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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the Tax Reform Act was enacted into law and the new legislation contained several key tax provisions that impacted the Company, including a reduction of the corporate income tax rate to 21% effective for tax years beginning after December 31, 2017 and a one-time mandatory transition tax on accumulated foreign earnings (the “Transition Tax”), among others. Also on December 22, 2017, the Securities and Exchange Commission (the “SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act in the period of enactment. SAB 118 allowed registrants to record provisional amounts during a one-year measurement period. In the fourth quarter of 2017, a net provisional charge of $345 million was recorded which included the Transition Tax, the re-measurement of existing deferred tax balances, as well as local country income taxes, state income taxes and withholding taxes expected to be due upon repatriation of the earnings subject to the Transition Tax. In addition, at that time the Company was unable to estimate the allocation between continuing and discontinued operations of the tax benefit from foreign tax credits utilized in 2017. In the fourth quarter of 2018, the Company finalized its accounting for enactment date income tax effects of the Tax Reform Act after analyzing guidance issued during the measurement period, completing its reviews, filing its tax returns, and evaluating the local tax rules. The following table presents the impact of the accounting for the enactment of the Tax Reform Act on income tax expense (benefit) from continuing operations in our Consolidated Statements of Income for the years ended December 31, 2018 and 2017.
Years ended December 31 | 2018 | 2017 | Total
Transition tax (1) | $ | 36 |  | $ | 264 |  | $ | 300 |
Re-measurement of deferred tax balances (2) | (8 | ) | 86 |  | 78 |
Indefinite reinvestment assertion (3) | 1 |  | (5 | ) | (4 | )
Allocation of tax benefit from foreign tax credits (4) | 59 |  | — |  | 59 |
Total income tax expense (benefit) | $ | 88 |  | $ | 345 |  | $ | 433 |
(1) | Reflects the Transition Tax on the post-1986 earnings and profits and related foreign tax credits of U.S.-owned foreign subsidiaries as of November 2, 2017 and December 31, 2017, whichever is higher.
(2) | Reflects the re-measurement of deferred tax assets and liabilities as a result of the reduction in the U.S. corporate income tax rate from 35% to 21%.
(3) | Reflects the accrual for local country income taxes, state income taxes and withholding taxes as a result of the change in its indefinite reinvestment assertion such that the Company is generally no longer indefinitely reinvested on the earnings subject to the Transition Tax.
(4) | Reflects the allocation of tax expense from discontinued operations to continuing operations related to the utilization of foreign tax credits in the tax year ended December 31, 2017. Without the income from discontinued operations, these foreign tax credits would have required a valuation allowance.
The payable balance for the Transition Tax was $240 million and $264 million as of December 31, 2018 and 2017, respectively. The change in liability is primarily attributable to updating the calculations pursuant to guidance issued during the measurement period and cash payments made during the year. The Company has elected to pay the liability in installments which are due through 2024. Other significant provisions of the Tax Reform Act that impact income taxes include: additional limitations on the timing of the deductibility of interest payable to related and unrelated lenders, further limitations on the deductibility of executive compensation, an alternative Base Erosion and Anti-Abuse Tax that limits deductions for certain amounts payable to foreign affiliates, and an additional U.S. tax on certain future foreign subsidiary earnings, whether or not distributed, (i.e., global intangible low-taxed income or “GILTI”). The Company has elected to account for GILTI in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2018. Income before income tax from continuing operations and the provision for income tax from continuing operations consist of the following (in millions):
Years ended December 31 | 2018 |  | 2017 |  | 2016
Income before income taxes: |  |  |  |  |
U.K. | $ | (240 | ) |  | $ | (420 | ) |  | $ | (201 | )
U.S. | (601 | ) |  | (765 | ) |  | (329 | )
Other | 2,087 |  |  | 1,870 |  |  | 1,931 |
Total | $ | 1,246 |  |  | $ | 685 |  |  | $ | 1,401 |
Income tax expense (benefit): |  |  |  |  |
Current: |  |  |  |  |
U.K. | $ | 21 |  |  | $ | 1 |  |  | $ | (54 | )
U.S. federal | 101 |  |  | 48 |  |  | 88 |
U.S. state and local | 35 |  |  | 18 |  |  | 7 |
Other | 214 |  |  | 201 |  |  | 207 |
Total current tax expense | $ | 371 |  |  | $ | 268 |  |  | $ | 248 |
Deferred tax expense (benefit): |  |  |  |  |
U.K. | $ | 19 |  |  | $ | (5 | ) |  | $ | 59 |
U.S. federal | (165 | ) |  | 12 |  |  | (110 | )
U.S. state and local | (56 | ) |  | (35 | ) |  | (9 | )
Other | (23 | ) |  | 10 |  |  | (40 | )
