14. Taxes on Income

The amount of earnings before income taxes is:

	Years Ended December 31,
($ in millions)	2015		2014		2013

U.S.	$	46.4	$	279.7	$	242.9
Foreign	299.1		365.9		340.7

	$	345.5	$	645.6	$	583.6

The provision for income tax expense is:

	Years Ended December 31,
($ in millions)	2015			2014			2013

Current
U.S.	$	26.1		$	50.8		$	47.2
State and local	7.0			17.7			3.6
Foreign	75.7			69.5			100.4

Total current	108.8			138.0			151.2


Deferred
U.S.	(37.9		)	8.9			28.5
State and local	(4.1		)	(1.1		)	(0.7		)
Foreign	(19.8		)	4.1			(29.4		)

Total deferred (a)	(61.8		)	11.9			(1.6		)

Tax provision	$	47.0		$	149.9		$	149.6

(a)

Amounts do not include tax benefits related to discontinued operations of $(0.2) million in 2013.

The income tax provision recorded within the consolidated statements of earnings differs from the provision determined by applying the U.S. statutory tax rate to pretax earnings as a result of the following:

	Years Ended December 31,
($ in millions)	2015			2014			2013

Statutory U.S. federal income tax	$	120.9		$	226.0		$	204.3
Increase (decrease) due to:
Foreign tax rate differences	(50.7		)	(57.3		)	(45.5		)
U.S. state and local taxes, net	1.8			6.9			1.6
U.S. taxes on foreign earnings, net of tax credits	1.7			11.8			26.4
U.S. manufacturing deduction	(3.8		)	(6.8		)	(4.3		)
U.S. research and development tax credits	(14.8		)	(8.5		)	(17.9		)
Uncertain tax positions, including interest	(3.6		)	(7.9		)	(3.4		)
Company and trust-owned life insurance	(2.2		)	(4.9		)	(6.3		)
Other, net	(2.3		)	(9.4		)	(5.3		)

Provision for taxes	$	47.0		$	149.9		$	149.6

Effective tax rate expressed as a percentage of pretax earnings	13.6		%	23.2		%	25.6		%

The 2015 full year effective income tax rate was 13.6 percent compared to 2014 of 23.2 percent. The lower tax rate in 2015 compared to 2014 was primarily due to business consolidation and other activities incurred in the U.S., lower U.S. taxes on foreign earnings, and increased research and development tax credits, partially offset by decreased favorable nonrecurring discrete tax items in the 2015 effective tax rate.

The 2014 full year effective income tax rate was 23.2 percent compared to 2013 of 25.6 percent. The lower tax rate in 2014 was primarily the result of a higher foreign tax rate differential, lower U.S. taxes on foreign earnings and the 2014 releases of uncertain tax positions which exceeded those occurring in 2013, partially offset by lower 2014 U.S. research and development tax credits.

Ball’s Serbian subsidiary was granted an income tax holiday that applies to only a portion of earnings and expired at the end of 2015. In addition, the Serbian subsidiary was granted tax relief equal to 80 percent of additional local investment with a ten-year period that will expire in 2022. The tax relief may be used to offset tax on earnings not covered by the initial tax holiday and has $18.8 million remaining as of December 31, 2015. In 2011 and 2012, Ball’s Brazilian subsidiary was granted two tax holidays expiring in 2021 and 2022. Under the terms of the holidays, a certain portion of Brazil earnings receive up to a 19 percent tax exemption. The exemption reduced income tax by $16.1 million, $16.4 million and $14.7 million in 2015, 2014, and 2013, respectively. One of Ball’s Polish subsidiaries was granted a tax holiday in 2014 based on new capital investment. The holiday provides up to $33.9 million of tax relief over a ten year period.

Due to the U.S. tax status of certain Ball subsidiaries in Canada and the PRC, the company annually provides U.S. taxes on foreign earnings in those subsidiaries, net of any estimated foreign tax credits. Current taxes are also provided on certain other undistributed earnings that are currently taxable in the U.S. Net U.S. taxes primarily provided for Brazil, Canada and PRC earnings in 2015, 2014, and 2013 were $1.7 million, $11.8 million and $26.4 million, respectively. Management’s intention is to indefinitely reinvest undistributed earnings of Ball’s remaining foreign subsidiaries. The indefinite reinvestment assertion is supported by both long-term and short-term forecasts and U.S. financial requirements, including, but not limited to, operating cash flows, capital expenditures, debt maturities and dividends. As a result, the company has not provided deferred taxes on earnings in certain non-U.S. subsidiaries because such earnings are intended to be indefinitely reinvested in its international operations. Retained earnings in non-U.S. subsidiaries totaled $2,021.7 million as of December 31, 2015. It is not practical to estimate the additional taxes that may become payable upon the eventual remittance of these foreign earnings to the U.S.; however, repatriation of these earnings could result in a material increase to the company’s effective tax rate.

