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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes | Note 14. Income Taxes On December 22, 2017, new U.S. tax reform legislation was enacted that included a broad range of complex provisions impacting the taxation of businesses. Certain impacts of the new legislation would generally require accounting to be completed in the period of enactment, however in response to the complexities of this new legislation, the SEC issued guidance to provide companies with relief. Specifically, when the initial accounting for items under the new legislation is incomplete, the guidance allows us to recognize provisional amounts when reasonable estimates can be made or to continue to apply the prior tax law if a reasonable estimate of the impact cannot be made. The SEC has provided up to a one-year window for companies to finalize the accounting for the impacts of this new legislation and we anticipate finalizing our accounting during 2018. While our accounting for the new U.S. tax legislation is not complete, we have made reasonable estimates for some provisions and recognized a $59 million discrete net tax benefit in our 2017 financial statements. This net benefit is primarily comprised of a $1,311 million provisional deferred tax benefit from revaluing our net U.S. deferred tax liabilities to reflect the new U.S. corporate tax rate as well as an additional $61 million provisional deferred tax benefit related to changes in our indefinite reinvestment assertion, partially offset by a $1,317 million provisional charge for the estimated transition tax. In general, the transition tax is as a result of the deemed repatriation imposed by the new legislation that results in the taxation of our accumulated foreign earnings and profits (“E&P”) at a 15.5% rate on liquid assets (i.e. cash and other specified assets) and 8% on the remaining unremitted foreign E&P, both net of foreign tax credits. At this time, we have not yet gathered, prepared and analyzed the necessary information in sufficient detail to complete the complex calculations necessary to finalize the amount of our transition tax. We believe that our provisional calculations result in a reasonable estimate of the transition tax and related foreign tax credit, and as such have included those amounts in our year-end income tax provision. We do not believe that it is more likely than not that we will realize the benefit of the estimated excess foreign tax credit carryforward created by the deemed repatriation and have thus recognized a full valuation allowance against this deferred tax asset. As we complete the analysis of accumulated foreign E&P and related foreign taxes paid on an entity by entity basis and finalize the amounts held in cash or other specified assets, we will update our provisional estimate of the transition tax and related foreign tax credit, including any excess credit carryforward and the corresponding valuation allowance. Our estimate of the deferred tax benefit due to the revaluation of our net U.S. deferred tax liabilities is also a provisional amount under the SEC’s guidance. Due to the newly enacted U.S. tax rate change, timing differences that are estimated balances as of the date of enactment and year-end will result in changes to our estimate of the deferred rate change when those estimates are finalized with the filing of the 2017 income tax return. This is a result of the different federal income tax rates in effect for 2017 (35%) and 2018 (21%). Since many of the year-end deferred tax balances include estimates of events that have not yet occurred such as payments expected to be made during 2018 but which are deductible on the 2017 tax return, these amounts cannot yet be known to finalize the impact of the tax rate change. As a result of U.S. tax reform, we have changed our indefinite reinvestment assertion for most companies owned directly by our U.S. subsidiaries, and as such, we may need to accrue deferred taxes. As of year end, we have calculated the impact to accrue the deferred tax assets related to two entities where the deferred tax benefits are now expected to be realized in the foreseeable future. However, we do not have the necessary information gathered, prepared and analyzed to make a reasonable estimate of the impact of any remaining outside basis differences inherent in the rest of our foreign subsidiaries. We will gather the information necessary and compute the outside basis differences for those subsidiaries where we are no longer indefinitely reinvested and record any new deferred taxes as reasonable estimates are available. We estimate that the unremitted earnings as of December 31, 2017 in those subsidiaries where we expect to continue to be indefinitely reinvested is approximately $2 billion. It is impracticable for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings. Future tax law changes or changes in the needs of our non-U.S. subsidiaries could require us to recognize deferred tax liabilities on a portion, or all, of our accumulated earnings that were previously expected to be indefinitely reinvested. The legislation also establishes new provisions that will affect our 2018 results, including but not limited to, a reduction in the U.S. corporate tax rate on domestic operations; the creation of a new minimum tax called the base erosion anti-abuse tax (BEAT); a new provision that taxes U.S. allocated expenses (e.g. interest and general administrative expenses) as well as currently taxes certain income from foreign operations (Global Intangible Low-Tax Income, or “GILTI”); a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; a new limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; and limitations on the deductibility of certain employee compensation. While the new legislation generally eliminates U.S. federal income tax on dividends from foreign subsidiaries going forward, certain income earned by certain subsidiaries must be included currently in our U.S. taxable income under the new GILTI inclusion rules (as a result of U.S. expense allocation rules). Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the legislation and the application of U.S. GAAP. Under U.S. GAAP, we are allowed to make an accounting policy election and either treat taxes due from GILTI as a current-period expense when they are incurred or factor such amounts into our measurement of deferred taxes. Our selection of an accounting policy with respect to the new GILTI rules will depend in part on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI, and if so, what the impact is expected to be. We have not yet computed a reasonable estimate of the effect of this provision, and therefore, we have not made a policy decision regarding whether to record deferred taxes related to GILTI nor have we made any adjustments related to GILTI tax in our year-end financial statements. Earnings/(losses) from continuing operations before income taxes and the provision for income taxes consisted of:
|  | For the Years Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | (in millions) |
Earnings/(losses) from continuing operations before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 354 |  |  | $ | (364 | ) |  | $ | 43 |
Outside United States |  |  | 2,770 |  |  |  | 1,818 |  |  |  | 7,841 |
Total |  | $ | 3,124 |  |  | $ | 1,454 |  |  | $ | 7,884 |
Provision for income taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States federal: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 1,322 |  |  | $ | (227 | ) |  | $ | (90 | )
Deferred |  |  | (1,256 | ) |  |  | 141 |  |  |  | 136 |
|  |  | 66 |  |  |  | (86 | ) |  |  | 46 |
State and local: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 33 |  |  |  | 7 |  |  |  | 6 |
Deferred |  |  | 33 |  |  |  | 8 |  |  |  | (3 | )
|  |  | 66 |  |  |  | 15 |  |  |  | 3 |
Total United States |  |  | 132 |  |  |  | (71 | ) |  |  | 49 |
Outside United States: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 541 |  |  |  | 490 |  |  |  | 707 |
Deferred |  |  | 15 |  |  |  | (290 | ) |  |  | (163 | )
Total outside United States |  |  | 556 |  |  |  | 200 |  |  |  | 544 |
Total provision for income taxes |  | $ | 688 |  |  | $ | 129 |  |  | $ | 593 |
We recorded an out-of-period adjustment of $14 million net expense in 2015 that had an immaterial impact on the annual provision for income taxes. The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons:
|  | For the Years Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
U.S. federal statutory rate |  |  | 35.0% |  |  |  | 35.0% |  |  |  | 35.0% |
Increase/(decrease) resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State and local income taxes, net of federal tax benefit excluding IRS audit impacts |  |  | 0.8% |  |  |  | 0.8% |  |  |  | (0.1)% |
Foreign rate differences |  |  | (10.8)% |  |  |  | (18.6)% |  |  |  | (2.5)% |
Changes in judgment on realizability of deferred tax assets |  |  | 3.2% |  |  |  | – |  |  |  | – |
Reversal of other tax accruals no longer required |  |  | (1.7)% |  |  |  | (7.7)% |  |  |  | (1.4)% |
Tax accrual on investment in Keurig |  |  | 2.7% |  |  |  | 2.3% |  |  |  | – |
Excess tax benefits from equity compensation |  |  | (1.2)% |  |  |  | – |  |  |  | – |
Tax legislation (non-U.S. tax reform) |  |  | (2.7)% |  |  |  | (4.0)% |  |  |  | (0.5)% |
U.S. tax reform - deferred benefit from tax rate change |  |  | (42.0)% |  |  |  | – |  |  |  | – |
U.S. tax reform - transition tax |  |  | 42.2% |  |  |  | – |  |  |  | – |
U.S. tax reform - changes in indefinite reinvestment assertion |  |  | (2.0)% |  |  |  | – |  |  |  | – |
Gains on coffee business transactions and divestitures |  |  | – |  |  |  | – |  |  |  | (26.9)% |
Business sales |  |  | (0.9)% |  |  |  | – |  |  |  | – |
Loss on deconsolidation of Venezuela |  |  | – |  |  |  | – |  |  |  | 3.5% |
Non-deductible expenses |  |  | 0.4% |  |  |  | 0.9% |  |  |  | 0.3% |
Other |  |  | (1.0)% |  |  |  | 0.2% |  |  |  | 0.1% |
Effective tax rate |  |  | 22.0% |  |  |  | 8.9% |  |  |  | 7.5% |
Our 2017 effective tax rate of 22.0% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $117 million of discrete one-time events, partially offset by an increase in domestic earnings as compared to the prior year. The discrete net tax benefits included the provisional net impact from U.S. tax reform discussed previously, favorable audit settlements and statutes of limitations in various jurisdictions, and the net reduction of our French and Belgian deferred tax liabilities resulting from tax legislation enacted during 2017 that reduced the corporate income tax rates in each country, partially offset by the addition of a valuation allowance in one of our Chinese entities. Our 2016 effective tax rate of 8.9% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $161 million of discrete one-time events. The discrete net tax benefits related to favorable audit settlements and statutes of limitations in various jurisdictions and the net reduction of our U.K. and French