Income Taxes


A.	Taxes on Income

The effective tax rate was 29.1% for the three months ended April 2, 2017, compared with 38.6% for the three months ended April 3, 2016. The lower effective tax rate for the three months ended April 2, 2017, was primarily attributable to:

•

a $35 million net discrete tax expense recorded in the first quarter of 2016, related to changes in uncertain tax positions due to the impact of the European Commission’s negative decision on the excess profits rulings in Belgium, partially offset by a revaluation of the company's deferred tax assets and liabilities using the Belgium tax rates expected to be in place going forward as a result of the decision; and


•	changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items.

The effective tax rate for the three months ended April 2, 2017, also includes a $5 million discrete tax benefit related to the excess tax benefits for share-based payments to be recognized as a component of Provision for taxes on income and a $3 million discrete tax benefit related to a revaluation of deferred taxes as a result of a change in statutory tax rates, partially offset by a $6 million discrete tax expense related to prior period tax adjustments.

The effective tax rate for the three months ended April 3, 2016, also included a $10 million discrete tax benefit related to a revaluation of deferred taxes as a result of a change in statutory tax rates, and a $4 million discrete tax benefit related to the excess tax benefits for share-based payments to be recognized as a component of Provision for taxes on income.


B.	Deferred Taxes

As of April 2, 2017, the total net deferred income tax liability of $175 million is included in Deferred tax assets ($97 million) and Deferred tax liabilities ($272 million).

As of December 31, 2016, the total net deferred income tax liability of $148 million is included in Deferred tax assets ($96 million) and Deferred tax liabilities ($244 million).


C.	Tax Contingencies

As of April 2, 2017, the tax liabilities associated with uncertain tax positions of $73 million (exclusive of interest and penalties related to uncertain tax positions of $10 million) are included in Deferred tax assets ($3 million) and Other taxes payable ($70 million).

As of December 31, 2016, the tax liabilities associated with uncertain tax positions of $68 million (exclusive of interest and penalties related to uncertain tax positions of $10 million) are included in Deferred tax assets ($3 million) and Other taxes payable ($65 million).

Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly decrease as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.