15. INCOME TAXES

Income before income taxes and income taxes for the years ended March 31, 2014, 2015 and 2016 are comprised of the following components:


	Years ended March 31,
	2014		2015			2016
	(Yen in millions)
Income before income taxes:
Domestic	¥	93,353	¥	62,214		¥	96,497
Foreign		52,915		59,648			49,086

Total income before income taxes	¥	146,268	¥	121,862		¥	145,583

Income taxes:
Current income taxes:
Domestic	¥	32,761	¥	29,924		¥	36,363
Foreign		8,139		16,380			12,824

Total current income taxes		40,900		46,304			49,187

Deferred income taxes:
Domestic		3,368		(42,237	)		(23,256	)
Foreign		6,986		(7,508	)		5,461

Total deferred income taxes		10,354		(49,745	)		(17,795	)

Total income taxes	¥	51,254		¥ (3,441	)	¥	31,392

In Japan, a company is subject to a number of taxes, based on income, which in the aggregate indicate normal statutory income tax rates of approximately 38.0%, 36.0% and 33.0% for the years ended 2014, 2015 and 2016, respectively.

Reconciliations between the Japanese statutory income tax rate and Kyocera’s effective income tax rate for the years ended March 31, 2014, 2015 and 2016 are as follows:


	Years ended March 31,
	2014			2015			2016
Japanese statutory income tax rate		38.0	%		36.0	%		33.0	%
Difference in statutory tax rates of foreign subsidiaries		(4.3	)		(4.3	)		(2.7	)
Change in valuation allowance		3.6			(5.0	)		3.5
Tax credit for research and development expenses		(3.0	)		(4.2	)		(3.4	)
Uncertainty in income taxes		0.4			(0.4	)		(0.3	)
Tax rate change*		1.2			(26.0	)		(12.1	)
Impairment of goodwill		0.2			0.9			3.2
Other		(1.1	)		0.2			0.4

Effective income tax rate		35.0	%		(2.8	)%		21.6	%

*	Tax rate change for the year ended March 31, 2014:

In accordance with the law “Partial Amendment of the Income Tax Act, etc.” (Law No. 10 of 2014) enacted in Japan on March 31, 2014, the special reconstruction corporation tax was repealed a year ahead of the original schedule and will not be imposed from the annual reporting periods commencing on and after April 1, 2014. As a result of such amendments, the effective Japanese statutory corporate tax rate of 38% previously applied for calculation of the amount of deferred tax assets and deferred tax liabilities has been reduced to 36% with respect to temporary differences to be realized during the annual reporting periods commencing on and after April 1, 2014.

*	Tax rate change for the year ended March 31, 2015:

In accordance with the law “Partial Amendment of the Income Tax Act, etc.” (Law No. 9 of 2015) enacted in Japan on March 31, 2015, a revised corporation tax rate will be imposed from the annual reporting periods commencing on and after April 1, 2015. As a result of such amendments, the effective Japanese statutory corporate tax rate of 36% previously applied for calculation of the amount of deferred tax assets and deferred tax liabilities has been reduced to 33% with respect to temporary differences to be realized during the annual reporting periods commencing on April 1, 2015, and 32% with respect to temporary differences to be realized during the annual reporting periods commencing on and after April 1, 2016. Due mainly to the fact that Kyocera recognized reversal income taxes in the amount of ¥31,703 million after revaluating deferred tax assets and liabilities in line with the revision of the corporate tax rate, the effective tax rate decreased.

*	Tax rate change for the year ended March 31, 2016:

In accordance with the law “Partial Amendment of the Income Tax Act, etc.” (Law No. 15 of 2016) and “Partial Amendment of the Local Tax Act, etc.” (Law No. 13 of 2016) enacted on March 29, 2016 by the Diet of Japan, a revised corporation tax rate will be imposed from the annual reporting periods commencing on and after April 1, 2016. As a result of such amendments, the effective Japanese statutory corporate tax rate of 33% previously applied for calculation of the amount of deferred tax assets and deferred tax liabilities has been reduced to 31% with respect to temporary differences to be realized during the annual reporting periods commencing on April 1, 2016, and 32% previously has been reduced to 30% with respect to temporary differences to be realized during the annual reporting periods commencing on and after April 1, 2017, respectively. Kyocera recognized reversal income taxes in the amount of ¥17,638 million due to revaluation of deferred tax assets and liabilities in line with the revision of the corporate tax rate.