Total deferred tax benefit | $ | (225 | ) |  | $ | (18 | ) |  | $ | (100 | )
Total income tax expense | $ | 146 |  |  | $ | 250 |  |  | $ | 148 |
Income before income taxes shown above is based on the location of the business unit to which such earnings are attributable for tax purposes. In addition, because the earnings shown above may, in some cases, be subject to taxation in more than one country, the income tax provision shown above as U.K., U.S. or Other may not correspond to the geographic attribution of the earnings. The Company performs a reconciliation of the income tax provisions based on its domicile and statutory rate at each reporting period. The 2018, 2017, and 2016 reconciliations are based on the U.K. statutory corporate tax rate of 19.0%, 19.3%, and 20.0%, respectively. The reconciliation to the provisions from continuing operations reflected in the Consolidated Financial Statements is as follows:
Years ended December 31 | 2018 |  | 2017 |  | 2016
Statutory tax rate | 19.0% |  | 19.3% |  | 20.0%
U.S. state income taxes, net of U.S. federal benefit | (0.4) |  | (1.5) |  | 0.4
Taxes on international operations (1) | (7.3) |  | (30.3) |  | (12.2)
Nondeductible expenses | 2.7 |  | 3.4 |  | 1.4
Adjustments to prior year tax requirements | 0.9 |  | 2.0 |  | (1.2)
Adjustments to valuation allowances | 3.8 |  | (1.8) |  | (2.2)
Change in uncertain tax positions | 0.9 |  | 1.6 |  | 3.2
Excess tax benefits related to shared based compensation (2) | (3.6) |  | (8.0) |  | —
U.S. Tax Reform impact (3) | 7.1 |  | 51.2 |  | —
Loss on disposition | (10.2) |  | — |  | —
Other — net | (1.2) |  | 0.6 |  | 1.2
Effective tax rate | 11.7% |  | 36.5% |  | 10.6%
(1) | The Company determines the adjustment for taxes on international operations based on the difference between the statutory tax rate applicable to earnings in each foreign jurisdiction and the enacted rate of 19.0%, 19.3% and 20.0% at December 31, 2018, 2017, and 2016, respectively. The benefit to the Company’s effective income tax rate from taxes on international operations relates to benefits from lower-taxed global operations, primarily due to the use of global funding structures and the tax holiday in Singapore. The impact decreased from 2017 to 2018 primarily as a result of the decrease in the U.S. federal tax rate.
(2) | With the adoption of ASU 2016-09 in 2017, excess tax benefits and deficiencies from share-based payment transactions are recognized as income tax expense or benefit in the Company’s Consolidated Statements of Income.
(3) | The impact of the Tax Reform Act including the Transition Tax, the re-measurement of U.S. deferred tax assets and liabilities from 35% to 21%, withholding tax accruals, and the allocation of tax benefit between continuing operations and discontinued operations related to utilization of foreign tax credits.
For the tax impact of discontinued operations, see Note 5 “Discontinued Operations”. The components of the Company’s deferred tax assets and liabilities are as follows (in millions):
As of December 31 | 2018 |  | 2017
Deferred tax assets: |  |  |
Net operating loss, capital loss, interest, and tax credit carryforwards | $ | 563 |  |  | $ | 362 |
Employee benefit plans | 351 |  |  | 424 |
Other accrued expenses | 98 |  |  | 65 |
Investment basis differences | 28 |  |  | 35 |
Deferred revenue | 29 |  |  | 20 |
Tradename liability | — |  |  | 12 |
Lease and service guarantees | 5 |  |  | 6 |
Brokerage fee arrangements | — |  |  | 4 |
Other | 46 |  |  | 49 |
Total | 1,120 |  |  | 977 |
Valuation allowance on deferred tax assets | (171 | ) |  | (136 | )
Total | $ | 949 |  |  | $ | 841 |
Deferred tax liabilities: |  |  |
Intangibles and property, plant and equipment | $ | (310 | ) |  | $ | (436 | )
Deferred costs | (143 | ) |  | (32 | )
Unremitted earnings | (30 | ) |  | (39 | )
Unrealized foreign exchange gains | (26 | ) |  | (22 | )
Other accrued expenses | (36 | ) |  | (12 | )
Other | (24 | ) |  | (38 | )
Total | $ | (569 | ) |  | $ | (579 | )
Net deferred tax asset | $ | 380 |  |  | $ | 262 |
Deferred income taxes (assets and liabilities have been netted by jurisdiction) have been classified in the Consolidated Statements of Financial Position as follows (in millions):
As of December 31 | 2018 |  | 2017
Deferred tax assets — non-current | $ | 561 |  |  | $ | 389 |
Deferred tax liabilities — non-current | (181 | ) |  | (127 | )
Net deferred tax asset | $ | 380 |  |  | $ | 262 |
Valuation allowances have been established primarily with regard to the tax benefits of certain net operating loss and capital loss carryforwards. Valuation allowances increased by $35 million as of December 31, 2018, when compared to December 31, 2017. The change is primarily attributable to capital loss carryforwards generated by the 2018 tax loss on disposition for which utilization is subject to limitation. The Company generally intends to limit distributions from foreign subsidiaries to earnings previously taxed in the U.S., primarily as a result of the Transition Tax, or GILTI. As of December 31, 2018, the Company has accrued $30 million for local country income taxes, withholding taxes and state income taxes on those undistributed earnings that are not indefinitely reinvested. The Company has not provided for deferred taxes on outside basis differences in our investments in our foreign subsidiaries that are unrelated to these accumulated undistributed earnings, as these outside basis differences are indefinitely reinvested. A determination of the unrecognized deferred taxes related to these other components of our outside basis differences is not practicable. The Company had the following net operating loss, capital loss, and interest carryforwards (in millions):
