

	Year Ended December 31,
	2019			2018			2017
Income before income taxes
Domestic	$	1,333		$	1,371		$	1,308
Foreign	1,148			1,149			1,218
Total	$	2,481		$	2,520		$	2,526

Income tax provision
Current tax expense:
Federal	$	189		$	140		$	266
State	124			107			92
Foreign	241			226			268
Total	$	554		$	473		$	626

Deferred tax expense (benefit):
Federal	$	(21	)	$	29		$	(677	)
State	(4		)	9			33
Foreign	(8		)	(11		)	(10		)
	$	(33	)	$	27		$	(654	)
Total income tax expense (benefit)	$	521		$	500		$	(28	)



	Year Ended December 31,
	2019		2018		2017
Statutory federal income tax rate	21	%	21	%	35	%
State and local income taxes, net of federal benefit	4		3		3
Foreign tax rate differential	(1	)	(1	)	(7	)
Current year tax benefit from foreign derived intangible income	(1	)	—		—
Deferred tax benefit due to tax law changes	—		—		(30	)
Other	(2	)	(3	)	(2	)
Total provision for income taxes	21	%	20	%	(1	)%

On December 22, 2017, the TCJA was signed into law (Note 2). The TCJA reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the foreign tax rate differentials in 2019 and 2018 are significantly lower than they had been in previous years. Favorable foreign income tax rate differentials result primarily from lower income tax rates in the U.K. and various other lower tax jurisdictions as compared to the historical income tax rates in the U.S.

We were required to revalue our U.S. deferred tax assets and liabilities at the new federal corporate income tax rate as of the date of enactment of the TCJA and to include the rate change effect in the tax provision for the period ended December 31, 2017. As a result, we recognized a $764 million deferred tax benefit based on a reasonable estimate of the deferred tax assets and liabilities as of December 22, 2017. This significantly reduced the effective tax rate for the period ended December 31, 2017 in comparison to the effective tax rates in the other years presented. The 2017 effective tax rate would have been 29% without this deferred tax benefit.

Our effective tax rates were 21% and 20% in 2019 and 2018, respectively. The difference is primarily driven by the 2018 discrete tax benefits from the acquisition of MERS and the divestiture of Trayport exceeding the net increased tax benefits recorded in 2019 from certain international tax provisions under the TCJA, including the tax benefit from Foreign-Derived Intangible Income, or FDII. The impact of the 2019 FDII benefit is outlined in the above effective tax rate reconciliation.

The 2018 effective tax rate was lower than the 2017 effective tax rate excluding the deferred tax benefit from the U.S. tax law changes. This is primarily due to the lower U.S. corporate income tax rate that became effective January 1, 2018. In addition, the 2018 effective tax rate was further reduced due to tax benefits from the acquisition of MERS and the divestiture

of Trayport, and deferred tax benefits from changes in estimates. The tax benefit from the acquisition of MERS is included in "Other" in the above effective tax rate reconciliation.

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. The following table summarizes the significant components of our deferred tax liabilities and assets as of December 31, 2019 and 2018 (in millions):



	As of December 31,
	2019			2018
Deferred tax assets:
Deferred and stock-based compensation	$	82		$	89
Pension	4			12
Liability reserve	38			35
Tax credits	2			3
Loss carryforward	129			138
Deferred revenue	22			24
Other	42			55
Total	319			356
Valuation allowance	(119		)	(119		)
Total deferred tax assets, net of valuation allowance	$	200		$	237
Deferred tax liabilities:
Property and equipment	$	(132	)	$	(133	)
Acquired intangibles	(2,382		)	(2,439		)
Total deferred tax liabilities	$	(2,514	)	$	(2,572	)
Net deferred tax liabilities	$	(2,314	)	$	(2,335	)
Reported as:
Net non-current deferred tax assets	$	—		$	2
Net non-current deferred tax liabilities	(2,314		)	(2,337		)
Net deferred tax liabilities	$	(2,314	)	$	(2,335	)



	Year Ended December 31,
	2019			2018			2017
Beginning balance of deferred income tax valuation allowance	$	119		$	126		$	122
Charges against goodwill	1			—			15
Decreases	(1		)	(7		)	(11		)
Ending balance of deferred income tax valuation allowance	$	119		$	119		$	126

We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we believe that it is more likely than not that some or all of the deferred tax assets will not be realized. We recorded a valuation allowance for deferred tax assets of $119 million as of both December 31, 2019 and 2018. Decreases in 2018 primarily relate to utilization of certain deferred tax assets on capital losses that we did not expect to be realizable. Decreases in 2017 relate to the U.S. corporate income tax rate reduction from 35% to 21% and the net impact from the divestitures of Trayport and IDMS. Increases charged against goodwill primarily relate to deferred tax assets arising on the 2017 acquisition of National Stock Exchange.

