Income Taxes

The provision for income taxes by taxing jurisdiction and by significant components consisted of the following:



($ in millions)		2015			2014			2013
Current income tax expense
	U.S. federal	158			128			83
	U.S. state and local	22			25			6
	Foreign	276			195			180
	Total current income tax	456			348			269
Deferred income tax expense
	U.S. federal	29			(78		)	(8		)
	U.S. state and local	(36		)	(1		)	(5		)
	Foreign	7			(10		)	(3		)
	Total deferred income tax	—			(89		)	(16		)
	Total	$	456		$	259		$	253

A reconciliation of the statutory U.S. corporate federal income tax rate to the Company’s effective tax rate follows:



		2015		2014		2013
U.S. federal income tax rate		35.0	%	35.0	%	35.0	%
Changes in rate due to:
	U.S. State and local taxes	1.0		0.9		0.6
	U.S. tax benefit on foreign dividends	(0.9	)	(3.8	)	(3.3	)
	Taxes on foreign earnings	(6.8	)	(8.7	)	(7.4	)
	PPG dividends paid to the ESOP	(0.3	)	(0.4	)	(0.4	)
	U.S. tax incentives	(1.8	)	(2.2	)	(2.8	)
	Other	(2.0	)	(2.6	)	(1.1	)
	Effective income tax rate	24.2	%	18.2	%	20.6	%

The 2015 U.S. tax benefit on foreign dividends includes repatriation of high taxed foreign earnings. The decrease in the benefit from 2014 to 2015 was due to a reduction in repatriated earnings from prior years.

In 2015, U.S. tax incentives include the R&D credit and the U.S. manufacturing deduction. The decrease in the U.S. tax incentive benefit from 2014 to 2015 is due to a stable benefit offset by an increase in income before income taxes. The decrease in the benefit from 2013 to 2014 was due to the absence of the retroactive benefit resulting from the reinstatement of the 2012 R&D credit in January 2013. This decrease was partly offset by an increase in the manufacturing deduction and the R&D credit in 2014.

In 2015, Other includes the remeasurement of a U.S. deferred tax liability to repatriate foreign earning on which PPG has not asserted permanent reinvestment in the foreign jurisdiction. In 2014, Other included the prior year benefit and remeasurement of temporary differences in a foreign jurisdiction as a result of receiving a favorable tax rate ruling for the tax years from 2008 to 2018. The retroactive benefit lowered 2014 tax expense by $29 million.

Income before income taxes of the Company’s U.S. operations for 2015, 2014 and 2013 was $832 million, $377 million and $447 million, respectively. Income before income taxes of the Company’s foreign operations for 2015, 2014 and 2013 was $1,050 million, $1,040 million and $779 million, respectively.

Deferred income taxes are provided for the effect of temporary differences that arise because there are certain items treated differently for financial accounting than for income tax reporting purposes. The deferred tax assets and liabilities are determined by applying the enacted tax rate in the year in which the temporary difference is expected to reverse. Net deferred income tax assets and liabilities as of December 31 were as follows:



($ in millions)		2015			2014
Deferred income tax assets related to
	Employee benefits	738			877
	Contingent and accrued liabilities	604			671
	Operating loss and other carry-forwards	361			380
	Inventories	14			24
	Property	47			29
	Derivatives	—			24
	Other	94			99
	Valuation allowance	(139		)	(181		)
	Total	1,719			1,923
Deferred income tax liabilities related to
	Property	622			401
	Intangibles	439			805
	Employee benefits	67			69
	Derivatives	4			—
	Undistributed foreign earnings	158			263
	Other	222			180
	Total	1,512			1,718
	Deferred income tax assets – net	$	207		$	205

As of December 31, 2015 and 2014, subsidiaries of the Company had available net operating loss carryforwards and available income tax credit carryforwards as follows:



($ in millions)		2015		2014		Expiration
Available net operating loss carryforwards:
	Indefinite expiration	$	390	$	419	NA
	Definite expiration	165		218		2016 - 2028
Total		$	555	$	637	NA
Net operating loss carryforwards, tax effected		$	156	$	189	NA
Income tax credit carryforwards		$	205	$	191	2016 - 2025

A valuation allowance has been established for carry-forwards at December 31, 2015 and 2014, when the ability to utilize them is not likely.

The Company had $5 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2015 and 2014. These amounts relate to approximately 225 subsidiaries in more than 60 taxable jurisdictions. As discussed in Note 2, “Acquisitions and Dispositions,” PPG recorded a deferred U.S. income tax liability on the foreign earnings generated from the sale of its Transitions Optical joint venture in 2014. At December 31, 2015 and 2014, the expected future tax cost to repatriate these earnings totaled $142 million and $247 million, respectively. No significant deferred U.S. income taxes have been provided on the remaining $4.2 billion of PPG’s undistributed earnings as they are considered to be reinvested for an indefinite period of time or will be repatriated when it is tax effective to do so. The Company estimates repatriation of undistributed earnings of non-U.S. subsidiaries as of December 31, 2015 and 2014 would have resulted in a U.S. tax cost of approximately $375 million and $200 million, respectively.

The Company files federal, state and local income tax returns in numerous domestic and foreign jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is no longer subject to examinations by tax authorities in any major tax jurisdiction for years before 2006. Additionally, the Internal Revenue Service has completed its examination of the Company’s U.S. federal income tax returns filed for years through 2011. The examinations of the Company’s U.S. federal income tax returns for 2012 and 2013 are currently underway.

A reconciliation of the total amounts of unrecognized tax benefits (excluding interest and penalties) as of December 31 follows:



($ in millions)	2015			2014			2013
Balance at January 1	$	71		$	85		$	82
Additions based on tax positions related to the current year	14			12			12
Additions for tax positions of prior years	5			3			9
Pre-acquisition unrecognized tax benefits	4			—			—
Reductions for tax positions of prior years	(3		)	(15		)	(10		)
Reductions for expiration of the applicable statute of limitations	(1		)	(2		)	(10		)
Settlements	(3		)	(6		)	—
Foreign currency translation	(5		)	(6		)	2
Balance at December 31	$	82		$	71		$	85

The Company expects that any reasonably possible change in the amount of unrecognized tax benefits in the next 12 months would not be significant.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $77 million as of December 31, 2015.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2015, 2014 and 2013, the Company had liabilities for estimated interest and penalties on unrecognized tax benefits of $8 million, $7 million and $9 million, respectively. The Company recognized $2 million, $2 million, and $2 million of income in 2015, 2014 and 2013, respectively, related to the reduction of estimated interest and penalties.