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Income Taxes | 12 Months Ended
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Dec. 31, 2017
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) | 2017 |  | 2016 |  | 2015
Earnings before income taxes: |  |  |  |  |
U.S. | $ | 203.0 |  |  | $ | (724.7 | ) |  | $ | 125.6 |
Non-U.S. | 860.6 |  |  | 915.2 |  |  | 801.2 |
Total | $ | 1,063.6 |  |  | $ | 190.5 |  |  | $ | 926.8 |
Provision for income taxes: |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |
Federal | $ | 36.4 |  |  | $ | 37.4 |  |  | $ | 32.5 |
State | 4.6 |  |  | 6.1 |  |  | (4.3 | )
Foreign | 247.4 |  |  | 251.7 |  |  | 228.3 |
Total current | 288.4 |  |  | 295.2 |  |  | 256.5 |
Deferred: |  |  |  |  |
Federal | 323.7 |  |  | (239.8 | ) |  | 31.8 |
State | 2.1 |  |  | (13.2 | ) |  | 2.6 |
Foreign | (33.9 | ) |  | (11.9 | ) |  | (10.5 | )
Total deferred | 291.9 |  |  | (264.9 | ) |  | 23.9 |
Total provision for income taxes | $ | 580.3 |  |  | $ | 30.3 |  |  | $ | 280.4 |
The provision for income taxes resulted in an effective tax rate of 54.6%, 15.9% and 30.3% for the years ended December 31, 2017, 2016 and 2015, respectively. An analysis of the differences between the effective tax rate and the U.S. statutory rate for the years ended December 31, 2017, 2016 and 2015 is presented below. The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. As of December 31, 2017, in accordance with guidance provided by Staff Accounting Bulletin No. 118 (SAB 118), we have not completed our accounting for the tax effects of enactment of the Act. In certain cases, as described below, we have made a provisional estimate of significant items including: (i) the effects on our existing deferred tax balances, (ii) the one-time transition tax, and (iii) our indefinite reinvestment assertion, including the measurement of deferred taxes on foreign unremitted earnings. These provisional items require additional information and analysis to complete the accounting. Other items for which the accounting for the tax effects of the Act is complete are not significant. Items for which the accounting for the tax effects of the Act cannot be completed is not applicable. The Act is complex and its impact may materially differ from these estimates, due to, among other things, changes in the Company’s assumptions, implementation guidance that may be issued from the Internal Revenue Service and related interpretations and clarifications of tax law relevant for the completion of the Company’s 2017 tax return filings. The Company expects to complete its assessment of these items during 2018, and any adjustments to the provisional amounts initially recorded, will be included as an adjustment to income tax expense or benefit in the period the amounts are determined, in accordance with SAB 118. We recognized income tax expense of $273.5 million in the year ended December 31, 2017 for significant items we could reasonably estimate associated with the Act. This expense reflects (i) the revaluation of our net deferred tax assets based on a U.S. federal tax rate of 21 percent, (ii) a one-time transition tax on our unremitted foreign earnings and profits, net of foreign tax credits, and (iii) our indefinite reinvestment assertion, including the measurement of deferred taxes on foreign unremitted earnings. In light of the treatment of foreign earnings under the Act, we have reconsidered our indefinite reinvestment position and provisionally concluded we will no longer assert indefinite reinvestment with respect to our foreign unremitted earnings. Therefore, the Company has accrued additional provisional deferred tax liabilities of $94.1 million with respect to the expected future remittance of foreign earnings. The U.S. income tax payable of $25.1 million includes an estimated $23.6 million of transition tax, net of foreign tax credits associated with the required inclusion of unremitted foreign earnings and amounts carried forward from prior years. The estimated transition tax is due and payable annually over an eight year period beginning in the first quarter of 2018.
