Income Taxes:

Earnings before income taxes and provision for income taxes consisted of the following for the years ended December 31, 2016, 2015 and 2014:



(in millions)	2016			2015			2014
Earnings before income taxes	$	9,924		$	9,615		$	10,650
Provision for income taxes:
United States federal and state:
Current	$	(39	)	$	(56	)	$	(56	)
Deferred	293			117			162
Total United States	254			61			106
Outside United States:
Current	2,625			2,762			3,215
Deferred	(111		)	(135		)	(224		)
Total outside United States	2,514			2,627			2,991
Total provision for income taxes	$	2,768		$	2,688		$	3,097

United States income tax is primarily attributable to repatriation costs.

At December 31, 2016, applicable United States federal income taxes and foreign withholding taxes have not been provided on approximately $23 billion of accumulated earnings of foreign subsidiaries that are expected to be permanently reinvested. These earnings have been or will be invested to support the growth of PMI's international business. Further, PMI does not foresee a need to repatriate these earnings to the U.S. since its U.S. cash requirements are supported by distributions from foreign entities of earnings that have not been designated as permanently reinvested and existing credit facilities. Repatriation of earnings from foreign subsidiaries for which PMI has asserted that the earnings are permanently reinvested would result in additional U.S. income and foreign withholding taxes. The determination of the amount of deferred tax related to these earnings is not practicable due to the complexity of the U.S. foreign tax credit regime, as well as differences between earnings determined for book and tax purposes mainly resulting from intercompany transactions, purchase accounting and currency fluctuations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



(in millions)	2016			2015			2014
Balance at January 1,	$	88		$	123		$	114
Additions based on tax positions related to the current year	13			17			20
Additions for tax positions of previous years	1			6			11
Reductions for tax positions of prior years	(7		)	(42		)	(3		)
Reductions due to lapse of statute of limitations	(14		)	(7		)	(8		)
Settlements	(2		)	(1		)	(3		)
Other	—			(8		)	(8		)
Balance at December 31,	$	79		$	88		$	123

Unrecognized tax benefits and PMI’s liability for contingent income taxes, interest and penalties were as follows:



(in millions)	December 31, 2016			December 31, 2015			December 31, 2014
Unrecognized tax benefits	$	79		$	88		$	123
Accrued interest and penalties	15			28			40
Tax credits and other indirect benefits	(31		)	(40		)	(54		)
Liability for tax contingencies	$	63		$	76		$	109

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $47 million at December 31, 2016. The remainder, if recognized, would principally affect deferred taxes.

For the years ended December 31, 2016, 2015 and 2014, PMI recognized income (expense) in its consolidated statements of earnings of $13 million, $3 million and $(19) million, respectively, related to interest and penalties.

PMI is regularly examined by tax authorities around the world and is currently under examination in a number of jurisdictions. The U.S. federal statute of limitations remains open for the years 2013 and onward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2011 onward), Indonesia (2012 onward), Russia (2015 onward) and Switzerland (2016 onward).

It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits, along with related interest and penalties. An estimate of any possible change cannot be made at this time.

The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons for the years ended December 31, 2016, 2015 and 2014:



	2016		2015		2014
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
Foreign rate differences	(12.6	)	(12.3	)	(11.2	)
Dividend repatriation cost	5.8		5.7		5.0
Other	(0.3	)	(0.4	)	0.3
Effective tax rate	27.9	%	28.0	%	29.1	%

The 2016 effective tax rate decreased 0.1 percentage point to 27.9%. The change in the effective tax rate for 2016, as compared to 2015, was primarily due to earnings mix by taxing jurisdiction and repatriation cost differences.

The 2015 effective tax rate decreased 1.1 percentage points to 28.0%. The effective tax rate for 2015 was unfavorably impacted by changes to repatriation assertions on certain foreign subsidiary historical earnings ($58 million), partially offset by the recognition of tax benefits of $41 million following the conclusion of the IRS examinations of Altria's consolidated tax returns for the years 2007 and 2008 and PMI's consolidated tax returns for the years 2009 through 2011. Prior to March 28, 2008, PMI was a wholly owned subsidiary of Altria. Excluding the effect of these items, the change in the effective tax rate for 2015, as compared to 2014, was primarily due to earnings mix by taxing jurisdiction and repatriation cost differences.

The 2014 effective tax rate decreased 0.2 percentage points to 29.1%. Excluding 2013 special tax items associated with the American Taxpayer Relief Act of 2012 that was enacted in January 2013 ($17 million) and the enactment of tax law changes in Mexico during 2013 ($14 million), the change in the effective tax rate for the year ended December 31, 2014, was primarily due to earnings mix by taxing jurisdiction and repatriation cost differences.

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following:



	At December 31,
(in millions)	2016			2015
Deferred income tax assets:
Accrued postretirement and postemployment benefits	$	287		$	275
Accrued pension costs	256			230
Inventory	241			174
Accrued liabilities	137			153
Other	173			164
Total deferred income tax assets	1,094			996
Deferred income tax liabilities:
Trade names	(554		)	(593		)
Property, plant and equipment	(217		)	(218		)
Unremitted earnings	(636		)	(554		)
Foreign exchange	(725		)	(532		)
Total deferred income tax liabilities	(2,132		)	(1,897		)
Net deferred income tax liabilities	$	(1,038	)	$	(901	)