
8.	Income Taxes

On December 22, 2017 the U.S. enacted tax reform legislation (“the Tax Act) that made substantial changes to corporate income tax laws. Among the key provisions are, a U.S. corporate tax rate reduction from 35% to 21% effective for tax years beginning January 1, 2018, a one-time transition tax on the deemed repatriation of cumulative earnings from foreign subsidiaries and changes to U.S. taxation of foreign earnings from a worldwide to a territorial tax system effective for tax years beginning January 1, 2018. The Company is recognizing the effects of the Tax Act in its Consolidated Financial Statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of FASB Accounting Standards Codification Topic 740, Income Taxes, in the reporting period that the Tax Act was signed into law.

The Company has recorded a provisional income tax benefit of $317 million related to the remeasurement of its net deferred income tax liabilities as a result of the reduced corporate tax rate, and a provisional tax expense of $104 million for the one-time transition tax on the deemed repatriation of cumulative foreign subsidiary earnings.

The Company has not finalized the accounting for the effects of the Tax Act due to the complex analysis necessary to determine the historical earnings of foreign subsidiaries, the ability to utilize tax attributes such as foreign tax credits, and the impact of the repeal of the like-kind exchange provision for personal property together with the corresponding impact on deferred tax components and valuation allowances. Any adjustments to these provisional amounts will be recorded when the Company finalizes its accounting of the tax effects within a subsequent measurement period that will not exceed one year from the date of the enactment of the Tax Act.

The provision for (benefit from) income taxes consists of the following:



		Year Ended December 31,
		2017			2016			2015
Current
	Federal	$	—		$	(1	)	$	(32	)
	State	5			3			3
	Foreign	37			63			40
	Current income tax provision	42			65			11

Deferred
	Federal	(205		)	51			45
	State	(5		)	5			(1		)
	Foreign	18			(5		)	14
	Deferred income tax provision	(192		)	51			58
Provision for (benefit from) income taxes		$	(150	)	$	116		$	69

Pretax income for domestic and foreign operations consists of the following:



	Year Ended December 31,
	2017		2016		2015
United States ^(a)	$	17	$	127	$	258
Foreign	194		152		124
Pretax income	$	211	$	279	$	382

__________


^(a)	For the years ended December 31, 2017, 2016 and 2015, includes corporate debt extinguishment costs of $3 million, $27 million and $23 million, respectively.

Deferred income tax assets and liabilities are comprised of the following:



		As of December 31,
		2017			2016
Deferred income tax assets:
	Net tax loss carryforwards	$	1,104		$	1,587
	Accrued liabilities and deferred revenue	216			281
	Tax credits	24			62
	Depreciation and amortization	4			2
	Acquisition and integration-related liabilities	2			5
	Provision for doubtful accounts	8			7
	Other	48			52
	Valuation allowance ^(a)	(331		)	(357		)
Deferred income tax assets		1,075			1,639

Deferred income tax liabilities:
	Depreciation and amortization	121			112
	Prepaid expenses	20			32
	Other	3			2
Deferred income tax liabilities		144			146
Deferred income tax assets, net		$	931		$	1,493

__________

^(a)

The valuation allowance of $331 million at December 31, 2017 relates to tax loss carryforwards and certain deferred tax assets of $302 million and $29 million, respectively. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized. The valuation allowance of $357 million at December 31, 2016 relates to tax loss carryforwards, foreign tax credits and certain deferred tax assets of $289 million, $39 million and $29 million, respectively.

Deferred income tax assets and liabilities related to vehicle programs are comprised of the following:



	As of December 31,
	2017		2016
Deferred income tax assets:
Depreciation and amortization	$	58	$	52

Deferred income tax liabilities:
Depreciation and amortization	1,652		2,481
Deferred income tax liabilities under vehicle programs, net	$	1,594	$	2,429

At December 31, 2017, the Company had U.S. federal net operating loss carryforwards of approximately $3.2 billion, most of which expire in 2031. Such net operating loss carryforwards are primarily related to accelerated depreciation of the Company’s U.S. vehicles. Currently, the Company does not record valuation allowances on the majority of its U.S. federal tax loss carryforwards as there are adequate deferred tax liabilities that could be realized within the carryforward period. At December 31, 2017, the Company had foreign net operating loss carryforwards of approximately $889 million with an indefinite utilization period.