As part of U.S. tax reform, the TCJA imposed a transition tax on certain accumulated foreign earnings aggregated across all non-U.S. subsidiaries, net of foreign deficits, as computed under U.S. tax principles. As we were in an aggregate net foreign deficit position for U.S. tax purposes as of December 31, 2017, we were not liable for the transition tax.

Effective January 1, 2018, the majority of our 2019 and 2018 current undistributed earnings of our non-U.S. subsidiaries became subject to the Global Intangible Low-Taxed Income provisions under the TCJA and, as such, are subject to immediate U.S. income taxation and can be distributed to the U.S. with no material additional income tax consequences in the

future. Consequently, these earnings are not considered to be indefinitely reinvested and the related tax impact is included in our income tax provision for the periods ended December 31, 2019 and 2018, respectively.

However, our non-U.S. subsidiaries’ cumulative undistributed earnings as of December 31, 2017 and the 2019 and 2018 current undistributed earnings that are not subject to the Global Intangible Low-Taxed Income provisions are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made in the accompanying consolidated financial statements. Further, a determination of the unrecognized deferred tax liability is not practicable. An estimate of these indefinitely reinvested undistributed earnings as of December 31, 2019, based on post-income tax earnings under U.S. GAAP, is $5.2 billion.

SAB 118 provided guidance for companies that had not completed their accounting for the income tax effects of the TCJA in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. During 2018, we completed our accounting for the tax effects of the enactment of the TCJA. We reaffirmed our position that we were not subject to transition tax under the TCJA as of December 31, 2017, and therefore, we did not record any transition tax during the measurement period. We also concluded that the $764 million deferred tax benefit recorded in the 2017 tax provision was a reasonable estimate of the impact of the TCJA on our deferred tax balances, and that no further adjustments were necessary during the measurement period.

In 2018 we adopted an accounting policy regarding the treatment of taxes due on future inclusion of non-U.S. income in U.S. taxable income under the Global Intangible Low-Taxed Income provisions as a current period expense when incurred. Therefore, no deferred tax related to these provisions has been recorded as of December 31, 2019 or 2018.

As of December 31, 2019 and 2018, we have gross U.S. federal net operating loss carryforwards of $119 million and $133 million, respectively, and gross state and local net operating loss carryforwards of $110 million and $201 million, respectively. The decreases of federal and state and local net operating loss carryforwards are primarily due to utilization of certain net operating losses in the current year, partially offset by additions related to acquisitions. The net operating loss carryforwards are available to offset future taxable income until they expire, with material amounts beginning in 2026. In addition, as of December 31, 2019 and 2018, we have gross foreign net operating loss carryforwards of $282 million and $285 million, respectively. The majority of gross foreign net operating losses are not expected to be realizable in future periods and have related valuation allowances.



	Year Ended December 31,
	2019			2018			2017
Beginning balance of unrecognized tax benefits	98			$	115		112
Additions based on tax positions taken in current year	17			13			10
Additions based on tax positions taken in prior years	9			7			9
Reductions based on tax positions taken in prior years	(1		)	—			—
Reductions resulting from statute of limitation lapses	(13		)	(19		)	(8		)
Reductions related to settlements with taxing authorities	(7		)	(18		)	(8		)
Ending balance of unrecognized tax benefits	$	103		$	98		$	115

As of December 31, 2019 and 2018, the balance of unrecognized tax benefits which would, if recognized, affect our effective tax rate was $85 million and $81 million, respectively. It is reasonably possible, as a result of settlements of ongoing audits or statute of limitations expirations, unrecognized tax benefits could increase as much as $17 million and decrease as much as $13 million within the next 12 months. Of the $103 million in unrecognized tax benefits as of December 31, 2019, $90 million is recorded as other non-current liabilities and $13 million is recorded as other current liabilities.

We recognize interest and penalties accrued on income tax uncertainties as a component of income tax expense. In 2019, 2018 and 2017, we recognized $5 million, ($6 million) and ($1 million), respectively, of income tax expense/(benefit) for interest and penalties. As of December 31, 2019 and 2018, accrued interest and penalties were $33 million and $28 million, respectively. Of the $33 million in accrued interest and penalties as of December 31, 2019, $23 million is recorded as other non-current liabilities and $10 million is recorded as other current liabilities in the accompanying consolidated balance sheet.

We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table summarizes open tax years by major jurisdiction: