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INCOME TAXES | 12 Months Ended
--- | ---
Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income before taxes
| Years Ended December 31,
2019 |  | 2018 |  | 2017
U.S. | $ | 4,178 |  |  | $ | 2,919 |  |  | $ | 2,873 |
Non-U.S. | 3,381 |  |  | 4,568 |  |  | 4,077 |
| $ | 7,559 |  |  | $ | 7,487 |  |  | $ | 6,950 |
Tax expense (benefit)
| Years Ended December 31,
2019 |  | 2018 |  | 2017
Tax expense (benefit) consists of |  |  |  |  |
Current: |  |  |  |  |
U.S. Federal | $ | 8 |  |  | $ | (21 | ) |  | $ | 2,061 |
U.S. State | 43 |  |  | 89 |  |  | 62 |
Non-U.S. | 1,099 |  |  | 1,177 |  |  | 787 |
| $ | 1,150 |  |  | $ | 1,245 |  |  | $ | 2,910 |
Deferred: |  |  |  |  |
U.S. Federal | $ | 332 |  |  | $ | 396 |  |  | $ | 190 |
U.S. State | 63 |  |  | 8 |  |  | 139 |
Non-U.S. | (216 | ) |  | (990 | ) |  | 2,123 |
| 179 |  |  | (586 | ) |  | 2,452 |
| $ | 1,329 |  |  | $ | 659 |  |  | $ | 5,362 |
| Years Ended December 31,
2019 |  | 2018 |  | 2017
The U.S. federal statutory income tax rate is reconciled to our effective income tax rate as follows: |  |  |  |  |
U.S. federal statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
Taxes on non-U.S. earnings(1)(2) | (0.5 | ) |  | 0.2 |  |  | (12.8 | )
U.S. state income taxes(1) | 1.1 |  |  | 1.6 |  |  | 1.4 |
Reserves for tax contingencies | 2.0 |  |  | 0.3 |  |  | 1.6 |
Employee share-based payments | (1.2 | ) |  | (0.7 | ) |  | (2.9 | )
U.S. Tax Reform | (3.6 | ) |  | (5.8 | ) |  | 56.0 |
Reduction of taxes on unremitted earnings | — |  |  | (14.2 | ) |  | — |
Separation tax costs | — |  |  | 5.5 |  |  | — |
All other items—net | (1.2 | ) |  | 0.9 |  |  | (1.1 | )
| 17.6 | % |  | 8.8 | % |  | 77.2 | %
(1) | Net of changes in valuation allowance
(2) | Includes U.S. taxes on non-U.S. earnings
The effective tax rate increased by 8.8 percentage points in 2019 compared to 2018. The increase was primarily attributable to a lower income tax benefit resulting from revised guidance related to U.S. Tax Reform and internal restructuring initiatives that resulted in a $281 million reduction of accrued withholding taxes related to unremitted foreign earnings when compared to the prior year. The Company’s non-U.S. effective tax rate was 26.1%, an increase of approximately 22.0 percentage points compared to 2018. The increase in the foreign effective tax rate was primarily attributable to a lower income tax benefit related to the Company’s internal restructuring initiatives when compared to the prior year. The effective tax rate decreased by 68.4 percentage points in 2018 compared to 2017. The decrease was primarily attributable to internal restructuring initiatives that resulted in a reduction of accrued withholding taxes of approximately $1.1 billion related to unremitted foreign earnings. In addition, we recorded a tax benefit of approximately $440 million as a reduction to our 2017 provisional estimate of impacts from U.S. Tax Reform, which was partially offset by $411 million of tax costs associated with the internal restructuring of the Homes and Global Distribution business and Transportation Systems business in advance of their spin-offs. The Company’s non-U.S. effective tax rate was 4.1%, a decrease of approximately 67.3 percentage points compared to 2017. The year over year decrease in the foreign effective tax rate was primarily attributable to the impact of the Company’s internal restructuring initiatives and the reduction of accrued withholding taxes on unremitted foreign earnings, partially offset by the spin-off transactions. Deferred tax assets (liabilities) The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:
Deferred tax assets: | December 31,
2019 |  | 2018
Postretirement benefits other than pensions | $ | 111 |  |  | $ | 120 |
Asbestos and environmental | 531 |  |  | 589 |
Employee compensation and benefits | 205 |  |  | 262 |
Other accruals and reserves | 279 |  |  | 336 |
Net operating and capital losses | 652 |  |  | 688 |
Tax credit carryforwards | 246 |  |  | 154 |
Gross deferred tax assets | 2,024 |  |  | 2,149 |
Valuation allowance | (656 | ) |  | (689 | )
Total deferred tax assets | $ | 1,368 |  |  | $ | 1,460 |