The Tax Act provides companies the ability to offset the one-time transition tax on cumulative earnings of foreign subsidiaries with available tax attributes or elect to pay the tax over an eight year period. Although the Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries effective for years beginning January 1, 2018, the Company continues to evaluate the expected manner of recovery to determine whether or not to continue to assert indefinite reinvestment on a part or all of its undistributed foreign earnings. This requires the Company to analyze its global working capital and cash requirements in light of the Tax Act and the potential tax liabilities attributable to a repatriation to the U.S., such as foreign withholding taxes and U.S. tax on currency transaction gains or losses. The Company did not provide for U.S. taxes related to its undistributed earnings of approximately $1.3 billion as of December 31, 2017. The Company will record the tax effects of any change in its assertion within a subsequent measurement period that will not exceed one year from the date of the enactment of the Tax Act.

The reconciliation between the U.S. federal income tax statutory rate and the Company’s effective income tax rate is as follows:



		Year Ended December 31,
		2017		2016		2015
U.S. federal statutory rate		35.0	%	35.0	%	35.0	%
Adjustments to reconcile to the effective rate:
	State and local income taxes, net of federal tax benefits	3.8		2.0		2.8
	Changes in valuation allowances	(4.7	)	(0.2	)	(0.6	)
	Taxes on foreign operations at rates different than statutory U.S. federal rates	(3.6	)	3.1		3.7
	Resolution of a prior-year tax matter ^(a)	—		—		(25.6	)
	Stock-based compensation	(3.4	)	—		—
	Non-deductible transaction-related costs	—		—		0.9
	U.S. Tax Act benefit	(100.8	)	—		—
	Other non-deductible expenses	2.2		1.7		1.8
	Other	0.4		—		0.1
		(71.1	)%	41.6	%	18.1	%

__________


^a)	For the year ended December 31, 2015, the Company recognized a $98 million income tax benefit from the resolution of a prior-year income tax matter.

The following is a tabular reconciliation of the gross amount of unrecognized tax benefits for the year:



		2017			2016			2015
Balance at January 1		$	59		$	56		$	63
	Additions for tax positions related to current year	6			3			6
	Additions for tax positions for prior years	9			3			3
	Reductions for tax positions for prior years	(10		)	(3		)	(14		)
	Settlements	—			—			(1		)
	Statute of limitations	(1		)	—			(1		)
Balance at December 31		$	63		$	59		$	56

The Company does not anticipate that total unrecognized tax benefits will change significantly in 2018.

The Company is subject to taxation in the United States and various foreign jurisdictions. As of December 31, 2017, the 2014 through 2016 tax years generally remain subject to examination by the federal tax authorities. The 2012 through 2016 tax years generally remain subject to examination by various state tax authorities. In significant foreign jurisdictions, the 2011 through 2016 tax years generally remain subject to examination by their respective tax authorities.

Substantially all of the gross amount of the unrecognized tax benefits at December 31, 2017, 2016 and 2015, if recognized, would affect the Company’s provision for, or benefit from, income taxes. As of December 31, 2017, the Company’s unrecognized tax benefits were offset by tax loss carryforwards in the amount of $19 million.

The following table presents unrecognized tax benefits:



	As of December 31,
	2017		2016
Unrecognized tax benefit in non-current income taxes payable ^(a)	$	46	$	40
Accrued interest payable on potential tax liabilities ^(b)	26		29

__________


^(a)	Pursuant to the agreements governing the disposition of certain subsidiaries in 2006, the Company is entitled to indemnification for certain pre-disposition tax contingencies. As of December 31, 2017 and 2016, $13 million and $15 million, respectively, of unrecognized tax benefits are related to tax contingencies for which the Company believes it is entitled to indemnification.


^(b)	The Company recognizes potential interest related to unrecognized tax benefits within interest expense related to corporate debt, net on the accompanying Consolidated Statements of Operations. Penalties incurred during the years ended December 31, 2017, 2016 and 2015, were not significant and were recognized as a component of the provision for income taxes.