The components of the deferred tax assets and deferred tax liabilities at March 31, 2015 and 2016 are as follows:


	March 31,
	2015			2016
	(Yen in millions)
Deferred tax assets:
Enterprise tax	¥	1,551		¥	1,712
Inventories		14,149			12,731
Provision for doubtful accounts and loss on bad debts		1,733			1,790
Accrued expenses		16,619			11,517
Employee benefits		25,716			27,779
Depreciation and amortization		38,221			36,967
Securities		932			1,146
Net operating losses and tax credit carry forwards		32,151			36,893
Other		5,073			6,913

Total gross deferred tax assets		136,145			137,448
Valuation allowance		(33,005	)		(40,021	)

Net deferred tax assets	¥	103,140		¥	97,427

Deferred tax liabilities:
Depreciation and amortization	¥	9,277		¥	8,932
Securities		301,980			303,032
Prepaid benefit cost		3,723			994
Other		7,034			3,874

Total deferred tax liabilities	¥	322,014		¥	316,832

Net deferred tax liabilities	¥	(218,874	)	¥	(219,405	)

Net deferred tax assets and liabilities at March 31, 2015 and 2016 are reflected in the consolidated balance sheets under the following captions.


	March 31,
	2015			2016
	(Yen in millions)
Other current assets	¥	42,314		¥	—
Other assets		36,710			51,815
Other current liabilities		(5,444	)		—
Deferred income taxes—non-current liabilities		(292,454	)		(271,220	)

Net deferred tax liabilities	¥	(218,874	)	¥	(219,405	)

Early Adoption of Accounting Standards Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes”

In December 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” To simplify the presentation of deferred income taxes, this accounting standard changes require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. On December 31, 2015, Kyocera early adopted this accounting standard. For the adoption of this accounting standard, Kyocera did not retrospectively adjust its financial statements for prior periods.

At March 31, 2016, Kyocera had net operating losses carried forward of approximately ¥146,059 million, which are available to offset future taxable income. Regarding these net operating losses carried forward, the amount of ¥54,814 million recorded at domestic subsidiaries will expire within next nine years, and the amount of approximately ¥49,365 million recorded at U.S. subsidiaries will expire within next 20 years. Certain other foreign subsidiaries have net operating losses carried forward totaling approximately ¥41,880 million of which most have no expiration date.

At March 31, 2016, Kyocera had tax credits carried forward of ¥2,937 million, which are available to offset future income taxes. Regarding these tax credits carried forward, the amount of ¥439 million and ¥2,230 million recorded at foreign subsidiaries will expire within 20 years and will be available without expiration, respectively.

Kyocera intends to reinvest certain undistributed earnings of foreign subsidiaries for an indefinite period of time. Therefore, no deferred tax liabilities have been provided on undistributed earnings of these subsidiaries, which are not expected to be remitted in the foreseeable future. Kyocera estimates this unrecognized deferred tax liabilities are ¥10,586 million at March 31, 2016. The undistributed earnings of these subsidiaries are ¥315,499 million at March 31, 2016.

Total gross deferred tax assets at March 31, 2015 and 2016 were reduced by valuation allowances of ¥33,005 million and ¥40,021 million, respectively.

A reconciliation of the beginning and end amount of gross valuation allowance for deferred tax asset is as follows:


	March 31,
	2014			2015			2016
	(Yen in millions)
Balance at beginning of year	¥	34,414		¥	39,496		¥	33,005
Increase		3,519			3,452			9,108
Decrease		(1,044	)		(9,954	)		(1,443	)
Other*		2,607			11			(649	)

Balance at end of year	¥	39,496		¥	33,005		¥	40,021

*	Other consists mainly of foreign currency translation adjustments and business combinations.

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


	March 31,
	2014			2015			2016
	(Yen in millions)
Balance at beginning of year	¥	4,064		¥	4,804		¥	3,258
Increase—tax position in prior years		1,457			353			669
Increase—tax position in current year		187			806			2,380
Decrease—tax position in prior years		(324	)		(784	)		(455	)
Settlements with taxing authorities		(16	)		(1,804	)		(677	)
Lapse of statute of limitations		(564	)		(117	)		(507	)

Balance at end of year	¥	4,804		¥	3,258		¥	4,668

Gross unrecognized tax benefits on the consolidated balance sheets that if recognized would affect the effective tax rate were ¥3,258 million and ¥4,668 million, at March 31, 2015 and 2016, respectively. Kyocera expects that a significant change in unrecognized tax benefits might occur within the next 12 months. However, Kyocera anticipates such change will not have significant impact on Kyocera’s consolidated results of operations and financial position.

Kyocera recorded interest and penalties related to unrecognized tax benefits as current income tax expenses in the consolidated statement of income in the amount of ¥24 million, ¥(184) million and ¥(18) million for the year ended March 31, 2014, 2015 and 2016, respectively, and as other non-current liabilities in the consolidated balance sheet in the amounts of ¥119 million and ¥178 million at March 31, 2015 and 2016, respectively. The above table excludes this accrual for estimated interest and penalties.

At March 31, 2016 Kyocera is subject to income tax examinations by tax authorities for the tax year 2015 onwards in Japan, and for the tax year 2011 onwards in the United States for its major jurisdictions.