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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES The following schedule discloses significant components of income tax expense (benefit) for each year presented:
|  | Year Ended December 31,
|  | 2017 |  | 2016 |  | 2015
|  | (in millions)
Current tax expense (benefit): |  |  |  |  |  |
U.S. |  | $ | (47 | ) |  | $ | 31 |  |  | $ | 738 |
State and local |  | 11 |  |  | 9 |  |  | 3 |
Foreign |  | 594 |  |  | 595 |  |  | 622 |
Total current tax expense (benefit) |  | 558 |  |  | 635 |  |  | 1,363 |
Deferred tax expense (benefit): |  |  |  |  |  |
U.S. |  | (2,552 | ) |  | 132 |  |  | 585 |
State and local |  | 0 |  |  | 5 |  |  | 4 |
Foreign |  | 556 |  |  | 563 |  |  | 120 |
Total deferred tax expense (benefit) |  | (1,996 | ) |  | 700 |  |  | 709 |
Total income tax expense (benefit) on income (loss) before equity in earnings of operating joint ventures |  | (1,438 | ) |  | 1,335 |  |  | 2,072 |
Income tax expense (benefit) on equity in earnings of operating joint ventures |  | 33 |  |  | 11 |  |  | (1 | )
Income tax expense (benefit) on discontinued operations |  | 0 |  |  | 0 |  |  | 0 |
Income tax expense (benefit) reported in equity related to: |  |  |  |  |  |
Other comprehensive income |  | 784 |  |  | 1,305 |  |  | (2,213 | )
Stock-based compensation programs |  | (2 | ) |  | (30 | ) |  | (22 | )
Total income taxes |  | $ | (623 | ) |  | $ | 2,621 |  |  | $ | (164 | )
Reconciliation of Expected Tax at Statutory Rates to Reported Income Tax Expense (Benefit) The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and the reported income tax expense (benefit) are summarized as follows:
|  | Year Ended December 31,
|  | 2017 |  | 2016 |  | 2015
|  | (in millions)
Expected federal income tax expense (benefit) |  | $ | 2,270 |  |  | $ | 1,997 |  |  | $ | 2,719 |
Non-taxable investment income |  | (369 | ) |  | (352 | ) |  | (341 | )
Foreign taxes at other than U.S. rate |  | (249 | ) |  | (172 | ) |  | (51 | )
Low-income housing and other tax credits |  | (126 | ) |  | (118 | ) |  | (116 | )
Changes in tax law |  | (2,858 | ) |  | 0 |  |  | (108 | )
Other |  | (106 | ) |  | (20 | ) |  | (31 | )
Reported income tax expense (benefit) |  | $ | (1,438 | ) |  | $ | 1,335 |  |  | $ | 2,072 |
Effective tax rate |  | (22.2 | )% |  | 23.4 | % |  | 26.7 | %
The effective tax rate is the ratio of “Total income tax expense (benefit)” divided by “Income before income taxes and equity in earnings of operating joint ventures.” The Company’s effective tax rate for fiscal years 2017, 2016 and 2015 was -22.2%, 23.4% and 26.7%, respectively. The following is a description of items that had the most significant impact on the difference between the Company’s statutory U.S. federal income tax rate of 35% and the Company’s effective tax rate during the periods presented: Changes in Tax Law. The following is a list of notable changes in tax law that impacted the Company’s effective tax rate for the periods presented: U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act of 2017”). On December 22, 2017, the Tax Act of 2017 was enacted into U.S. law. This law includes a broad range of tax reform changes that will affect U.S. businesses, including changes to corporate tax rates, business deductions and international tax provisions. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment (the date the President signed the bill into law). In December 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act of 2017. SAB 118 provides guidance for registrants under three scenarios: (1) measurement of certain income tax effects is complete, (2) measurement of certain income tax effects can be reasonably estimated and (3) measurement of certain income tax effects cannot be reasonably estimated. SAB 118 provides that the measurement period is complete when a company’s accounting is complete and in no circumstances should the measurement period extend beyond one year from the enactment date. SAB 118 acknowledges that a company may be able to complete the accounting for some provisions earlier than others. As a result, it may need to apply all three scenarios in determining the accounting for the Tax Act of 2017 based on information that is available. The Company has not fully completed its accounting for the tax effects of the Tax Act of 2017. However, we have recorded the effects of the Tax Act of 2017 as reasonable estimates due to the need for further analysis of the provisions within the Tax Act of 2017 and collection, preparation and analysis of relevant data necessary to complete the accounting. As a result, upon enactment of the Tax Act of 2017, the Company recognized a $2,880 million tax benefit in “Total income tax expense (benefit)” in the Company’s Consolidated Statements of Operations for the year ended December 31, 2017. This net tax benefit was primarily comprised of the following components:
• | $1,592 million tax benefit from the reduction in net deferred tax liabilities to reflect the reduction in the U.S. tax rate from 35% to 21%; and
• | $1,785 million tax benefit from the adoption of a modified territorial international tax system which required the Company to eliminate net deferred tax liabilities related to undistributed foreign earnings and to adjust certain international net deferred tax liabilities from 35% down to their lower local rates.