Net income tax payments were $58.4 million, $163.2 million and $111.4 million in 2015, 2014 and 2013, respectively.

The significant components of deferred tax assets and liabilities were:

	December 31,
($ in millions)	2015			2014

Deferred tax assets:
Deferred compensation	$	109.6		$	105.7
Accrued employee benefits	113.0			128.1
Plant closure costs	3.1			3.4
Accrued pensions	177.3			175.5
Inventory and other reserves	21.2			19.4
Net operating losses, foreign tax credits and other tax attributes	105.0			108.8
Unrealized losses on currency exchange and derivative transactions	57.1			24.4
Transaction costs	33.9			—
Other	32.4			26.2

Total deferred tax assets	652.6			591.5
Valuation allowance	(90.3		)	(92.4		)

Net deferred tax assets	562.3			499.1

Deferred tax liabilities:
Property, plant and equipment	(267.2		)	(242.4		)
Goodwill and other intangible assets	(155.2		)	(141.1		)
Other	(17.3		)	(30.2		)

Total deferred tax liabilities	(439.7		)	(413.7		)

Net deferred tax asset (liability)	$	122.6		$	85.4

The net deferred tax asset (liability) was included in the consolidated balance sheets as follows:

	December 31,
($ in millions)	2015			2014

Deferred taxes and other current assets	$	96.3		$	54.9
Intangibles and other assets, net	59.6			66.5
Other current liabilities	(3.1		)	(3.6		)
Deferred taxes and other liabilities	(30.2		)	(32.4		)

Net deferred tax asset	$	122.6		$	85.4

At December 31, 2015, Ball’s European subsidiaries had net operating loss carryforwards, primarily with no expiration date, of $34.6 million with a related tax benefit of $9.7 million. Ball’s Canadian subsidiaries had net operating loss carryforwards, expiring between 2027 and 2034, of $96.0 million with a related tax benefit of $25.4 million. One of Ball’s Mexican subsidiaries had net operating loss carryforwards of $23.1 million with a related tax benefit of $6.9 million expiring between 2021 and 2025. Due to the uncertainty of ultimate realization, the European and Canadian benefits have been fully offset by valuation allowances while the Mexican net operating losses are expected to be fully utilized. A few of Ball’s U.S. subsidiaries had state net operating loss carryforwards with a tax benefit of $13.9 million that expire between 2016 and 2034. At December 31, 2015, the company had foreign tax credit carryforwards of $47.1 million expiring between 2018 and 2024; however, due to the uncertainty of realization, the benefits of state net operating losses and foreign tax credit carryforwards have been fully offset by valuation allowances.

A rollforward of the unrecognized tax benefits related to uncertain income tax positions at December 31 follows:

($ in millions)	2015			2014			2013

Balance at January 1	$	65.5		$	78.3		$	76.6
Additions based on tax positions related to the current year	1.0			1.4			1.7
Additions for tax positions of prior years	2.2			7.7			5.5
Reductions for settlements	(8.4		)	—			(7.2		)
Reductions due to lapse of statute of limitations	(5.7		)	(16.5		)	(0.2		)
Effect of foreign currency exchange rates	(4.1		)	(5.4		)	1.9

Balance at December 31	$	50.5		$	65.5		$	78.3

The annual provisions for income taxes included tax benefits related to uncertain tax positions, including interest, of $3.6 million, $7.9 million and $3.4 million in 2015, 2014 and 2013, respectively.

At December 31, 2015, the amount of unrecognized tax benefits that, if recognized, would reduce tax expense was $57.2 million. Within the next 12 months, it is reasonably possible that unrecognized tax benefits may decrease by as much as $0.1 million as a result of settlements with various taxing jurisdictions. The company and its subsidiaries file various income tax returns in the U.S. federal, various state, local and foreign jurisdictions. The U.S. federal statute of limitations is closed for years prior to 2012. With a few exceptions, the company is no longer subject to examination by state and local tax authorities for years prior to 2008. The company’s significant non-U.S. filings are in Germany, France, the United Kingdom, the Netherlands, Poland, Serbia, Switzerland, the PRC, Canada, Brazil, the Czech Republic, Mexico and Argentina. At December 31, 2015, the company is either under examination or has been notified of a pending examination by tax authorities in Germany, the United Kingdom, Hong Kong, Canada and various U.S. states.

The company recognizes the accrual of interest and penalties related to unrecognized tax benefits in income tax expense. Ball recognized $1.6 million of tax benefit, $1.3 million of tax expense and $2.7 million of tax expense in 2015, 2014 and 2013, respectively, for potential interest on these items. At December 31, 2015 and 2014, the accrual for uncertain tax positions included potential interest expense of $9.2 million and $11.2 million, respectively. No penalties have been accrued.