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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

The components of income tax expense (benefit) for the years ended December 31 included in Credco’s Consolidated Statements of Income were as follows:

(Millions)				2017		2016		2015
Current income tax expense (benefit):
	U.S. federal ^(a)		$	785	$	(4)	$	15
	U.S. state and local			15		(6)		(4)
	Non-U.S.			24		11		20
		Total current income tax expense		824		1		31
Deferred income tax expense (benefit) :
	U.S. federal ^(b)			58		10		(5)
	U.S. state and local			1		1		―
	Non-U.S.			(5)		3		12
		Total deferred income tax expense		54		14		7
Total income tax expense			$	878	$	15	$	38

2017 includes a charge of $737 million related to the Tax Act deemed repatriation tax on certain non-U.S. earnings.
2017 includes charges related to the Tax Act of $16 million due to the remeasurement of certain federal net deferred tax assets to the lower federal tax rate of 21 percent and $105 million due to deferred state income and foreign withholding tax consequences of future cash distributions from non-U.S. subsidiaries.

Effective income tax rate

A reconciliation of the U.S. federal statutory rate of 35 percent to Credco’s actual income tax rate for the years ended December 31 was as follows:

		2017		2016		2015
U.S. statutory federal income tax rate		35.0	%	35.0	%	35.0	%
(Decrease) increase in taxes resulting from:
	State and local income taxes, net of federal benefit	(0.3)		(0.5)		―
	Non-U.S. subsidiaries earnings^(a)	(25.7)		(25.1)		(25.5)
	Tax Settlements^(b)	(1.1)		(1.4)		(0.4)
	U.S. Tax Act^(c)	311.6		―		―
	Other^(d)	(0.2)		(0.9)		6.0
Actual tax rate		319.3	%	7.1	%	15.1	%

Results for all years include recurring permanent tax benefits, in relation to the level of pretax income. Expenses in the United States are attracting a 35 percent statutory benefit whereas foreign earnings are taxed at lower rates and were indefinitely reinvested prior to the impacts of the Tax Act in 2017 (refer footnote (c)). Credco’s effective tax rate reflects the favorable impact of the tax benefit related to its ongoing funding activities outside of the United States.
Relates to the resolution of tax matters in various jurisdictions.
Relates to the $858 million charge for the impacts of the Tax Act.
Results for 2016 and 2015 include the impact of prior year tax returns filed in the current year.

Components of deferred tax assets and liabilities

The significant components of deferred tax assets and liabilities as of December 31 are reflected in the following table:

(Millions)				2017		2016
Deferred tax assets:
	Reserves not yet deducted for tax purposes		$	26	$	23
	State income taxes			5		9
	Foreign exchange loss			7		―
	Other			―		1
		Gross deferred tax assets		38		33
Deferred tax liabilities:
	Investment in foreign subsidiaries^(a)			105		―
	Foreign exchange gain			―		8
		Gross deferred tax liabilities		105		8
Net deferred tax assets			$	(67)	$	25

Deferred state income and foreign withholding tax consequences of future cash distributions from non-U.S. subsidiaries.

Changes in unrecognized tax benefits

The following table presents changes in unrecognized tax benefits:

(Millions)				2017		2016		2015
Balance, January 1			$	308	$	211	$	364
	Increases:
		Current year tax positions		8		79		2
		Tax positions related to prior years		―		24		1
	Decreases:
		Tax positions related to prior years ^(a)		(289)		(1)		(152)
		Settlements with tax authorities		―		(1)		―
		Lapse of statute of limitations		(3)		(4)		(4)
Balance, December 31			$	24	$	308	$	211

Decrease due to the resolution with the IRS of an uncertain tax position in January 2017, which resulted in the recognition of $289 million in shareholders’ equity, specifically within AOCI.

Deemed repatriation tax payments due by year

		Payments due by year
(Millions)		2018		2019 - 2020		2021 - 2022		2023 and thereafter		Total
Deemed repatriation tax^(a)	$	-	$	122	$	116	$	491	$	729

(a) Represents Credco’s estimated obligation under the Tax Act to pay the deemed repatriation tax to American Express on certain non-U.S. earnings over eight years, which has been calculated on a provisional basis. This amount does not reflect other related non-cash accruals.