As of December 31 | 2018 |  | 2017
U.K. |  |  |
Operating loss carryforwards | $ | 541 |  |  | $ | 675 |
Capital loss carryforwards | 400 |  |  | 415 |
Interest carryforwards | 53 |  |  | — |
U.S. |  |  |
Federal operating loss carryforwards | $ | 2 |  |  | $ | 36 |
Federal capital loss carryforwards & carryback | 367 |  |  | — |
Federal interest carryforwards | 424 |  |  | — |
State operating loss carryforwards | $ | 315 |  |  | $ | 412 |
State capital loss carryforwards & carryback | 221 |  |  | — |
State interest carryforwards | 227 |  |  | — |
Other Non-U.S. |  |  |
Operating loss carryforwards | $ | 369 |  |  | $ | 392 |
Capital loss carryforwards (1) | 30 |  |  | 36 |
Interest carryforwards (1) | 186 |  |  | 196 |
(1) | Prior to 2018, interest carryforwards in non-U.S. jurisdictions were classified within capital loss carryforwards. As of December 31, 2017, $196 million was reclassified from capital loss carryforwards to interest carryforwards.
The U.K. operating losses, capital losses, and interest each have an indefinite carryforward period. The federal operating loss carryforwards as of December 31, 2018 expire at various dates from 2034 to 2037 and the state operating losses as of December 31, 2018 expire at various dates from 2019 to 2038. The federal capital losses can be carried back to 2015 or carried forward until 2023. State capital losses can be carried back to 2015 in certain jurisdictions or carried forward until 2023. Federal and state interest carryforwards have indefinite carryforward periods. Operating and capital losses in other non-U.S. jurisdictions have various carryforward periods and will begin to expire in 2019. The interest carryforwards in other non-U.S. jurisdictions have indefinite carryforward periods. During 2012, the Company was granted a tax holiday for the period from October 1, 2012 through September 30, 2022, with respect to withholding taxes and certain income derived from services in Singapore. This tax holiday and reduced withholding tax rate may be extended when certain conditions are met or may be terminated early if certain conditions are not met. The benefit realized was approximately $77 million, $45 million, and $46 million during the years ended December 31, 2018, 2017, and 2016, respectively. The impact of this tax holiday on diluted earnings per share was $0.31, $0.17, and $0.17 during the years ended December 31, 2018, 2017, and 2016, respectively. Uncertain Tax Positions The following is a reconciliation of the Company’s beginning and ending amount of uncertain tax positions (in millions):
| 2018 |  | 2017
Balance at January 1 | $ | 280 |  |  | $ | 278 |
Additions based on tax positions related to the current year | 18 |  |  | 25 |
Additions for tax positions of prior years | 10 |  |  | 12 |
Reductions for tax positions of prior years | (24 | ) |  | (26 | )
Settlements | — |  |  | (6 | )
Business combinations | 1 |  |  | — |
Lapse of statute of limitations | (6 | ) |  | (7 | )
Foreign currency translation | — |  |  | 4 |
Balance at December 31 | $ | 279 |  |  | $ | 280 |
The Company’s liability for uncertain tax positions as of December 31, 2018, 2017, and 2016, includes $228 million, $219 million, and $240 million, respectively, related to amounts that would impact the effective tax rate if recognized. It is possible that the amount of unrecognized tax benefits may change in the next twelve months; however, the Company does not expect the change to have a significant impact on its consolidated statements of income or consolidated balance sheets. These changes may be the result of settlements of ongoing audits. At this time, an estimate of the range of the reasonably possible outcomes within the twelve months cannot be made. The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes. The Company accrued potential interest and penalties of $22 million, $11 million, and $15 million in 2018, 2017, and 2016, respectively. The Company recorded a liability for interest and penalties of $77 million, $55 million, and $48 million as of December 31, 2018, 2017, and 2016, respectively. The Company and its subsidiaries file income tax returns in their respective jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2007. Material U.S. state and local income tax jurisdiction examinations have been concluded for years through 2005. The Company has concluded income tax examinations in its primary non-U.S. jurisdictions through 2010.

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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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