Offset by:
• | $497 million tax expense related to the one-time toll tax on the undistributed, non-previously taxed post-1986 foreign earnings as part of the transition to the territorial system.
As we complete the collection, preparation and analysis of data relevant to the Tax Act of 2017, and interpret any additional guidance issued by the IRS, U.S. Department of the Treasury, or other standard-setting organizations, we may make adjustments to these provisional amounts. These adjustments may materially impact our provision for income taxes in the period in which the adjustments are made. South Korea Tax Reform Bill. On December 19, 2017, South Korea enacted a 2018 tax reform bill that adds a new 25% corporate income tax bracket for taxable income in excess of ₩300 billion for tax years beginning on or after January 1, 2018. Taxable income in excess of ₩20 billion but less than ₩300 billion continues to be subject to a 22% corporate income tax. In addition, corporations continue to be subject to a local income surtax of 10% of the computed corporate income tax before the application of tax credits and exemptions (i.e., 2.5% for the tax base in excess of ₩300 billion, 2.2% for the tax base between ₩20 billion and ₩300 billion). After taking into account this 10% local income tax surcharge on corporate tax, the 2018 tax reform bill increased the top corporate income tax rate in South Korea from 24.2% to 27.5%. As a result, the Company recognized a $26 million tax expense in 2017 related to remeasuring Korea’s deferred tax assets and liabilities. U.S. Active Financing Exception (“AFE”) Tax Legislation. In December 2015, federal tax legislation was enacted that renewed the AFE retroactive for tax years beginning on or after January 1, 2015 and made the provision a permanent part of the U.S. tax code. Under the AFE, subject to certain tests, foreign business income derived in the active conduct of an insurance business is not subject to U.S. tax until distributed to the U.S. As a result of the change in tax law, in 2015 the Company recognized a $108 million tax benefit in “Income before equity in earnings of operating joint ventures.” This amount relates to the reversal of $108 million of tax expense associated with Prudential of Korea’s and Prudential of Taiwan’s unrealized investment gains originally included in AOCI. Non-Taxable Investment Income. The U.S. Dividends Received Deduction (“DRD”) reduces the amount of dividend income subject to U.S. tax and accounts for most of the non-taxable investment income shown in the table above. More specifically, the U.S. DRD constitutes $280 million of the total $369 million of 2017 non-taxable investment income, $266 million of the total $352 million of 2016 non-taxable investment income, and $296 million of the total $341 million of 2015 non-taxable investment income. The DRD for the current period was estimated using information from 2016, current year investment results, and current year’s equity market performance. The actual current year DRD can vary based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from fund investments, changes in the account balances of variable life and annuity contracts, and the Company’s taxable income before the DRD. Foreign Taxes at Other Than U.S. Rates. The statutory income tax rate in the Company’s two largest non-U.S. tax jurisdictions is approximately 28% in Japan and 24.2% in Korea as compared to the U.S. federal income tax rate of 35% applicable for the periods prior to 2018. Low-Income Housing and Other Tax Credits. These amounts include incentives within the U.S. tax code for the development of affordable housing aiming at low-income Americans. The Company routinely make such investments that generate a tax credit which reduces the Company’s effective tax rate. Other. This line item represents insignificant reconciling items that are individually less than 5% of the computed expected federal income tax expense (benefit) and have therefore been aggregated for purposes of this reconciliation in accordance with relevant disclosure guidance. Schedule of Deferred Tax Assets and Deferred Tax Liabilities
|  | As of December 31,
|  | 2017 |  | 2016
|  | (in millions)
Deferred tax assets: |  |  |  |
Insurance reserves |  | $ | 821 |  |  | $ | 1,856 |
Policyholders’ dividends |  | 1,262 |  |  | 1,849 |
Net operating and capital loss carryforwards |  | 281 |  |  | 190 |
Employee benefits |  | 635 |  |  | 789 |
Investments |  | 862 |  |  | 1,166 |
Deferred tax assets before valuation allowance |  | 3,861 |  |  | 5,850 |
Valuation allowance |  | (214 | ) |  | (163 | )
Deferred tax assets after valuation allowance |  | 3,647 |  |  | 5,687 |
Deferred tax liabilities: |  |  |  |
Net unrealized investment gains |  | 9,062 |  |  | 10,551 |
Deferred policy acquisition costs |  | 3,625 |  |  | 4,443 |
Unremitted foreign earnings |  | 119 |  |  | 380 |
Value of business acquired |  | 414 |  |  | 715 |
Other |  | 41 |  |  | 393 |
Deferred tax liabilities |  | 13,261 |  |  | 16,482 |
