7. Income Taxes

The domestic and foreign pretax (loss) income from continuing operations is as follows:

	Fiscal Year Ended		Fiscal Year Ended			Fiscal Year Ended
	September 30,		September 30,			September 30,
	2016		2015			2014
	(in millions)
Domestic	$	35	$	(18	)	$	(153	)
Foreign		6		(57	)		(176	)
Total	$	41	$	(75	)	$	(329	)

Current and deferred income taxes (tax benefits) provided are as follows:

	Fiscal Year Ended			Fiscal Year Ended			Fiscal Year Ended
	September 30,			September 30,			September 30,
	2016			2015			2014
	(in millions)
Federal:
Current	$	—		$	—		$	—
Deferred		3			4			(7	)
Foreign:
Current (a)		39			40			35
Deferred		(30	)		(33	)		(55	)
U.S. State:
Current		3			3			(6	)
Deferred		(4	)		(1	)		7
Total	$	11		$	13		$	(26	)

(a)	Includes withholding taxes of $17 million, $13 million and $11 million for the fiscal year ended September 30, 2016, for the fiscal year ended September 30, 2015, and for the fiscal year ended September 30, 2014, respectively.

The differences between the U.S. federal statutory income tax rate of 35% and income taxes provided are as follows:

	Fiscal Year Ended			Fiscal Year Ended			Fiscal Year Ended
	September 30,			September 30,			September 30,
	2016			2015			2014
	(in millions)
Taxes on income at the U.S. federal statutory rate	$	14		$	(26	)	$	(115	)
U.S. state and local taxes		(1	)		2			1
Foreign income taxed at different rates, including withholding taxes		12			11			(15	)
Increase in valuation allowance		19			34			101
Release of valuation allowance		(26	)		(5	)		(3	)
Change in tax rates		(10	)		(2	)		1
Other		3			(1	)		4
Total income tax (benefit) expense	$	11		$	13		$	(26	)

For the fiscal year ended September 30, 2016 and for the fiscal year ended September 30, 2015, the Company incurred losses in certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized. The balance of the U.S. tax attributes remaining at September 30, 2016 continues to be offset by a full valuation allowance as the Company has determined that it is more likely than not that these attributes will not be realized. Significant components of the Company’s net deferred tax assets (liabilities) are summarized below:

	September 30,			September 30,
	2016			2015
	(in millions)
Deferred tax assets:
Allowances and reserves	$	34		$	40
Employee benefits and compensation		47			47
Other accruals		82			76
Tax attribute carry forwards		475			552
Other		3			2
Total deferred tax assets		641			717
Valuation allowance		(310	)		(344	)
Net deferred tax assets		331			373
Deferred tax liabilities:
Depreciation, amortization and artist advances		(26	)		(23	)
Intangible assets		(572	)		(650	)
Total deferred tax liabilities		(598	)		(673	)
Net deferred tax liabilities	$	(267	)	$	(300	)

During the fiscal year ended September 30, 2016, the Company’s valuation allowance decreased primarily as a result of utilization of U.S. loss carryforwards and the conversion of U.S. foreign tax credits to deductions.

At September 30, 2016, the Company has U.S. federal tax net operating loss carry-forwards of $548 million, which will begin to expire in fiscal year 2027. The Company also has tax net operating loss carry-forwards, with no expiration date, in the U.K., France and Spain of $92 million, $119 million and $40 million, respectively, and other tax net operating loss carry forwards in state, local and foreign jurisdictions that expire in various periods. In addition, the Company has foreign tax credit carry-forwards for U.S. tax purposes of $147 million. During the year ended September 30, 2016 the Company converted $31 million of expiring foreign tax credits to deductions. The remaining foreign tax credits will begin to expire in fiscal year 2018.

U.S. income and foreign withholding taxes have not been recorded on indefinitely reinvested earnings of certain foreign subsidiaries of approximately $211 million at September 30, 2016. As such, no deferred income taxes have been provided for these undistributed earnings. Should these earnings be distributed, foreign tax credits and net operating losses may be available to reduce the additional federal income tax that would be payable. However, availability of these foreign tax credits is subject to limitations which make it impracticable to estimate the amount of the ultimate tax liability, if any, on these accumulated foreign earnings.

The Company classifies interest and penalties related to uncertain tax positions as a component of income tax expense. As of September 30, 2016 and September 30, 2015, the Company had accrued $3 million and $3 million of interest and penalties, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties, are as follows (in millions):

Balance at September 30, 2013	$	30
Additions for current year tax positions		10
Additions for prior year tax positions		1
Subtractions for prior year tax positions		(14	)
Balance at September 30, 2014	$	27
Additions for current year tax positions		8
Additions for prior year tax positions		9
Subtractions for prior year tax positions		(9	)
Balance at September 30, 2015	$	35
Additions for current year tax positions		7
Additions for prior year tax positions		1
Subtractions for prior year tax positions		(13	)
Balance at September 30, 2016	$	30

Included in the total unrecognized tax benefits at September 30, 2016 and 2015 are $30 million and $35 million, respectively, that if recognized, would favorably affect the effective income tax rate. The Company has determined that is reasonably possible that its existing reserve for uncertain tax positions as of September 30, 2016 could decrease by up to approximately $17 million related to various ongoing audits and settlement discussions in various foreign jurisdictions.

The Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company has completed tax audits in the U.S. for tax years ended through September 30, 2008, in the U.K. for the tax years ending through September 30, 2013, in Canada for tax years ended through September 30, 2013, in Germany for the tax years ending through September 30, 2009 and in Japan for the tax years ending through September 30, 2007. The Company is at various stages in the tax audit process in certain foreign and local jurisdictions.