Income Tax

Total income tax expense (benefit) is allocated as follows:



	Year Ended December 31
	2017			2016			2015
	(in millions of dollars)
Net Income	$	409.8		$	416.3		$	371.2
Stockholders' Equity - Additional Paid-in Capital
Stock-Based Compensation	—			(0.3		)	(3.6		)
Stockholders' Equity - Accumulated Other Comprehensive Income
Change in Net Unrealized Gain on Securities Before Adjustment	328.1			318.0			(892.5		)
Change in Adjustment to Deferred Acquisition Costs and Reserves for Future Policy and Contract Benefits, Net of Reinsurance	(245.0		)	(200.6		)	856.6
Change in Net Gain on Cash Flow Hedges	(24.4		)	(25.4		)	(4.3		)
Change in Foreign Currency Translation Adjustment	—			—			(0.1		)
Change in Unrecognized Pension and Postretirement Benefit Costs	(8.3		)	(34.2		)	3.2
Total	$	460.2		$	473.8		$	330.5

A reconciliation of the income tax provision at the U.S. federal statutory rate to the income tax rate as reported in our consolidated statements of income is as follows:



	Year Ended December 31
	2017		2016		2015
Statutory Income Tax	35.0	%	35.0	%	35.0	%
Foreign Rate Differential, Inclusive of Foreign Rate Changes	(1.1	)	(2.2	)	(2.5	)
U.S. Deferred Tax Liability Remeasurement	(7.0	)	—		—
Deemed Repatriation Tax on Foreign Earnings and Profit (E&P)	4.7		—		—
Tax Credits	(1.5	)	(1.6	)	(1.4	)
Other Items, Net	(0.9	)	(0.3	)	(1.1	)
Effective Tax	29.2	%	30.9	%	30.0	%

Our net deferred tax liability consists of the following:



	December 31
	2017		2016
	(in millions of dollars)
Deferred Tax Liability
Deferred Acquisition Costs	$	118.6	$	174.9
Fixed Assets	52.8		80.7
Invested Assets	1,074.0		1,427.6
Other	42.3		63.2
Gross Deferred Tax Liability	1,287.7		1,746.4

Deferred Tax Asset
Reserves	908.0		1,308.5
Employee Benefits	188.7		307.4
Other	12.3		17.4
Gross Deferred Tax Asset	1,109.0		1,633.3
Less: Valuation Allowance	20.3		17.2
Net Deferred Tax Asset	1,088.7		1,616.1
Net Deferred Tax Liability	$	199.0	$	130.3

Our consolidated statements of income include amounts subject to both domestic and foreign taxation. The income and related tax expense (benefit) are as follows:



	Year Ended December 31
	2017			2016			2015
	(in millions of dollars)
Income Before Tax
Domestic	$	1,289.0		$	1,215.8		$	1,057.8
Foreign	115.0			131.9			180.5
Total	$	1,404.0		$	1,347.7		$	1,238.3

Current Tax Expense (Benefit)
Federal	$	374.9		$	414.8		$	280.5
State and Local	0.4			0.3			—
Foreign	26.0			(29.4		)	61.6
Total	401.3			385.7			342.1

Deferred Tax Expense (Benefit)
Federal	14.2			(14.6		)	56.9
State and Local	(0.3		)	(2.1		)	—
Foreign	(5.4		)	47.3			(27.8		)
Total	8.5			30.6			29.1

Total	$	409.8		$	416.3		$	371.2

On December 22, 2017, the U.S. Federal government enacted the TCJA, which reduces the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. Although the TCJA's 21 percent corporate tax rate will become effective on January 1, 2018, we are required to adjust deferred tax assets and liabilities through continuing operations on the date of enactment. As a result, in 2017 we recorded an income tax benefit of $97.9 million for the TCJA's corporate tax rate reduction and an income tax expense of $66.4 million for the deemed repatriation transition tax on accumulated foreign E&P.

TCJA brought a large number of complex changes to many areas of the tax code. The final impacts of the TCJA, including the deemed repatriation transition tax and deferred tax liability revaluation, may differ from current estimates due to changes in interpretations of the legislation, changes in accounting standards or related interpretations in response to TCJA, or updates or changes in the estimates used to calculate the impacts of TCJA. The Securities and Exchange Commission has issued rules that allow for a one year measurement period after the enactment date of TCJA to finalize the calculation and recording of the related tax impacts. We anticipate finalizing and recording any adjustments to our initial estimates during 2018. Effective January 1, 2018 the TCJA creates a U.S. shareholder tax on certain foreign subsidiary income above a routine equity return on tangible depreciable business assets, or a tax on Global Intangible Low-taxed Income (GILTI). The FASB has provided additional guidance to address the accounting effects of GILTI, requiring companies to elect to either recognize deferred taxes related to GILTI or include in tax expense in the period incurred. We have elected to treat GILTI as a period cost.

