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 have generally required accounting to be completed and incorporated into our 2017 year-end financial statements, however in response to the complexities of this new legislation, the SEC issued guidance to provide companies with relief. The SEC provided up to a one-year window for companies to finalize the accounting for the impacts of this new legislation. We finalized our accounting for the new provisions during the fourth quarter of 2018.

The impact on our 2018 results from finalizing the accounting for the new provisions was a discrete net tax expense of $19 million. The $19 million expense in 2018 is primarily comprised of a $60 million expense related to finalizing the changes in our indefinite reinvestment assertion, partially offset by a $38 million decrease to the provisional transition tax recorded as of December 31, 2017.

In general, the transition tax is 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. We finalized the accounting for this provision during the fourth quarter of 2018. During 2018 we recognized a $38 million decrease to the $1,317 million provisional transition tax recorded as December 31, 2017 for a total transition net tax expense and gross U.S. tax reform transition tax liability (before payments) of $1,279 million which will be paid in installments through 2026.

During the fourth quarter of 2018, we also finalized our accounting for the deferred tax benefit resulting from the revaluation of our net U.S. deferred tax liabilities. The $1,311 million deferred tax benefit recorded as of 2017 year-end was reduced to $1,295 million as a result of the change to lag accounting for Keurig.

As a result of U.S. tax reform, we changed our indefinite reinvestment assertion for most companies owned directly by our U.S. subsidiaries. As of 2017 year end, we accrued deferred tax assets related to two entities where the deferred tax benefits were expected to be realized. As of 2018 year end, we finalized our analysis related to the change in our indefinite reinvestment assertion and recognized $60 million in deferred tax expense to capture the foreign and state tax impacts of the US GAAP over tax basis difference in those subsidiaries where we are no longer indefinitely reinvested.

The legislation established various new provisions, including 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”). As of December 31, 2018, we have made a policy decision and elected to treat taxes due from GILTI as a current period expense.



	For the Years Ended December 31,
	2018			2017			2016
	(in millions)
Earnings/(losses) from continuing operations before income taxes:
United States	$	(170	)	$	354		$	(364	)
Outside United States	3,012			2,770			1,818
	$	2,842		$	3,124		$	1,454
Provision for income taxes:
United States federal:
Current	$	(34	)	$	1,322		$	(227	)
Deferred	171			(1,274		)	127
	137			48			(100		)
State and local:
Current	23			32			7
Deferred	61			30			7
	84			62			14
Total United States	221			110			(86		)

Outside United States:
Current	552			541			490
Deferred	—			15			(290		)
Total outside United States	552			556			200

Total provision for income taxes	$	773		$	666		$	114



	For the Years Ended December 31,
	2018		2017		2016
U.S. federal statutory rate	21.0	%	35.0	%	35.0	%
Increase/(decrease) resulting from:
State and local income taxes, net of federal tax benefit	0.4	%	0.8	%	0.8	%
Foreign rate differences	(1.9	)%	(10.8	)%	(18.6	)%
Changes in judgment on realizability of deferred tax assets	(0.4	)%	3.2	%	—
Reversal of other tax accruals no longer required	(1.8	)%	(1.7	)%	(7.6	)%
Tax accrual on investment in Keurig (including tax impact of the gain from the KDP transaction)	8.4	%	1.2	%	1.2	%
Excess tax benefits from equity compensation	(0.8	)%	(1.2	)%	—
Tax legislation (non-U.S. tax reform)	0.3	%	(2.6	)%	(4	)%
U.S. tax reform - deferred benefit from tax rate change	—		(41.5	)%	—
U.S. tax reform - transition tax	(1.3	)%	42.2	%	—
U.S. tax reform - changes in indefinite reinvestment assertion	2.1	%	(2.0	)%	—
Foreign tax provisions under TCJA (GILTI, FDII and BEAT)⁽¹⁾	1.1	%	—		—
Other	0.1	%	(1.3	)%	1.0	%
Effective tax rate	27.2	%	21.3	%	7.8	%

Our 2018 effective tax rate of 27.2% was unfavorably impacted by net tax expenses from $128 million of discrete one-time events as well as unfavorable provisions within the new U.S. tax reform legislation, partially offset by the favorable mix of pre-tax income in various non-U.S. tax jurisdictions as well as the reduction in the U.S. federal tax rate. The discrete net tax expenses included a $192 million deferred tax expense related to a $778 million gain on the KDP transaction reported as a gain on equity method investment as well as $19 million expense from the final updates to the provisional impacts from U.S. tax reform reported as of 2017 year-end, partially offset by an $81 million benefit from favorable audit settlements and statutes of limitations in various jurisdictions.

Our 2017 effective tax rate of 21.3% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $97 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 7.8% 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.



	As of December 31,
	2018			2017
	(in millions)
Deferred income tax assets:
Accrued postretirement and postemployment benefits	$	147		$	191
Accrued pension costs	349			313
Other employee benefits	147			155
Accrued expenses	283			269
Loss carryforwards	707			773
Tax credit carryforwards	747			370
Other	302			342
Total deferred income tax assets	2,682			2,413
Valuation allowance	(1,153		)	(853		)
Net deferred income tax assets	$	1,529		$	1,560
Deferred income tax liabilities:
Intangible assets	$	(3,861	)	$	(3,977	)
Property, plant and equipment	(473		)	(452		)
Other	(492		)	(153		)
Total deferred income tax liabilities	(4,826		)	(4,582		)
Net deferred income tax liabilities	$	(3,297	)	$	(3,022	)

Our significant valuation allowances are in the U.S., China and Mexico. 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 in 2017 as to the realizability of one of our Chinese entity’s deferred tax

At December 31, 2018, the Company has pre-tax loss carryforwards of $3,744 million, of which $1,114 million will expire at various dates between 2019 and 2038 and the remaining $2,630 million can be carried forward indefinitely.

The unremitted earnings as of December 31, 2018 in those subsidiaries where we continue to be indefinitely reinvested is approximately $1.7 billion. We currently have not recognized approximately $115 million of deferred tax liabilities related to those unremitted 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 are currently indefinitely reinvested.



	For the Years Ended December 31,
	2018			2017			2016
	(in millions)
January 1	$	579		$	610		$	756
Increases from positions taken during prior periods	36			33			18
Decreases from positions taken during prior periods	(43		)	(93		)	(123		)
Increases from positions taken during the current period	57			64			90
Decreases relating to settlements with taxing authorities	(45		)	(54		)	(75		)
Reductions resulting from the lapse of the applicable statute of limitations	(31		)	(29		)	(43		)
Currency/other	(37		)	48			(13		)
December 31	$	516		$	579		$	610

As of January 1, 2018, our unrecognized tax benefits were $579 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $524 million. Our unrecognized tax benefits were $516 million at December 31, 2018, and if we had recognized all of these benefits, the net impact on our income tax provision would have been $463 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 $151 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 $212 million as of January 1, 2018 and $180 million as of December 31, 2018. Our 2018 provision for income taxes included $9 million benefit for interest and penalties.