
Note 6.	Income Taxes

The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate to income before provision for income taxes due to the following:



	Nine Months Ended
	September 29,			September 30,
(In millions)	2018			2017

Statutory Federal Income Tax Rate	21		%	35		%

Provision for Income Taxes at Statutory Rate	$	473		$	563

Increases (Decreases) Resulting From:
Foreign rate differential	(177		)	(287		)
Foreign exchange loss on inter-company debt refinancing	—			(237		)
Income tax credits	(183		)	(101		)
Global intangible low-taxed income	124			—
Foreign-derived intangible income	(34		)	—
Withholding taxes	—			49
Singapore tax holiday	(29		)	(17		)
Impact of change in tax laws and apportionment on deferred taxes	14			(60		)
Transition tax and other initial impacts of U.S. tax reform	117			—
(Reversal of) provision for tax reserves, net	(49		)	13
Excess tax benefits from stock options and restricted stock units	(59		)	(51		)
Valuation allowance	—			50
Other, net	13			(11		)

Provision for (benefit from) income taxes	$	210		$	(89	)

The company has operations and a taxable presence in approximately 50 countries outside the U.S. Some of these countries have lower tax rates than the U.S. The company’s ability to obtain a benefit from lower tax rates outside the U.S. is dependent on its relative levels of income in countries outside the U.S. and on the statutory tax rates in those countries.

In the first quarter of 2018, the company recorded a net tax provision of $21 million to adjust the estimated initial impacts of U.S. tax reform recorded in 2017, consisting of an incremental provision of $70 million offset in part by a $49 million reduction of related unrecognized tax benefits established in 2017. In the third quarter of 2018, the company recorded an incremental provision of $47 million to adjust the estimated initial impacts of U.S. tax reform recorded in 2017. These adjustments were required based on new U.S. Treasury guidance and further analysis of available tax accounting methods and elections, legislative updates, regulations, earnings and profits computations and taxpools.

The company has significant activities in Singapore and has received considerable tax incentives. The local taxing authority granted the company pioneer company status which provides an incentive encouraging companies to undertake activities that have the effect of promoting economic or technological development in Singapore. This incentive equates to a tax exemption on earnings associated with most of the company’s manufacturing activities in Singapore and continues through December 31, 2026. In 2018 and 2017, the impact of this tax holiday decreased the annual effective tax rates by 1.3 percentage points and 1.1 percentage point, respectively, and increased diluted earnings per share by approximately $0.07 and $0.04, respectively.

Unrecognized Tax Benefits

As of September 29, 2018, the company had $1.37 billion of unrecognized tax benefits substantially all of which, if recognized, would reduce the effective tax rate.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



(In millions)	2018

Balance at beginning of year	$	1,409
Reductions due to acquisitions	(9		)
Additions for tax positions of current year	5
Additions for tax positions of prior years	88
Reductions for tax positions of prior years	(69		)
Settlements	(52		)

Balance at end of period	$	1,372