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



($ in millions)	2018			2017			2016
Current
U.S. federal		$7			$179			($251	)
U.S. state and local	4			49			(12		)
Foreign	297			349			306
Total current income tax expense		$308			$577			$43
Deferred
U.S. federal		$44			$107			$173
U.S. state and local	7			(16		)	(10		)
Foreign	(6		)	(53		)	8
Total deferred income tax expense		$45			$38			$171
Total income tax expense		$353			$615			$214

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



	2018		2017		2016
U.S. federal income tax rate	21.0	%	35.0	%	35.0	%
Changes in rate due to:
U.S. tax cost - Tax Cuts & Jobs Act	(2.5	)	11.0		—
U.S./foreign tax differential	3.3		(9.3	)	(17.7	)
U.S. current tax benefit on foreign exchange realization	—		(4.9	)	(3.0	)
U.S. tax incentives	(1.0	)	(2.3	)	(3.7	)
U.S. tax (benefit) cost on foreign dividends	(0.4	)	(1.9	)	0.4
U.S. state and local taxes	0.5		1.1		(1.8	)
U.S. deferred tax benefit on foreign income	—		(0.6	)	(3.1	)
Asbestos charge	—		—		19.1
Other	—		2.6		2.3
Effective income tax rate	20.9	%	30.7	%	27.5	%

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) which, among other things lowered the U.S. corporate statutory income tax rate from 35% to 21%, eliminated certain deductible items and added other deductible items for corporations, imposed a tax on unrepatriated foreign earnings and eliminated U.S. taxes on most future foreign earnings.

In December 2017, as a result of the Act, the Company recorded a provisional net tax charge of $134 million, which included a tax on unrepatriated earnings of $250 million, a charge of approximately $125 million related to the remeasurement of U.S. deferred taxes at the new enacted statutory rate, partially offset by a benefit from the reversal of an existing deferred tax liability on repatriated foreign earnings of approximately $150 million and a benefit resulting from PPG’s decision to accelerate recognition of certain U.S. tax attributes during the fourth quarter.

During 2018, PPG implemented updated regulations for certain aspects of the Act and PPG completed its accounting for the provisional amounts recognized in its consolidated financial statements in 2017. The finalization of the provisional accounting during 2018 resulted in a net tax benefit of $42 million, which consisted of a benefit of $20 million related to unrepatriated foreign earnings, a benefit of $22 million for adjustments to certain deferred taxes, a benefit of $14 million for foreign derived intangible income, partially offset by an expense of $14 million for global intangible low taxed income.

The total tax expense for 2017 includes a deferred tax benefit of $22 million related to the $60 million of pre-tax pension settlement charges discussed in Note 13, “Employee Benefit Plans.” During 2016, the Company recorded a $151 million net tax charge associated with the funding of the Pittsburgh Corning (“PC”) asbestos settlement trust (the “Trust”) described in Note 14, "Commitments and Contingent Liabilities." Further, in conjunction with the funding of the Trust, PPG provided taxes on the earnings of certain foreign subsidiaries and recorded one-time book tax benefits for its contribution of the Company's ownership interest in PC's European subsidiary to the Trust and for a change in the measurement of certain deferred tax liabilities.

Income (Loss) before income taxes of the Company’s U.S. operations for 2018, 2017 and 2016 was $571 million, $713 million and $(210) million, respectively. Income before income taxes of the Company’s foreign operations for 2018, 2017 and 2016 was $1,122 million, $1,292 million and $989 million, respectively.

Deferred income taxes

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.



($ in millions)	2018			2017
Deferred income tax assets related to
Employee benefits		$366			$399
Contingent and accrued liabilities	149			164
Operating loss and other carry-forwards	251			221
Inventories	7			6
Property	48			51
Other	82			135
Valuation allowance	(164		)	(173		)
Total		$739			$803
Deferred income tax liabilities related to
Property		$310			$314
Intangibles	545			578
Employee benefits	46			11
Derivatives	1			1
Undistributed foreign earnings	5			24
Other	9			20
Total		$916			$948
Deferred income tax liabilities – net		($177	)		($145	)

Net operating loss and credit carryforwards



($ in millions)	2018		2017		Expiration
Available net operating loss carryforwards:
Indefinite expiration		$462		$447	NA
Definite expiration	796		247		2019 - 2038
Total		$1,258		$694	NA
Net operating loss carryforwards, tax effected		$192		$210	NA
Income tax credit carryforwards		$61		$9	2019 - 2038

A valuation allowance of $164 million and $173 million has been established for carry-forwards and certain other items at December 31, 2018 and 2017, when the ability to utilize them is not likely.

Undistributed foreign earnings

The Company had $3 billion and $3.4 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2018 and 2017, respectively. These amounts relate to approximately 250 subsidiaries in approximately 75 taxable jurisdictions. The Company estimates repatriation of undistributed earnings of non-U.S. subsidiaries as of December 31, 2018 and 2017 would have resulted in a U.S. tax cost of approximately $19 million and $30 million, respectively.

Over the past several years, PPG has established deferred tax liabilities on certain undistributed earnings, namely in connection with divestitures and the funding of the Pittsburgh Corning Asbestos Trust (refer to Note 14, “Commitments and Contingent Liabilities”).

As of December 31, 2018, the Company has not changed its intention to reinvest foreign earnings indefinitely or repatriate when it is tax effective to do so, and as such has not established a liability for foreign withholding taxes or other costs that would be incurred if the earnings were repatriated.

Unrecognized tax benefits

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 2007. Additionally, the Company is no longer subject to examination by the Internal Revenue Service for U.S. federal income tax returns filed for years through 2014. The examinations of the Company’s U.S. federal income tax returns for 2015 through 2016 are currently underway.

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



($ in millions)	2018			2017			2016
January 1		$148			$94			$82
Current year tax positions - additions	36			37			25
Prior year tax positions - additions	17			26			8
Prior year tax positions - reductions	(6		)	—			(11		)
Statute of limitations expirations	(9		)	(8		)	(8		)
Settlements	(15		)	(10		)	—
Foreign currency translation	(5		)	9			(2		)
December 31		$166			$148			$94

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 $140 million as of December 31, 2018.

Interest and penalties



($ in millions)	2018		2017		2016
Accrued interest and penalties related to unrecognized tax benefits		$16		$15		$9
Loss recognized in income tax expense related to interest and penalties		$2		$4		$1

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.