Income Taxes

The following table summarizes income before income taxes and equity income:



	Years Ended December 31,
	2017		2016		2015
U.S. income	$	710	$	336	$	374
Non-U.S. income	313		275		189
Income before income taxes and equity income	$	1,023	$	611	$	563



Income Tax Expense	Years Ended December 31,
	2017			2016			2015
Current income tax expense
U.S. federal	$	—		$	(1	)	$	13
U.S. state and local	(4		)	—			(5		)
Non-U.S.	73			98			58
Total current	69			97			66
Deferred income tax expense
U.S. federal	(16		)	(1		)	115
U.S. state and local	31			13			6
Non-U.S.	27			(4		)	7
Total deferred	42			8			128
Total income tax provision	$	111		$	105		$	194

Provisions are made for estimated U.S. and non-U.S. income taxes, which may be incurred on the reversal of our basis differences in investments in foreign subsidiaries not deemed to be indefinitely reinvested. At December 31, 2017 and 2016, taxes of $45 million and $4 million have not been provided on basis differences in investments as a result of earnings in foreign subsidiaries which are deemed indefinitely reinvested. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.

The following table summarizes a reconciliation of income tax expense (benefit) compared with the amounts at the U.S. federal statutory income tax rate:



	Years Ended December 31,
	2017		2016		2015
U.S. statutory tax rate	35.0	%	35.0	%	35.0	%
Non-U.S. income taxed at other than 35%	(0.1	)	(0.3	)	(0.8	)
State and local income taxes	3.5		2.5		1.1
U.S. tax on non-U.S. earnings	7.3		(15.4	)	7.8
Valuation allowance	1.1		7.8		1.2
Tax credits and incentives	(11.2	)	(12.4	)	(8.4	)
U.S. federal tax reform impact	(23.4	)	—		—
Other	(1.3	)	—		(1.5	)
Effective tax rate	10.9	%	17.2	%	34.4	%

Deferred Income Tax Assets and Liabilities Deferred income tax assets and liabilities at December 31, 2017 and 2016 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the basis of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carryforwards. The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities:



	December 31, 2017			December 31, 2016
Deferred tax assets
Net operating loss carryforward - U.S.^(a)	$	811		$	1,049
Net operating loss carryforward - non-U.S.^(b)	180			178
Market value difference of loan portfolio	102			102
Accruals	122			117
Tax credits^(c)	789			388
Other	157			111
Total deferred tax assets before valuation allowance	2,161			1,945
Less: valuation allowance	(326		)	(144		)
Total deferred tax assets	1,835			1,801
Deferred tax liabilities
Depreciable assets	1,619			1,482
Deferred acquisition costs	130			177
Other	125			123
Total deferred tax liabilities	1,874			1,782
Net deferred tax (liability) asset	$	(39	)	$	19

_________________


(a)	Includes tax-effected operating losses of $0.8 billion expiring through 2038 at December 31, 2017.


(b)	Includes tax-effected operating losses of $115 million expiring through 2038 and $65 million that may be carried forward indefinitely at December 31, 2017.


(c)	Includes tax credits of $789 million expiring through 2038 at December 31, 2017.

We are included in GM’s consolidated U.S. federal income tax return and certain states’ income tax returns. Net operating losses and certain tax credits generated by us have been utilized by GM; however, income tax expense and deferred tax balances are presented in these financial statements as if we filed our own tax returns in each jurisdiction. As of December 31, 2017, we have $326 million in valuation allowances against deferred tax assets in U.S. jurisdictions. The increase in our valuation allowance of $182 million is primarily related to U.S. foreign tax credits that we do not expect to utilize within the carryforward period.



Uncertain Tax Positions	Years Ended December 31,
	2017			2016			2015
Beginning balance	$	56		$	57		$	77
Additions to prior years' tax positions	—			4			—
Reductions to prior years' tax positions	(1		)	(6		)	(4		)
Additions to current year tax positions	4			2			—
Reductions in tax positions due to lapse of statutory limitations	(5		)	(4		)	(7		)
Settlements	—			—			(2		)
Foreign currency translation	—			3			(7		)
Ending balance	$	54		$	56		$	57

At December 31, 2017, 2016 and 2015, there were $33 million, $35 million and $32 million of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate.

We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. Accrued interest and penalties are included within the related tax liability line on the consolidated balance sheets.

During 2017, 2016 and 2015, income tax related interest and penalties recorded were insignificant. At December 31, 2017 and 2016 we had liabilities of $80 million for income tax-related interest and penalties.

At December 31, 2017, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.

Periodically, we make deposits to taxing jurisdictions which reduce our unrecognized tax benefit balance, but are not reflected in the reconciliation above. At December 31, 2017 and 2016 the amount of deposits that reduce our unrecognized tax benefit liability in the consolidated balance sheets was $15 million.

Other Matters Since October 1, 2010, we have been included in GM's consolidated U.S. federal income tax returns. For taxable income we recognize in any period beginning on or after October 1, 2010, we are obligated to pay GM for our share of the consolidated U.S. federal and certain state tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. At December 31, 2017 and 2016, there were no related party taxes payable due to GM due to our taxable loss position.

Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2010 to 2017 with various tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and/or recognition of expenses, or the sustainability of income tax credits. Certain of our state and foreign tax returns are currently under examination in various jurisdictions.

On December 22, 2017, the Tax Cuts and Jobs Act (the Act) was signed into law. The Act changed many aspects of U.S. corporate income taxation and included reduction of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. We recognized the tax effects of the Act during the three months ended December 31, 2017, and recorded a $240 million tax benefit. The tax benefit is made up of a $452 million benefit due to the remeasurement of deferred tax liabilities at the 21% tax rate, offset by a territorial tax of $212 million. Upon completion of our 2017 U.S. income tax return in 2018 we may identify additional remeasurement adjustments to our recorded deferred tax liabilities and the one-time transition tax. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.