10. Income Taxes

The provision for income taxes was calculated based on the following components of earnings (loss) before income taxes:


Continuing operations	2016		2015		2014
U.S.	$	(27)	$	—	$	36
Non-U.S.		383		268		271
	$	356	$	268	$	307


Discontinued operations	2016		2015		2014
U.S.	$	—	$	—	$	(19)
Non-U.S.		(7)		(4)		(4)
	$	(7)	$	(4)	$	(23)

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


	2016		2015		2014
Current:
U.S.	$	—	$	9	$	7
Non-U.S.		123		85		103
		123		94		110
Deferred:
U.S.		3		10		—
Non-U.S.		(7)		2		(18)
		(4)		12		(18)
Total:
U.S.		3		19		7
Non-U.S.		116		87		85
Total for continuing operations		119		106		92
Total for discontinued operations		—		—		—
	$	119	$	106	$	92

A reconciliation of the provision for income taxes based on the statutory U.S. Federal tax rate of 35% to the provision for income taxes is as follows:


	2016		2015		2014
Tax provision on pretax earnings from continuing operations at statutory U.S. Federal tax rate	$	124	$	94	$	107
Increase (decrease) in provision for income taxes due to:
Non-U.S. tax rates		(22)		(12)		(22)
Changes in valuation allowance		3		1		(2)
Withholding tax, net		22		18		18
Non-deductible acquisition costs				6
U.S. tax on intercompany dividends and interest		3		16		1
Tax exempt income		(2)		(3)		(5)
Intraperiod tax allocation		(8)
Tax law changes		(3)		(3)
Tax credit		(19)		(14)		(3)
Changes in tax reserves		8		5		(13)
Mexico inflationary adjustments		6		3
Other items		7		(5)		11
Provision for income taxes	$	119	$	106	$	92

Deferred income taxes reflect: (1) 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; and (2) carryovers and credits for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:


	2016		2015
Deferred tax assets:
Accrued postretirement benefits	$	53	$	51
Asbestos-related liabilities		242		286
Foreign tax credit		413		389
Operating and capital loss carryovers		389		435
Other credit carryovers		34		38
Accrued liabilities		95		82
Pension liability		138		128
Other		74		63
Total deferred tax assets		1,438		1,472
Deferred tax liabilities:
Property, plant and equipment		131		128
Intangibles and deferred software		119		131
Other		9		25
Total deferred tax liabilities		259		284
Valuation allowance		(1,094)		(1,135)
Net deferred taxes	$	85	$	53

Deferred taxes are included in the Consolidated Balance Sheets at December 31, 2016 and 2015 as follows:


	2016		2015
Other assets	$	185	$	177
Deferred taxes		(100)		(124)
Net deferred taxes	$	85	$	53

The Company reviews the likelihood that it will realize the benefit of its deferred tax assets and therefore the need for valuation allowances on a quarterly basis, or whenever events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with other positive and negative evidence.

At December 31, 2016, before valuation allowance, the Company had unused foreign tax credits of $413 million expiring in 2017 through 2026, research tax credits of $14 million expiring from 2019 to 2036, and alternative minimum tax credits of $18 million which do not expire and which will be available to offset future U.S. Federal income tax. Approximately $151 million of the deferred tax assets related to operating and capital loss carryforwards can be carried over indefinitely, with the remaining $238 million expiring between 2017 and 2036.

In certain jurisdictions, the Company’s analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence which is objective and verifiable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative and, accordingly, the Company considers all other available positive and negative evidence in its analysis. Based on its analysis, the Company has recorded a valuation allowance for the portion of deferred tax assets where based on the weight of available evidence it is unlikely to realize those deferred tax assets.

At December 31, 2016, the Company’s equity in the undistributed earnings of foreign subsidiaries for which income taxes had not been provided approximated $2.2 billion. The Company intends to reinvest these earnings indefinitely in the non-U.S. operations. It is not practicable to estimate the U.S. and foreign tax which would be payable should these earnings be distributed. Deferred taxes are provided for earnings of non-U.S. jurisdictions when the Company plans to remit those earnings.

The Company records a liability for unrecognized tax benefits related to uncertain tax positions. The Company accrues interest and penalties associated with unrecognized tax benefits as a component of its income tax expense.

The following is a reconciliation of the Company’s total gross unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014:


	2016		2015		2014
Balance at January 1	$	74	$	77	$	100
Additions and reductions for tax positions of prior years				1		(13)
Additions based on tax positions related to the current year		15		10		10
Reductions due to the lapse of the applicable statute of limitations		(3)		(5)		(8)
Reductions due to settlements		(12)		(1)		(1)
Foreign currency translation				(8)		(11)
Balance at December 31	$	74	$	74	$	77
Unrecognized tax benefits, which if recognized, would impact the Company’s effective income tax rate	$	66	$	67	$	70
Accrued interest and penalties at December 31	$	23	$	25	$	29
Interest and penalties included in tax expense for the years ended December 31	$	(2)	$	(1)	$	(2)

Based upon the outcome of tax examinations, judicial proceedings, or expiration of statute of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. The Company believes that it is reasonably possible that the estimated liability could decrease up to $11 million within the next 12 months. This is primarily the result of audit settlements or statute expirations in several taxing jurisdictions.

The Company is currently under examination in various tax jurisdictions in which it operates, including Argentina, Bolivia, Brazil, China, Canada, Colombia, Ecuador, France, Germany, Indonesia, and Italy. The years under examination range from 2006 through 2014. The Company has received tax assessments in excess of established reserves. The Company believes that adequate provisions for all income tax uncertainties have been made. However, if tax assessments are settled against the Company at amounts in excess of established reserves, it could have a material impact to the Company’s results of operations, financial position or cash flows. During 2016, the Company concluded income tax audits in several jurisdictions, including the Czech Republic, Germany, Italy, and Hungary.