Income Taxes

The components of Income before income taxes are as follows for the years ended December 31:



	2018		2017		2016
United States	$	1,175	$	1,072	$	1,191
International	2,289		2,415		2,547
Total Income before income taxes	$	3,464	$	3,487	$	3,738

The Provision for income taxes consists of the following for the years ended December 31:



	2018		2017		2016
United States	$	248	$	338	$	395
International	658		975		757
Total Provision for income taxes	$	906	$	1,313	$	1,152

Temporary differences between accounting for financial statement purposes and accounting for tax purposes result in the current provision for taxes being higher (lower) than the total provision for income taxes as follows:



	2018			2017			2016
Goodwill and intangible assets	$	2		$	135		$	18
Property, plant and equipment	(15		)	84			(3		)
Pension and other retiree benefits	(7		)	(192		)	—
Stock-based compensation	9			(28		)	15
Tax credits and tax loss carryforwards	(4		)	(4		)	5
Deferred withholding tax	(100		)	(119		)	—
Other, net	62			16			(106		)
Total deferred tax benefit (provision)	$	(53	)	$	(108	)	$	(71	)

The difference between the statutory U.S. federal income tax rate and the Company’s global effective tax rate as reflected in the Consolidated Statements of Income is as follows:



Percentage of Income before income taxes	2018		2017		2016
Tax at United States statutory rate	21.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.0		0.5		0.5
Earnings taxed at other than United States statutory rate	4.5		(3.4	)	(2.7	)
Charge for U.S. tax reform⁽¹⁾	2.3		7.9		—
Excess tax benefits from stock-based compensation⁽²⁾	(0.3	)	(1.4	)	—
Foreign Tax Credit Carryback⁽⁵⁾	(1.7	)	—		—
(Benefit) charge for foreign tax matters⁽³⁾	(0.4	)	—		(0.8	)
(Benefit) from Venezuela remeasurement⁽⁴⁾	—		—		(5.6	)
Tax charge on incremental repatriation of foreign earnings⁽⁴⁾	—		—		5.6
Other, net	(0.2	)	(0.9	)	(1.2	)
Effective tax rate	26.2	%	37.7	%	30.8	%

_________

⁽¹⁾

On December 22, 2017, the TCJA was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, the TCJA also requires a minimum tax on certain earnings generated by foreign subsidiaries while providing for tax-free repatriation of such earnings through a 100% dividends-received deduction. The Company’s effective income tax rate in 2017 included a provisional charge of $275, recorded in the fourth quarter of 2017, based on its initial analysis of the TCJA using information and estimates available as of February 15, 2018, the date on which the Company filed its Annual Report on Form 10-K for the year ended December 31, 2017. During 2018, the Company finalized its assessment of the impact of the TCJA and recognized an additional tax expense of $80 reflecting the impact of transition tax guidance issued by the U.S. Treasury and the update of certain estimates and calculations based on information available through the end of 2018. Any further guidance issued after December 31, 2018 may have an impact to the Company’s Provision for income tax in the period such guidance is effective.

⁽²⁾

As a result of adopting ASU No. 2016-09 “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” effective January 1, 2017, the Company recognized excess tax benefits from stock-based compensation of $12 and $47 (resulting from an increase in the fair value of an award from the grant date to the vesting or exercise date, as applicable) in the Provision for income taxes as a discrete item during the years ended December 31, 2018 and 2017, respectively. These amounts may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits from stock-based compensation recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to January 1, 2017, excess tax benefits from stock-based compensation were recognized in equity. See Note 2, Summary of Significant Accounting Policies - Recent Accounting Pronouncements for additional information.


⁽³⁾	The benefit from a tax matter in 2016 relates to several Supreme Court and Administrative Court rulings in a foreign jurisdiction allowing certain tax deductions which had the effect of reversing prior decisions.

