16. Income Taxes

Our operations are conducted through our various subsidiaries in a number of countries throughout the world. We have provided for income taxes based upon the tax laws and rates in the countries in which our operations are conducted and income and loss from operations is subject to taxation.

Significant components of the income tax provision (benefit) were as follows:

	Fiscal
	2015			2014			2013
	(in millions)
Current income tax provision (benefit):
U.S.:
Federal	$	(67	)	$	128		$	(296	)
State		12			(3	)		(85	)
Non-U.S.		352			302			292

		297			427			(89	)

Deferred income tax provision (benefit):
U.S.:
Federal		87			(311	)		31
State		5			(3	)		(4	)
Non-U.S.		(52	)		33			(13	)

		40			(281	)		14

Provision (benefit) for income taxes	$	337		$	146		$	(75	)

The U.S. and non-U.S. components of income from continuing operations before income taxes were as follows:

	Fiscal
	2015			2014			2013
	(in millions)
U.S.	$	(31	)	$	(133	)	$	(354	)
Non-U.S.		1,606			1,893			1,434

Income from continuing operations before income taxes	$	1,575		$	1,760		$	1,080

The reconciliation between U.S. federal income taxes at the statutory rate and provision (benefit) for income taxes on continuing operations was as follows:

	Fiscal
	2015			2014			2013
	(in millions)
Notional U.S. federal income tax provision at the statutory rate	$	551		$	616		$	378
Adjustments to reconcile to the income tax provision (benefit):
U.S. state income tax provision (benefit), net		11			(4	)		(58	)
Other (income) expense—Tax Sharing Agreement		18			(23	)		64
Tax law changes		10			(1	)		—
Tax credits		(9	)		(8	)		(10	)
Non-U.S. net earnings(1)		(275	)		(287	)		(256	)
Nondeductible charges		2			3			—
Change in accrued income tax liabilities		(183	)		112			(164	)
Valuation allowance		(3	)		(239	)		(30	)
Legal entity restructuring		211			—			—
Other		4			(23	)		1

Provision (benefit) for income taxes	$	337		$	146		$	(75	)


(1)	Excludes nondeductible charges and other items which are broken out separately in the table.

The tax provision for fiscal 2015 reflects an income tax benefit of $264 million related to the effective settlement of all undisputed tax matters for the years 2001 through 2010, partially offset by $216 million of income tax charges associated with the tax impacts of certain intercompany legal entity restructurings made in connection with our integration of Measurement Specialties. Also, the tax provision for fiscal 2015 reflects an income tax charge of $29 million associated with the tax impacts of certain intercompany dividends related to the restructuring and sale of BNS.

The tax provision for fiscal 2014 reflects income tax benefits of $282 million recognized in connection with a reduction in the valuation allowance associated with certain tax loss carryforwards relating to ADC Telecommunications, Inc. ("ADC"), partially offset by an income tax charge related to adjustments to prior year income tax returns.

In fiscal 2014, we acquired SEACON, and its U.S. operations were combined with our ADC U.S. federal consolidated tax group. In addition, the ADC U.S. tax group was combined with other U.S. legal entities and assets. We reassessed the realization of the revised ADC U.S. tax group's tax loss and credit carryforwards. Based upon management's review of forecasted future taxable income of the reorganized combined tax group, we believed it was more likely than not that a tax benefit would be realized on additional U.S. federal and state net operating losses. Accordingly, we reduced the valuation allowance and recorded a tax benefit of $282 million.

The tax benefit for fiscal 2013 reflects an income tax benefit of $331 million related to the effective settlement of all undisputed tax matters for the years 1997 through 2000. In addition, the tax benefit for fiscal 2013 reflects $23 million of net tax benefits consisting primarily of income tax benefits recognized in connection with a reduction in the valuation allowance associated with certain ADC tax loss carryforwards and income tax benefits recognized in connection with the lapse of statutes of limitations for examinations of prior year income tax returns, partially offset by income tax expense related to adjustments to prior year income tax returns.

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax asset were as follows:

	Fiscal Year End
	2015			2014
	(in millions)
Deferred tax assets:
Accrued liabilities and reserves	$	262		$	262
Tax loss and credit carryforwards		4,856			3,356
Inventories		57			52
Pension and postretirement benefits		295			282
Deferred revenue		17			12
Interest		394			358
Unrecognized income tax benefits		378			391
Other		4			27

		6,263			4,740

Deferred tax liabilities:
Intangible assets		(809	)		(835	)
Property, plant, and equipment		(1	)		(10	)
Other		(89	)		(73	)

		(899	)		(918	)

Net deferred tax asset before valuation allowance		5,364			3,822
Valuation allowance		(3,237	)		(1,706	)

Net deferred tax asset	$	2,127		$	2,116

During fiscal 2015, tax loss and credit carryforwards increased due primarily to tax losses of $1,381 million (tax effected) generated in connection with the write-down of investments in subsidiaries in certain jurisdictions. The valuation allowance was increased by a corresponding amount due to the uncertainty of the future realization of these tax losses.

At fiscal year end 2015, we had approximately $1,363 million of U.S. federal and $125 million of U.S. state net operating loss carryforwards (tax effected) which will expire in future years through 2035. In addition, at fiscal year end 2015, we had approximately $194 million of U.S. federal tax credit carryforwards, of which $63 million have no expiration and $131 million will expire in future years through 2035, and $40 million of U.S. state tax credits carryforwards which will expire in future years through 2030. Also, at fiscal year end 2015, we had were $20 million of U.S federal capital loss carryforwards (tax effected) which will expire in future years through 2020.

