We are treated as a partnership for U.S. federal income tax purposes. As such, except for certain U.S. corporations owned by the Company, we are not subject to U.S. federal income tax under current U.S. tax laws. Our members will each be required to take into account for U.S. federal income tax purposes their distributive share of our items of income, gain, loss and deduction, which generally will include the U.S. operations of both Baker Hughes and GE O&G. Baker Hughes and GE will each be taxed on their distributive share of income and gain, whether or not a corresponding amount of cash or other property is distributed to them. For assets held indirectly by us through subsidiaries, including both foreign and U.S., the taxes attributable to those subsidiaries will be reflected in our consolidated and combined financial statements.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (U.S. tax reform) that lowers the statutory tax rate on U.S. earnings, taxes historic foreign earnings previously deferred from U.S. taxation at a reduced rate of tax (transition tax), establishes a territorial tax system and enacts new taxes associated with global operations. The transition tax associated with our non-U.S. operations will be borne by our members.

The impact of U.S. tax reform was initially recorded on a provisional basis as the legislation provided for additional guidance to be issued by the U.S. Department of the Treasury on several provisions including the computation of the transition tax. Based on guidance received to date, finalization of purchase accounting for the BHI acquisition, and finalization of our 2017 U.S. income tax returns, we have recorded a $25 million tax expense in 2018.

Additionally, as part of U.S. tax reform, the U.S. has enacted a tax on "base eroding" payments from the U.S. and a minimum tax on foreign earnings (global intangible low-taxed income) that would be borne by our members. We have made an accounting policy election to account for these taxes as period costs.



	2019			2018			2017
Current:
U.S.	$	(18	)	$	55		$	(75	)
Foreign	443			445			453
Total current	425			500			378
Deferred:
U.S.	(12		)	(60		)	(49		)
Foreign	63			(38		)	(183		)
Total deferred	51			(98		)	(232		)
Provision for income taxes	$	476		$	402		$	146

The provision for income taxes differs from the amount computed by applying the U.S. statutory income tax rate to the loss or income before income taxes for the reasons set forth below for the years ended December 31:



	2019			2018			2017
Income (loss) before income taxes, inclusive of equity in loss of affiliate	$	753		$	541		$	(346	)
Taxes at the U.S. federal statutory income tax rate	158			114			(121		)
Effect of foreign operations	85			103			(23		)
Tax impact of partnership structure	124			109			275
Change in valuation allowances	135			59			69
Tax Cuts and Jobs Act enactment	—			25			(32		)
Other - net	(26		)	(8		)	(22		)
Provision for income taxes	$	476		$	402		$	146
Actual income tax rate	63.2		%	74.3		%	(42.2		)%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards.



	2019			2018
Deferred tax assets:
Receivables	$	79		$	117
Inventory	91			79
Property	137			191
Goodwill and other intangibles	117			132
Employee benefits	98			97
Other accrued expenses	47			74
Operating loss carryforwards	1,591			1,500
Tax credit carryforwards	398			173
Other	270			233
Total deferred income tax asset	2,828			2,596
Valuation allowances	(1,835		)	(1,591		)
Total deferred income tax asset after valuation allowance	993			1,005
Deferred tax liabilities:
Undistributed earnings of foreign subsidiaries	—			(9		)
Other	(29		)	(18		)
Total deferred income tax liability	(29		)	(27		)
Net deferred tax asset	$	964		$	978

At December 31, 2019, we had approximately $366 million of non-U.S. tax credits which may be carried forward indefinitely under applicable foreign law and $32 million of other credits, which will begin to expire after tax year 2033 under U.S. tax law. Additionally, we had $1,591 million of net operating loss carryforwards, of which approximately $331 million will expire within five years, $326 million will expire between 6 years and 20 years, and the remainder can be carried forward indefinitely.

We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. At December 31, 2019, $1,835 million of valuation allowances are recorded against various deferred tax assets, including foreign net operating losses (NOL) of $1,257 million, foreign tax credit carryforwards of $366 million, other U.S. NOL's and tax credit carryforwards of $46 million, and certain other U.S. and foreign deferred tax assets of $166 million. There are $290 million of deferred tax assets related to foreign net operating loss carryforwards without a valuation allowance as we expect that the deferred tax assets will be realized within the carryforward period.

Substantially all of our undistributed earnings of our foreign subsidiaries are indefinitely reinvested. Indefinite reinvestment is determined by management’s intentions concerning the future operations of the Company. Most of these earnings have been reinvested in active non-U.S. business operations. As of December 31, 2019, the cumulative amount of indefinitely reinvested foreign earnings is approximately $6.7 billion. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable.

At December 31, 2019, we had $451 million of tax liabilities for total gross unrecognized tax benefits related to uncertain tax positions. In addition to these uncertain tax positions, we had $93 million and $29 million related to interest and penalties, respectively, for total liabilities of $573 million for uncertain positions. If we were to prevail on all uncertain positions, the net effect would result in an income tax benefit of approximately $515 million. The remaining $58 million comprised of $21 million for deferred tax assets that represent tax benefits that would be received in different taxing jurisdictions in the event that we did not prevail on all uncertain tax positions and increased valuation allowances of $37 million.



Asset / (Liability)	2019			2018
Balance at beginning of year	$	(472	)	$	(395	)
Balance acquired from BHI	—			(142		)
Additions for tax positions of the current year	(25		)	(21		)
Additions for tax positions of prior years	(27		)	(95		)
Reductions for tax positions of prior years	55			101
Settlements with tax authorities	6			35
Lapse of statute of limitations	12			45
Balance at end of year	$	(451	)	$	(472	)

It is expected that the amount of unrecognized tax benefits will change in the next twelve months due to expiring statutes, audit activity, tax payments, and competent authority proceedings related to transfer pricing or final decisions in matters that are the subject of litigation in various taxing jurisdictions in which we operate. At December 31, 2019, we had approximately $67 million of tax liabilities related to uncertain tax positions, each of which are individually insignificant, and each of which are reasonably possible of being settled within the next twelve months.