⁽⁴⁾

The effective tax rate in 2016 included a $210 U.S. income tax benefit principally related to changes in Venezuela’s foreign exchange regime implemented in March 2016. Although, effective December 31, 2015, the operating results of the Company’s Venezuelan subsidiary (“CP Venezuela”) are no longer included in the Company’s Consolidated Financial Statements, under current tax rules, the Company is required to continue including CP Venezuela’s results in its consolidated U.S. federal income tax return. In order to fully utilize the above mentioned $210 tax benefit in 2016, the Company repatriated an incremental $1,500 of earnings of foreign subsidiaries it previously considered indefinitely reinvested outside of the U.S., and accordingly, recorded a tax charge of $210.


⁽⁵⁾	In 2018, the Company generated excess foreign taxes associated with its foreign branch operations which are being carried back to 2017. This item is not expected to be recurring.

The components of deferred tax assets (liabilities) are as follows at December 31:



	2018			2017
Deferred tax liabilities:
Goodwill and intangible assets	$	(344	)	$	(311	)
Property, plant and equipment	(311		)	(306		)
Deferred withholding tax	(181		)	(119		)
Other	(75		)	(63		)
Total deferred tax liabilities	(911		)	(799		)
Deferred tax assets:
Pension and other retiree benefits	354			375
Tax credits and tax loss carryforwards	89			48
Accrued liabilities	180			197
Stock-based compensation	95			90
Other	164			82
Total deferred tax assets	882			792
Valuation Allowance	$	(54	)	$	(9	)
Net deferred tax assets	$	828		$	783
Net deferred income taxes	$	(83	)	$	(16	)



	2018			2017
Deferred taxes included within:
Assets:
Deferred income taxes	$	152		$	188
Liabilities:
Deferred income taxes	(235		)	(204		)
Net deferred income taxes	$	(83	)	$	(16	)

Applicable U.S. income and foreign withholding taxes have been provided on substantially all of the Company’s accumulated earnings of foreign subsidiaries.

Net tax benefit of $2 in 2018, net tax benefit of $37 in 2017, and net tax benefit of $85 in 2016 were recorded directly through equity. The net tax benefit in 2018 predominantly includes current and future tax impacts related to benefit plans. The amounts in 2017 and 2016 include current and future tax impacts related to employee equity compensation and benefit plans.

The Company uses a comprehensive model to recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on an income tax return.

Unrecognized tax benefits activity for the years ended December 31, 2018, 2017 and 2016 is summarized below:



	2018			2017			2016
Unrecognized tax benefits:
Balance, January 1	$	214		$	201		$	186
Increases as a result of tax positions taken during the current year	14			13			9
Decreases of tax positions taken during prior years	(37		)	(9		)	(45		)
Increases of tax positions taken during prior years	9			15			71
Decreases as a result of settlements with taxing authorities and the expiration of statutes of limitations	(6		)	(15		)	(18		)
Effect of foreign currency rate movements	(4		)	9			(2		)
Balance, December 31	$	190		$	214		$	201

If all of the unrecognized tax benefits for 2018 above were recognized, approximately $180 would impact the effective tax rate and would result in a cash outflow of approximately $186. Although it is possible that the amount of unrecognized benefits with respect to our uncertain tax positions will increase or decrease in the next 12 months, the Company does not expect material changes.

The Company recognized approximately $1 of interest benefit and approximately $11 and $2 of interest expense related to the above unrecognized tax benefits within income tax expense in 2018, 2017 and 2016, respectively. The Company had accrued interest of approximately $27, $28 and $17 as of December 31, 2018, 2017 and 2016, respectively.

The Company and its subsidiaries file U.S. federal income tax returns as well as income tax returns in many state and foreign jurisdictions. All U.S. federal income tax returns through December 31, 2011 have been audited by the IRS and there are limited matters which the Company plans to appeal for years 2010 through 2011, the settlement of which is not expected to have a material adverse effect on the Company’s results of operations, cash flows or financial condition. With a few exceptions, the Company is no longer subject to U.S. state and local income tax examinations for income tax returns through December 31, 2013. In addition, the Company has subsidiaries in various foreign jurisdictions that have statutes of limitations for tax audits generally ranging from three to six years.

The Company has made an accounting policy election to treat Global Intangible Low-Taxed Income taxes as a current period expense rather than including these amounts in the measurement of deferred taxes.