Net deferred tax liability |  | $ | (9,614 | ) |  | $ | (10,795 | )
The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowances, will be realized. A valuation allowance has been recorded against deferred tax assets related to state and local taxes and foreign operations. Adjustments to the valuation allowance are made to reflect changes in management’s assessment of the amount of the deferred tax asset that is realizable and the amount of deferred tax asset actually realized during the year. The valuation allowance includes amounts recorded in connection with deferred tax assets as follows:
|  | As of December 31,
|  | 2017 |  | 2016
|  | (in millions)
Valuation allowance related to state and local deferred tax assets |  | $ | 196 |  |  | $ | 138 |
Valuation allowance related to foreign operations deferred tax assets |  | 18 |  |  | 25 |
Total valuation allowance |  | $ | 214 |  |  | $ | 163 |
The following table sets forth the amount and expiration dates of federal, state and foreign operating losses, capital loss and tax credit carryforwards for tax purposes, as of the periods indicated:
|  | As of December 31,
|  | 2017 |  | 2016
|  | (in millions)
Federal net operating and capital loss carryforwards |  | $ | 0 |  |  | $ | 0 |
State net operating and capital loss carryforwards(1) |  | $ | 5,806 |  |  | $ | 4,201 |
Foreign operating loss carryforwards(2) |  | $ | 58 |  |  | $ | 45 |
Alternative minimum tax credits(3) |  | $ | 0 |  |  | $ | 66 |
__________
(1) | Expires between 2018 and 2037.
(2) | $16 million expires between 2020 and 2035 and $42 million has an unlimited carryforward.
(3) | Effective in 2018, the alternative minimum tax is repealed for corporations.
Consistent with the Tax Act of 2017, the Company provides U.S. income tax for all unremitted earnings of the Company’s foreign affiliates. For certain foreign affiliates organized in withholding tax jurisdictions, the Company considers the unremitted foreign earnings of those affiliates to be indefinitely reinvested, and therefore does not provide for the withholding tax when calculating its current and deferred tax obligations. For certain other foreign affiliates organized in withholding tax jurisdictions, the Company does not consider unremitted earnings indefinitely reinvested, and therefore provides for foreign withholding tax when calculating its current and deferred tax obligations. The following table summarizes the Company’s indefinite reinvestment assertions for jurisdictions in which the Company operates that impose a withholding tax on dividends:
Unremitted earnings are indefinitely reinvested | Unremitted earnings are not indefinitely reinvested
All operations in Korea and Luxembourg, and its insurance operations in Chile, China, Italy, Poland and Taiwan | Insurance operations in Indonesia and Ghana, and non-insurance operations in China, Italy and Taiwan
During the third quarter of 2015, the Company determined that the earnings from its Brazilian insurance operations would be repatriated to the U.S. Accordingly, earnings from those Brazilian insurance operations were not considered indefinitely reinvested, and the Company recognized an income tax benefit of $3 million in “Income (loss) before equity in earnings of operating joint ventures” during 2015. During the fourth quarter of 2017, in light of and for the period after the Tax Act of 2017, the Company determined that all unremitted earnings of the Company’s foreign operations are not considered indefinitely reinvested for purposes of determining U.S. tax liability, as well as determining whether the unremitted earnings of the Company’s foreign operations are considered indefinitely reinvested for purposes of determining its foreign withholding tax liability, as described above. Prior to the enactment of the Tax Act of 2017, for the Japanese insurance operations, the Company provided for U.S. income taxes on pre-2014 U.S. GAAP earnings, post-2013 realized and unrealized capital gains, and an additional amount from Gibraltar Life and Prudential Gibraltar, not to exceed the deferred tax asset recorded in the Statement of Financial Position as of the acquisition date for Prudential Gibraltar and the Star and Edison Businesses. The Company had no change to its U.S. tax in “Income (loss) before equity in earnings of operating joint ventures” during 2017. The following table sets forth the undistributed earnings of foreign subsidiaries, where the Company assumes indefinite reinvestment of such earnings and for which, in 2017, 2016, and 2015, U.S. deferred taxes have not been provided, and for which, in 2017, foreign deferred withholding taxes have not been provided. The net tax liability that may arise if the 2017 earnings were remitted can range from $0 to $302 million. The actual amount of this tax liability is dependent upon the resolution of uncertainty created by the Tax Act of 2017 in determining the amount of such withholding taxes that would be creditable against the Company's U.S. income tax liability.