deferred tax liabilities resulting from tax legislation enacted during 2016 that reduced the corporate income tax rates in each country. Our 2015 effective tax rate of 7.5% was favorably impacted by the one-time third quarter sale of our coffee business that resulted in a pre-tax gain of $6,809 million and $184 million of related tax expense, as well as $27 million of tax costs incurred to remit proceeds up from lower-tier foreign subsidiaries to allow cash to be redeployed within our retained foreign operations. The benefit of the third quarter transaction was partially offset by the tax costs associated with the sale of our interest in AGF in the first half of the year and the impact of deconsolidating our Venezuelan operations on December 31, 2015. Excluding the impacts of these transactions, our effective tax rate would have been 17.8%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $119 million of discrete one-time events. The remaining discrete one-time events primarily related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and the net reduction of U.K. deferred tax liabilities resulting from tax legislation enacted during 2015 that reduced the U.K. corporate income tax rate. The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following:
|  | As of December 31, |
|  | 2017 |  |  | 2016 |
|  | (in millions) |
Deferred income tax assets: |  |  |  |  |  |  |  |
Accrued postretirement and postemployment benefits |  | $ | 191 |  |  | $ | 214 |
Accrued pension costs |  |  | 313 |  |  |  | 370 |
Other employee benefits |  |  | 155 |  |  |  | 237 |
Accrued expenses |  |  | 269 |  |  |  | 379 |
Loss carryforwards |  |  | 773 |  |  |  | 619 |
Tax credit carryforwards |  |  | 370 |  |  |  | — |
Other |  |  | 342 |  |  |  | 331 |
Total deferred income tax assets |  |  | 2,413 |  |  |  | 2,150 |
Valuation allowance |  |  | (853 | ) |  |  | (310 | )
Net deferred income tax assets |  | $ | 1,560 |  |  | $ | 1,840 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  | $ | (3,977 | ) |  | $ | (5,174 | )
Property, plant and equipment |  |  | (452 | ) |  |  | (557 | )
Other |  |  | (188 | ) |  |  | (472 | )
Total deferred income tax liabilities |  |  | (4,617 | ) |  |  | (6,203 | )
Net deferred income tax liabilities |  | $ | (3,057 | ) |  | $ | (4,363 | )
Our significant valuation allowances are in the U.S., Mexico, China and Ireland. The U.S. valuation allowance relates to excess foreign tax credits generated by the deemed repatriation under U.S. tax reform. The valuation allowance in China results from a change in judgment as to the realizability of one of our Chinese entity’s deferred tax assets. The Mexico and Ireland valuation allowances relate to loss carryforwards where we do not currently expect to generate gains of the proper character to utilize the carryforwards in the future. At December 31, 2017, the Company has pre-tax loss carryforwards of $4,060 million, of which $1,105 million will expire at various dates between 2018 and 2037 and the remaining $2,955 million can be carried forward indefinitely. The changes in our unrecognized tax benefits were:
|  | For the Years Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | (in millions) |
January 1 |  | $ | 610 |  |  | $ | 756 |  |  | $ | 852 |
Increases from positions taken during prior periods |  |  | 33 |  |  |  | 18 |  |  |  | 34 |
Decreases from positions taken during prior periods |  |  | (93 | ) |  |  | (123 | ) |  |  | (74 | )
Increases from positions taken during the current period |  |  | 64 |  |  |  | 90 |  |  |  | 84 |
Decreases relating to settlements with taxing authorities |  |  | (54 | ) |  |  | (75 | ) |  |  | (13 | )
Reductions resulting from the lapse of the applicable statute of limitations |  |  | (29 | ) |  |  | (43 | ) |  |  | (41 | )
Currency/other |  |  | 48 |  |  |  | (13 | ) |  |  | (86 | )
December 31 |  | $ | 579 |  |  | $ | 610 |  |  | $ | 756 |
As of January 1, 2017, our unrecognized tax benefits were $610 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $549 million. Our unrecognized tax benefits were $579 million at December 31, 2017, and if we had recognized all of these benefits, the net impact on our income tax provision would have been $524 million. Within the next 12 months, our unrecognized tax benefits could increase by approximately $40 million due to unfavorable audit developments or decrease by approximately $150 million due to audit settlements and the expiration of statutes of limitations in various jurisdictions. We include accrued interest and penalties related to uncertain tax positions in our tax provision. We had accrued interest and penalties of $189 million as of January 1, 2017 and $212 million as of December 31, 2017. Our 2017 provision for income taxes included $26 million for interest and penalties. Our income tax filings are regularly examined by federal, state and non-U.S. tax authorities. Our 2013-2015 U.S. federal income tax filings are currently under examination by the IRS. U.S. state and non-U.S. jurisdictions have statutes of limitations generally ranging from three to five years; however, these statutes are often extended by mutual agreement with the tax authorities. Years still open to examination by non-U.S. tax authorities in major jurisdictions include (earliest open tax year in parentheses): Brazil (2012), China (2007), France (2014), India (2005), Italy (2012) and the United Kingdom (2015).

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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