Deferred tax liabilities: |  |  |
Pension | $ | (469 | ) |  | $ | (40 | )
Property, plant and equipment | (469 | ) |  | (422 | )
Intangibles | (1,296 | ) |  | (1,553 | )
Unremitted earnings of foreign subsidiaries | (419 | ) |  | (616 | )
Other asset basis differences | (136 | ) |  | (110 | )
Other | (163 | ) |  | (50 | )
Total deferred tax liabilities | (2,952 | ) |  | (2,791 | )
Net deferred tax liability | $ | (1,584 | ) |  | $ | (1,331 | )
The Company's gross deferred tax assets include $767 million related to non-U.S. operations comprised principally of net operating losses, capital loss and tax credit carryforwards (mainly in Canada, France, Germany, Luxembourg and the United Kingdom) and deductible temporary differences. We maintain a valuation allowance of $653 million against a portion of the non-U.S. gross deferred tax assets. The change in the valuation allowance resulted in a decrease of $23 million and increases of $57 million and $4 million to income tax expense in 2019, 2018 and 2017. In the event we determine that we will not be able to realize our net deferred tax assets in the future, we will reduce such amounts through an increase to income tax expense in the period such determination is made. Conversely, if we determine that we will be able to realize net deferred tax assets in excess of the carrying amounts, we will decrease the recorded valuation allowance through a reduction to income tax expense in the period that such determination is made. As of December 31, 2019, the Company recorded a $419 million deferred tax liability on all of our unremitted foreign earnings based on estimated earnings and profits of approximately $16.7 billion as of the balance sheet date. As of December 31, 2019, the Company's net operating loss, capital loss and tax credit carryforwards were as follows:
Jurisdiction | Expiration Period |  | Net Operating and Capital Loss Carryforwards |  | Tax Credit Carryforwards
U.S. Federal | 2039 |  | $ | 16 |  |  | $ | 89 |
U.S. State | 2039 |  | 389 |  |  | 20 |
Non-U.S. | 2039 |  | 277 |  |  | 142 |
Non-U.S. | Indefinite |  | 2,324 |  |  | — |
|  |  | $ | 3,006 |  |  | $ | 251 |
Many jurisdictions impose limitations on the timing and utilization of net operating loss and tax credit carryforwards. In those instances, whereby there is an expected permanent limitation on the utilization of the net operating loss or tax credit carryforward, the deferred tax asset and amount of the carryforward have been reduced.
| 2019 |  | 2018 |  | 2017
Change in unrecognized tax benefits: |  |  |  |  |
Balance at beginning of year | $ | 1,089 |  |  | $ | 947 |  |  | $ | 877 |
Gross increases related to current period tax positions | 51 |  |  | 370 |  |  | 94 |
Gross increases related to prior periods tax positions | 83 |  |  | 82 |  |  | 153 |
Gross decreases related to prior periods tax positions | (34 | ) |  | (201 | ) |  | (91 | )
Decrease related to resolutions of audits with tax authorities | (3 | ) |  | (40 | ) |  | (76 | )
Expiration of the statute of limitations for the assessment of taxes | (13 | ) |  | (50 | ) |  | (54 | )
Foreign currency translation | (9 | ) |  | (19 | ) |  | 44 |
Balance at end of year | $ | 1,164 |  |  | $ | 1,089 |  |  | $ | 947 |
As of December 31, 2019, 2018, and 2017 there were $1,164 million, $1,089 million, and $947 million of unrecognized tax benefits that if recognized would be recorded as a component of Tax expense. The following table summarizes tax years that remain subject to examination by major tax jurisdictions as of December 31, 2019:
Jurisdiction | Open Tax Years Based on Originally Filed Returns
Examination in progress |  | Examination not yet initiated
U.S. Federal | 2015 - 2016 |  | 2017-2019
U.S. State | 2011 - 2017 |  | 2012-2018
Australia | N/A |  | 2016-2019
Canada(1) | 2015-2017 |  | 2018-2019
China | 2009-2018 |  | 2019
France | N/A |  | 2017-2019
Germany(1) | 2008-2017 |  | 2018-2019
India | 1999-2017 |  | 2018-2019
Italy | 2012-2017 |  | 2018-2019
Netherlands | 2016-2017 |  | 2018-2019
Switzerland(1) | 2012-2018 |  | 2019
United Kingdom | 2013-2017 |  | 2018-2019
(1) | Includes provincial or similar local jurisdictions, as applicable.