The U.K. government enacted income tax rate reductions during 2016 and 2015. During 2016, the rate effective April 2020 was reduced to 17 percent. During 2015, the rate was reduced from 20 percent to 19 percent effective April 2017, and to 18 percent effective April 2020. Although the rate reductions in each instance became or will become effective during a subsequent year, we are required to adjust deferred tax assets and liabilities through income on the date of enactment of a rate change. As a result, we recorded income tax benefits of $4.5 million and $6.5 million for the tax rate reductions enacted during 2016 and 2015, respectively.

At December 31, 2016, the unremitted earnings of our non-U.S. subsidiaries were considered to be permanently invested in the ongoing operations of our non-U.S. subsidiaries and therefore we did not provide U.S. deferred taxes on those cumulative earnings. Under the TCJA, a territorial tax system was adopted that requires a one-time deemed repatriation tax on accumulated foreign E&P. Future repatriation of foreign E&P subject to the one-time deemed repatriation tax will not be subject to further U.S. taxation other than tax on the foreign currency translation gain or loss. We view the investment in our non-U.S. subsidiaries as permanent, and therefore, as of December 31, 2017, we have not recorded a deferred tax liability on approximately $0.7 billion of the excess of the U.S. GAAP carrying values over the tax basis of investments in our non-U.S. subsidiaries.

Our consolidated statements of income include the following changes in unrecognized tax benefits:



	December 31
	2017			2016		2015
	(in millions of dollars)
Balance at Beginning of Year	$	1.5		$	0.8	$	19.8
Additions for Tax Positions Related to Prior Years	—			0.7		—
Additions for Tax Positions Related to Current Year	—			—		—
Settlements with Tax Authorities	—			—		(19.0		)
Lapse of the Applicable Statute of Limitations	(0.1		)	—		—
Balance at End of Year	1.4			1.5		0.8
Less Tax Attributable to Temporary Items Included Above	—			—		—
Total Unrecognized Tax Benefits That if Recognized Would Affect the Effective Tax Rate	$	1.4		$	1.5	$	0.8

We recognize interest expense and penalties, if applicable, related to unrecognized tax benefits in tax expense net of federal income tax. We recognized a de minimis amount of interest expense related to unrecognized tax benefits during 2017 and 2016. We recognized a reduction in interest expense related to unrecognized tax benefits of $1.0 million during 2015. We held a de minimis liability in our consolidated balance sheets for accrued interest and penalties related to unrecognized tax benefits at December 31, 2017, 2016, and 2015. There are no positions for which it is reasonably possible that unrecognized tax benefits could materially increase or decrease within the next 12 months.

We file federal and state income tax returns in the United States and in foreign jurisdictions. During 2015, we settled our Internal Revenue Service (IRS) audit for 2009 and 2010 and resolved a claim for refund we filed related to tax credits for years 2003 through 2012. As a result, we recognized a tax benefit of $6.8 million in our consolidated statements of income and paid an immaterial amount of additional tax.

Tax years subsequent to 2013 remain subject to examination by the IRS, and tax years subsequent to 2015 remain subject to examination in major foreign jurisdictions. We believe sufficient provision has been made for all potential adjustments for years that are not closed by the statute of limitations in all major tax jurisdictions and that any such adjustments would not have a material adverse effect on our financial position, liquidity, or results of operations.

We file state income tax returns in nearly every state in the United States. Tax years subsequent to 2012 remain subject to examination depending on the statute of limitation established by the various states, which is generally three to four years. Tax years subsequent to 2009 remain subject to examination in California.

As of the date of the acquisition of Starmount in 2016, we recorded a net operating loss carryforward of $2.5 million and an alternative minimum tax credit carryforward of $0.6 million. There was no net operating loss carryforward remaining as of December 31, 2017 and there was $1.3 million remaining at December 31, 2016. There was no alternative minimum tax credit carryforward remaining at December 31, 2017 and there was $0.6 million remaining at December 31, 2016. During 2017, we recorded a capital loss carryforward of $0.7 million, which will expire in 2022, related to Starmount, which files a separate company tax return from the Unum Group consolidated tax return. We have net operating loss carryforwards for state and local income tax of approximately $160 million which will expire between 2018 and 2037.

We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. Our valuation allowance was $20.3 million and $17.2 million at December 31, 2017 and 2016, respectively. We recorded a cumulative deferred tax asset for future state income tax benefits of $22.0 million and $18.7 million, net of federal tax benefits, as of December 31, 2017 and 2016, respectively, and recorded a corresponding valuation allowance of $19.3 million and $16.3 million, respectively, to reduce the deferred tax asset to the amount that is more likely than not to be realized. The remaining of our valuation allowance as of December 31, 2017 and 2016 relates to unrealized tax losses on buildings which we own and occupy in the U.K.

Total income taxes paid net of refunds during 2017, 2016, and 2015 were $377.0 million, $384.3 million, and $189.1 million, respectively.