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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income taxes | INCOME TAXES Earnings before income taxes and the provision for income taxes are presented in the following table.
| Year Ended December 31,
(millions of dollars) | 2015 |  | 2014 |  | 2013
Earnings before income taxes: |  |  |  |  |
U.S. | $ | 125.6 |  |  | $ | 218.8 |  |  | $ | 136.2 |
Non-U.S. | 801.2 |  |  | 761.3 |  |  | 733.1 |
Total | $ | 926.8 |  |  | $ | 980.1 |  |  | $ | 869.3 |
Provision for income taxes: |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |
Federal | $ | 32.5 |  |  | $ | 25.7 |  |  | $ | 27.7 |
State | (4.3 | ) |  | 3.9 |  |  | 2.6 |
Foreign | 228.3 |  |  | 220.8 |  |  | 211.1 |
Total current | 256.5 |  |  | 250.4 |  |  | 241.4 |
Deferred: |  |  |  |  |
Federal | 31.8 |  |  | 66.2 |  |  | (2.3 | )
State | 2.6 |  |  | (1.2 | ) |  | (7.3 | )
Foreign | (10.5 | ) |  | (22.8 | ) |  | (13.5 | )
Total deferred | 23.9 |  |  | 42.2 |  |  | (23.1 | )
Total provision for income taxes | $ | 280.4 |  |  | $ | 292.6 |  |  | $ | 218.3 |
The provision for income taxes resulted in an effective tax rate of 30.3%, 29.9% and 25.1% for the years ended December 31, 2015, 2014 and 2013, respectively. An analysis of the differences between the effective tax rate and the U.S. statutory rate for the years ended December 31, 2015, 2014 and 2013 is presented below.
| Year Ended December 31,
(millions of dollars) | 2015 |  | 2014 |  | 2013
Income taxes at U.S. statutory rate of 35% | $ | 324.4 |  |  | $ | 343.0 |  |  | $ | 304.3 |
Increases (decreases) resulting from: |  |  |  |  |  |  |  |
State taxes, net of federal benefit | 8.2 |  |  | 2.6 |  |  | 2.3 |
U.S. tax on non-U.S. earnings | 31.5 |  |  | 18.8 |  |  | (2.8 | )
Affiliates' earnings | (14.0 | ) |  | (16.2 | ) |  | (15.6 | )
Foreign rate differential | (92.6 | ) |  | (84.1 | ) |  | (73.4 | )
Tax holidays | (21.2 | ) |  | (23.6 | ) |  | (15.6 | )
Withholding taxes | 7.8 |  |  | 10.6 |  |  | 15.4 |
Tax credits | (3.2 | ) |  | (3.9 | ) |  | (6.9 | )
Reserve adjustments, settlements and claims | 19.4 |  |  | 41.0 |  |  | 0.5 |
Valuation allowance adjustments | 8.3 |  |  | 5.5 |  |  | (1.4 | )
Other | 11.8 |  |  | (1.1 | ) |  | 11.5 |
Provision for income taxes, as reported | $ | 280.4 |  |  | $ | 292.6 |  |  | $ | 218.3 |
The Company's provision for income taxes for the year ended December 31, 2015, includes tax benefits of $9.0 million, $3.8 million and $3.7 million related to the pension settlement loss, merger and acquisition expense and restructuring expense, respectively, discussed in the Other Expense, Net footnote. Additionally, this rate includes a tax benefit of $9.9 million primarily related to foreign tax incentives and tax settlements. The Company's provision for income taxes for the year ended December 31, 2014, includes tax benefits of $15.3 million, $0.4 million and $1.1 million related to restructuring expense, intangible asset impairment losses and the pension settlement loss, respectively, discussed in the Other Expense, Net footnote. The Company's provision for income taxes for the year ended December 31, 2013, includes tax benefits of $5.1 million, $2.0 million, $3.8 million and $2.1 million related to restructuring expense, intangible asset impairment losses, program termination agreement and retirement related obligations discussed in the Other Expense, Net footnote. This rate also includes a net tax benefit of $11.7 million, which is comprised of tax benefits of $6.7 million related to the extension of the federal research and development credit and other international tax provisions resulting from the retroactive impact of U.S. legislation enacted in January 2013, $2.2 million related to 2012 provision to return and other tax adjustments and $8.0 million related to the reversal of certain state deferred tax asset valuation allowances, partially offset by a $5.2 million tax expense related to comprehensive income and other tax adjustments. A roll forward of the Company's total gross unrecognized tax benefits for the years ended December 31, 2015 and 2014, respectively, is presented below. Of the total $127.3 million of unrecognized tax benefits as of December 31, 2015, approximately $57.2 million of the total represents the amount, if recognized, would affect the Company's effective income tax rate in future periods. This amount differs from the gross unrecognized tax benefits presented in the table due to the decrease in the U.S. federal income taxes which would occur upon recognition of the state tax benefits and U.S. foreign tax credits included therein.