Based on the outcome of these examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities in our financial statements. In addition, the outcome of these examinations may impact the valuation of certain deferred tax assets (such as net operating losses) in future periods. Unrecognized tax benefits for examinations in progress were $413 million, $304 million and $487 million, as of December 31, 2019, 2018, and 2017. Estimated interest and penalties related to the underpayment of income taxes are classified as a component of Tax expense in the Consolidated Statement of Operations and totaled $73 million, $45 million and $28 million for the years ended December 31, 2019, 2018, and 2017. Accrued interest and penalties were $487 million, $426 million and $423 million, as of December 31, 2019, 2018, and 2017. U.S. Tax Reform During the quarter ending December 31, 2018, the Company completed the accounting for the tax effects of U.S. Tax Reform which amounted to a total tax charge of approximately $3.5 billion, most of which was recorded as a provisional estimate at the end of 2017. During 2018, we reduced our provisional estimate by approximately $440 million as a reduction to Tax expense. Corporate Tax Rate Change—During the years 2018 and 2017, the Company recorded a total tax benefit of approximately $190 million due to the decrease in the corporate statutory tax rate from 35% to 21%. This includes a measurement period adjustment of approximately $90 million recorded during 2018 as a reduction to Tax expense. The change in the provisional estimate primarily relates to information contained in tax returns that were filed during the quarter ending December 31, 2018, some of which require approval from U.S. tax authorities. The tax benefit from the change in tax rates results from the Company’s deferred tax liability position for the excess of its net book value over its tax basis of its U.S. assets and liabilities that will generate future taxable income in excess of book income. This additional taxable income will be subject to tax at a lower corporate tax rate, consequently reducing the Company’s deferred tax liability. Mandatory Transition Tax—During the years 2018 and 2017, the Company recorded a total tax charge of approximately $1,950 million due to the imposition of the mandatory transition tax (“MTT”) on the deemed repatriation of undistributed foreign earnings. This includes a measurement period adjustment of approximately $50 million recorded during 2018 as an increase to Tax expense. The change in the provisional estimate primarily relates to updated amounts from tax returns that were finalized during 2018, computations based on 2018 testing dates and guidance from the taxing authorities that was received during the year. The Company has elected to pay the MTT liability over a period of eight years. Undistributed Foreign Earnings—During the years 2018 and 2017, the Company recorded a total tax charge of approximately $1,700 million due to the Company’s intent to no longer permanently reinvest the historical unremitted earnings of its foreign affiliates that existed as of December 31, 2017. This includes a measurement period adjustment of approximately $400 million recorded during 2018 as a reduction to Tax expense. The change in the provisional estimate primarily relates to updated amounts from tax returns that were finalized during 2018, the application of foreign tax credits based on guidance issued during the year and changes to the applicable withholding tax rates in local jurisdictions. The Company also reduced these taxes on unremitted foreign earnings by $281 million and $1.1 billion in 2019 and 2018, respectively, that were recorded as reductions to Tax expense. Global Intangible Low Taxed Income—U.S. Tax Reform imposes a U.S. tax on global intangible low taxed income (“GILTI”) that is earned by certain foreign affiliates owned by a U.S. shareholder. GILTI is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. The Company has made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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