance at December 31,	$	18		$	20		$	45
Unrecognized tax benefits that, if recognized, would favorably impact the effective rate	$	0		$	0		$	45

The Company participates in the IRS’s Compliance Assurance Program. Under this program, the IRS assigns an examination team to review completed transactions as they occur in order to reach agreement with the Company on how they should be reported in the relevant tax returns. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner.

Some of the Company’s affiliates in Japan file a consolidated tax return, while others file separate tax returns. The Company’s affiliates in Japan are subject to audits by the local taxing authority. The general statute of limitations is five years from when the return is filed. The Japanese National Tax Service conducted tax audits of some non-insurance companies during the reporting period, which had no material impact on the Company’s 2017, 2018 or 2019 results.

The Company’s affiliates in South Korea file separate tax returns and are subject to audits by the local taxing authority. The general statute of limitations is five years from when the return is filed. In December 2019, the Korean tax authority informed Prudential of Korea that during 2020 they intend to conduct a tax audit of its 2015, 2016, and 2017 tax years.