(millions of dollars) | 2015 |  | 2014
Balance, January 1 | $ | 60.4 |  |  | $ | 22.9 |
Additions based on tax positions related to current year | 20.7 |  |  | 19.3 |
Additions for tax positions of prior years | 6.7 |  |  | 22.5 |
Additions from acquisitions | 53.4 |  |  | — |
Reductions for closure of tax audits and settlements | (10.4 | ) |  | — |
Reductions for lapse in statute of limitations | (0.3 | ) |  | (1.5 | )
Translation adjustment | (3.2 | ) |  | (2.8 | )
Balance, December 31 | $ | 127.3 |  |  | $ | 60.4 |
Remy applied for a bilateral Advance Pricing Agreement ("APA") between the U.S. Internal Revenue Service and South Korea National Tax Service covering the tax years 2007 through 2014. The Company recorded a current tax liability and related U.S. foreign tax credits of approximately $44.0 million with respect to this matter. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The amount recognized in income tax expense for 2015 and 2014 is $2.3 million and $1.9 million, respectively. The Company has an accrual of approximately $12.8 million and $10.3 million for the payment of interest and penalties at December 31, 2015 and 2014, respectively. It is expected that the bilateral APA referenced above may be settled in early 2016. Other possible changes within the next 12 months cannot be reasonably estimated at this time. The Company and/or one of its subsidiaries files income tax returns in the U.S. federal, various state jurisdictions and various foreign jurisdictions. In certain tax jurisdictions, the Company may have more than one taxpayer. The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:
Tax jurisdiction |  | Years no longer subject to audit |  | Tax jurisdiction |  | Years no longer subject to audit
U.S. Federal |  | 2011 and prior |  | Hungary |  | 2008 and prior
China |  | 2009 and prior |  | Japan |  | 2011 and prior
France |  | 2012 and prior |  | Mexico |  | 2009 and prior
Germany |  | 2007 and prior |  | South Korea |  | 2009 and prior
The gross components of deferred tax assets and liabilities as of December 31, 2015 and 2014 consist of the following:
| December 31,
(millions of dollars) | 2015 |  | 2014
Deferred tax assets: |  |  |  |  |
Foreign tax credits | $ | 142.6 |  |  | $ | 121.8 |
Employee compensation | 34.6 |  |  | 33.8 |
Other comprehensive loss | 79.7 |  |  | 90.3 |
Research and development capitalization | 100.4 |  |  | 115.6 |
Net operating loss and capital loss carryforwards | 81.8 |  |  | 59.4 |
Pension and other postretirement benefits | 41.1 |  |  | 29.4 |
Other | 125.3 |  |  | 87.1 |
Total deferred tax assets | $ | 605.5 |  |  | $ | 537.4 |
Valuation allowance | (71.0 | ) |  | (46.4 | )
Net deferred tax asset | $ | 534.5 |  |  | $ | 491.0 |
Deferred tax liabilities: |  |  |  |  |
Goodwill and intangible assets | (259.2 | ) |  | (133.1 | )
Fixed assets | (115.5 | ) |  | (93.4 | )
Other | (66.4 | ) |  | (40.0 | )
Total deferred tax liabilities | $ | (441.1 | ) |  | $ | (266.5 | )
Net deferred taxes | $ | 93.4 |  |  | $ | 224.5 |
At December 31, 2015, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $165.4 million available to offset future taxable income. Of the total $165.4 million, $130.6 million expire at various dates from 2016 through 2035 and the remaining $34.8 million have no expiration date. The Company has a valuation allowance of $25.5 million recorded on $95.8 million of non-U.S. net operating loss carryforwards. Certain U.S. subsidiaries have state net operating loss carryforwards totaling $833.2 million which are partially offset by a valuation allowance of $591.6 million. The state net operating loss carryforwards expire at various dates from 2016 to 2035. Certain non-U.S. subsidiaries located in China, Korea and Poland had tax exemptions or tax holidays, which reduced tax expense approximately $21.2 million and $23.6 million in 2015 and 2014, respectively. The U.S. has foreign tax credit carryforwards of $142.6 million, which expire at various dates from 2018 through 2024. The Company is not required to provide U.S. federal or state income taxes on cumulative undistributed earnings of foreign subsidiaries when such earnings are considered permanently reinvested. The Company's policy is to evaluate this assertion on a quarterly basis. At December 31, 2015, the Company's deferred tax liability associated with unremitted foreign earnings was $32.5 million. In connection with the acquisition of Remy, management executed a legal restructuring plan to align the Remy and BorgWarner non-US businesses. This transaction resulted in a taxable gain in the U.S., which will be partially offset by Remy tax attributes including a net operating loss carryforward of $63.4 million and foreign tax credits of $108.1 million. The net impact of this transaction resulted in a foreign tax credit carryforward of $26.0 million. The net U.S. cash tax liability resulting from the transaction is estimated to be $8.6 million. The Company has not recorded deferred income taxes on the difference between the book and tax basis of investments in foreign subsidiaries or foreign equity affiliates totaling approximately $3.3 billion in 2015, as these amounts are essentially permanent in nature. The difference will become taxable upon repatriation of assets, sale or liquidation of the investment. Due to fluctuation in tax laws around the world and fluctuations in foreign exchange rates, it is not practicable to determine the unrecognized deferred tax liability on this difference because the actual tax liability, if any, is dependent on circumstances existing when the repatriation occurs.

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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 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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