|  | At December 31,
|  | 2017 |  | 2016 |  | 2015
|  | (in millions)
Undistributed earnings of foreign subsidiaries (assuming indefinite reinvestment for all tax purposes)(1) |  | N/A |  |  | $ | 4,231 |  |  | $ | 3,215 |
Undistributed earnings of foreign subsidiaries (assuming indefinite reinvestment only for Withholding Taxes) |  | $ | 2,603 |  |  | N/A |  |  | N/A |
__________
(1) | Consistent with the Tax Act of 2017, the Company provides U.S. income tax for all unremitted earnings of the Company’s foreign affiliates as of December 31, 2017.
The Company’s “Income (loss) before income taxes and equity in earnings of operating joint ventures” includes income from domestic operations of $2,541 million, $1,242 million and $4,235 million, and income (loss) from foreign operations of $3,945 million, $4,463 million and $3,534 million for the years ended December 31, 2017, 2016 and 2015, respectively. Tax Audit and Unrecognized Tax Benefits The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the IRS or other taxing authorities. The completion of review or the expiration of the Federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. The following table reconciles the total amount of unrecognized tax benefits at the beginning and end of the periods indicated.
|  | 2017 |  | 2016 |  | 2015
|  | (in millions)
Balance at January 1, |  | $ | 26 |  |  | $ | 6 |  |  | $ | 6 |
Increases in unrecognized tax benefits—prior years |  | 11 |  |  | 10 |  |  | 0 |
(Decreases) in unrecognized tax benefits—prior years |  | (5 | ) |  | 0 |  |  | 0 |
Increases in unrecognized tax benefits—current year |  | 14 |  |  | 10 |  |  | 0 |
(Decreases) in unrecognized tax benefits—current year |  | 0 |  |  | 0 |  |  | 0 |
Settlements with taxing authorities |  | (1 | ) |  | 0 |  |  | 0 |
Balance at December 31, |  | $ | 45 |  |  | $ | 26 |  |  | $ | 6 |
Unrecognized tax benefits that, if recognized, would favorably impact the effective rate |  | $ | 45 |  |  | $ | 26 |  |  | $ | 6 |
The Company does not anticipate any significant changes within the next twelve months to its total unrecognized tax benefits related to tax years for which the statute of limitations has not expired. The Company classifies all interest and penalties related to tax uncertainties as income tax expense (benefit). The amounts recognized in the consolidated financial statements for tax-related interest and penalties for the years ended December 31 are as follows:
|  | 2017 |  | 2016 |  | 2015
|  | (in millions)
Interest and penalties recognized in the Consolidated Statements of Operations |  | $ | (3 | ) |  | $ | 1 |  |  | $ | 0 |
|  | 2017 |  | 2016
|  | (in millions)
Interest and penalties recognized in liabilities in the Consolidated Statements of Financial Position |  | $ | 1 |  |  | $ | 5 |
Listed below are the tax years that remain subject to examination, by major tax jurisdiction, as of December 31, 2017:
Major Tax Jurisdiction |  | Open Tax Years
United States |  | 2014-2016
Japan |  | Fiscal years ended March 31, 2013-2017
Korea |  | Fiscal year ended March 31, 2013, the periods ended December 31, 2013-2016
The Company is participating in the IRS’s Compliance Assurance Program. Under this program, the IRS assigns an examination team to review completed transactions as they occur in order to reach agreement with the Company on how they should be reported in the relevant tax returns. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner before the tax return is filed. Certain of the Company’s affiliates in Japan file a consolidated tax return, while others file separate tax returns. The Company’s affiliates in Japan are subject to audits by the local taxing authority. The general statute of limitations is five years from when the return is filed. During 2016, the Tokyo Regional Taxation Bureau concluded a routine tax audit of the tax returns of the Company’s affiliates in Japan for their tax years ended March 31, 2013 to March 31, 2015. These activities had no material impact on the Company’s 2015, 2016 or 2017 results. The Company’s affiliates in South Korea file separate tax returns and are subject to audits by the local taxing authority. The general statute of limitations is five years from when the return is filed. During 2015, the Korean National Tax Service concluded a routine tax audit of the tax returns of Prudential of Korea for the tax years ended March 31, 2010 to March 31, 2012. These activities had no material impact on the Company’s 2015, 2016 or 2017 results.

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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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