At fiscal year end 2015, we had approximately $3,068 million of net operating loss carryforwards (tax effected) in certain non-U.S. jurisdictions, of which $3,005 million have no expiration and $63 million will expire in future years through 2035. Also, at fiscal year end 2015, there were $1 million of non-U.S. tax credit carryforwards which have no expiration. In addition, we had approximately $45 million of non-U.S. capital loss carryforwards (tax effected), of which $38 million have no expiration and $7 million will expire in future years through 2020.

The valuation allowance for deferred tax assets of $3,237 million and $1,706 million at fiscal year end 2015 and 2014, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets, primarily tax loss, capital loss, and credit carryforwards in various jurisdictions. We believe that we will generate sufficient future taxable income to realize the income tax benefits related to the remaining net deferred tax assets on the Consolidated Balance Sheet. At fiscal year end 2015, approximately $151 million of the valuation allowance relates to share-based compensation and will be recorded to equity if certain net operating losses and tax credit carryforwards are utilized.

We have provided income taxes for earnings that are currently distributed as well as the taxes associated with several subsidiaries' earnings that are expected to be distributed in the future. No additional provision has been made for Swiss or non-Swiss income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as such earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or we have concluded that no additional tax liability will arise as a result of the distribution of such earnings. As of September 25, 2015, certain subsidiaries had approximately $19 billion of cumulative undistributed earnings that have been retained indefinitely and reinvested in our global manufacturing operations, including working capital; property, plant, and equipment; intangible assets; and research and development activities. A liability could arise if our intention to permanently reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries. As of September 25, 2015, we had approximately $5.2 billion of cash, cash equivalents, and intercompany deposits, principally in our subsidiaries, that we have the ability to distribute to TEGSA, our Luxembourg subsidiary, which is the obligor of substantially all of our debt, and to TE Connectivity Ltd., our Swiss parent company, but we consider to be permanently reinvested. We estimate that up to approximately $1.7 billion of tax expense would be recognized on the Consolidated Financial Statements if our intention to permanently reinvest these amounts were to change. Our current plans do not demonstrate a need to repatriate cash, cash equivalents, and intercompany deposits that are designated as permanently reinvested in order to fund our operations, including investing and financing activities.

Uncertain Tax Position Provisions of ASC 740

As of September 25, 2015, we had total unrecognized income tax benefits of $1,368 million. If recognized in future years, $1,291 million of these currently unrecognized income tax benefits would impact the income tax provision and effective tax rate. As of September 26, 2014, we had total unrecognized income tax benefits of $1,595 million. If recognized in future years, $1,450 million of these unrecognized income tax benefits would impact the income tax provision and effective tax rate. The following table summarizes the activity related to unrecognized income tax benefits:

	Fiscal
	2015			2014			2013
	(in millions)
Balance at beginning of fiscal year	$	1,595		$	1,617		$	1,794
Additions related to prior periods tax positions		24			22			88
Reductions related to prior periods tax positions		(291	)		(57	)		(271	)
Additions related to current period tax positions		97			32			87
Acquisitions		—			7			—
Settlements		(29	)		(14	)		(8	)
Reductions due to lapse of applicable statute of limitations		(28	)		(12	)		(73	)

Balance at end of fiscal year	$	1,368		$	1,595		$	1,617

We record accrued interest as well as penalties related to uncertain tax positions as part of the provision for income taxes. As of September 25, 2015, we had recorded $1,076 million of accrued interest and penalties related to uncertain tax positions on the Consolidated Balance Sheet, of which $1,073 million was recorded in income taxes and the remainder was recorded in accrued and other current liabilities. As of September 26, 2014, the balance of accrued interest and penalties was $1,136 million, of which $1,115 million was recorded in income taxes and the remainder was recorded in accrued and other current liabilities. During fiscal 2015, 2014, and 2013, we recognized expense of $7 million, expense of $99 million, and benefits of $247 million, respectively, related to interest and penalties on the Consolidated Statements of Operations.

We file income tax returns on a unitary, consolidated, or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 4 years. Various state and local income tax returns are currently in the process of examination or administrative appeal.

Our non-U.S. subsidiaries file income tax returns in the countries in which they have operations. Generally, these countries have statutes of limitations ranging from 3 to 10 years. Various non-U.S. subsidiary income tax returns are currently in the process of examination by taxing authorities.

As of September 25, 2015, under applicable statutes, the following tax years remained subject to examination in the major tax jurisdictions indicated:

Jurisdiction	Open Years
Belgium		2014 through 2015
Brazil		2010 through 2015
Canada		2008 through 2015
China		2005 through 2015
Czech Republic		2010 through 2015
France		2012 through 2015
Germany		2008 through 2015
Hong Kong		2009 through 2015
Hungary		2009 through 2015
India		2008 through 2015
Italy		2009 through 2015
Japan		2009 through 2015
Korea		2007 through 2015
Luxembourg		2010 through 2015
Mexico		2009 through 2015
Netherlands		2011 through 2015
Portugal		2012 through 2015
Singapore		2010 through 2015
Spain		2011 through 2015
Switzerland		2010 through 2015
United Kingdom		2013 through 2015
U.S.—federal and state and local		1997 through 2015

In most jurisdictions, taxing authorities retain the ability to review prior tax years and to adjust any net operating loss and tax credit carryforwards from these years that are utilized in a subsequent period.

Although it is difficult to predict the timing or results of our worldwide examinations, we estimate that up to approximately $60 million of unrecognized income tax benefits, excluding the impact relating to accrued interest and penalties, could be resolved within the next twelve months. See Note 13 for additional information regarding the status of IRS examinations.

We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the Consolidated Balance Sheet as of September 25, 2015.