| Year Ended December 31,
(millions of dollars) | 2017 |  | 2016 |  | 2015
Income taxes at U.S. statutory rate of 35% | $ | 372.3 |  |  | $ | 66.7 |  |  | $ | 324.4 |
Increases (decreases) resulting from: |  |  |  |  |  |  |  |
State taxes, net of federal benefit | 2.3 |  |  | (10.6 | ) |  | 8.2 |
U.S. tax on non-U.S. earnings | 226.0 |  |  | 40.7 |  |  | 31.5 |
Affiliates' earnings | (17.9 | ) |  | (15.0 | ) |  | (14.0 | )
Foreign rate differentials | (100.2 | ) |  | (93.3 | ) |  | (92.6 | )
Tax holidays | (31.0 | ) |  | (25.5 | ) |  | (21.2 | )
Withholding taxes | 24.9 |  |  | 13.3 |  |  | 7.8 |
Tax credits | (24.2 | ) |  | (3.2 | ) |  | (3.2 | )
Reserve adjustments, settlements and claims | 8.0 |  |  | 11.6 |  |  | 19.4 |
Valuation allowance adjustments | 12.2 |  |  | (2.7 | ) |  | 8.3 |
Non-deductible transaction costs | 10.9 |  |  | 8.3 |  |  | 8.1 |
Provision to return and other one-time tax adjustments | (1.9 | ) |  | 0.3 |  |  | (5.1 | )
Impact of transactions | 4.0 |  |  | 16.3 |  |  | 11.6 |
Currency | 0.7 |  |  | 10.0 |  |  | 0.1 |
Other foreign taxes | 8.1 |  |  | 12.9 |  |  | 9.0 |
Partnership income | 3.3 |  |  | 3.4 |  |  | 3.1 |
Revaluation of U.S. deferred taxes | 63.7 |  |  | — |  |  | — |
Other | 19.1 |  |  | (2.9 | ) |  | (15.0 | )
Provision for income taxes, as reported | $ | 580.3 |  |  | $ | 30.3 |  |  | $ | 280.4 |
The 2017 effective tax rate increased 38.7 percentage to 54.6%. The change in the effective tax rate for 2017, as compared to 2016, was primarily due to the Act. In addition to the transition tax, which results in a tax charge of $104.7 million, the Act also includes a reduction in the US income tax rate from 35% to 21%, as of January 1, 2018. This change in income tax rate requires a revaluation of our US deferred tax assets and liabilities at December 31, 2017, resulting in a tax charge of $ $63.7 million. The Company also included a tax charge of $94.1 million for additional provisional deferred tax liabilities with respect to the expected future remittance of foreign earnings. The Company's provision for income taxes for the year ended December 31, 2017, includes reduction of income tax expenses of $10.1 million, $1.0 million, $18.2 million and $3.8 million related to the restructuring expense, merger and acquisition expense, asset impairment expense and other one-time adjustments, respectively, discussed in the Other Expense, Net footnote. The Company's provision for income taxes for the year ended December 31, 2016, includes reduction of income tax expenses of $263.0 million, $22.7 million, $8.6 million, $6.0 million and $4.4 million associated with an asbestos-related charge, loss on divestiture, other one-time adjustments, restructuring expense and intangible asset impairment loss, respectively, discussed in the Other Expense, Net footnote. Additionally, this rate includes a tax expense of $2.2 million related to a gain associated with the release of certain Remy light vehicle aftermarket liabilities due to the expiration of a customer contract. The Company's provision for income taxes for the year ended December 31, 2015, includes reduction of income tax expenses 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. A roll forward of the Company's total gross unrecognized tax benefits for the years ended December 31, 2017 and 2016, respectively, is presented below. Of the total $85.1 million of unrecognized tax benefits as of December 31, 2017, approximately $62.4 million of the total represents the amount that, 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) | 2017 |  | 2016
Balance, January 1 | $ | 91.1 |  |  | $ | 127.3 |
Additions based on tax positions related to current year | 16.8 |  |  | 16.1 |
Additions/(reductions) for tax positions of prior years | (2.4 | ) |  | 1.6 |
Reductions for closure of tax audits and settlements | (19.9 | ) |  | (45.7 | )
Reductions for lapse in statute of limitations | (0.8 | ) |  | (5.0 | )
Translation adjustment | 7.2 |  |  | (3.2 | )
Balance, December 31 | $ | 92.0 |  |  | $ | 91.1 |
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. At December 31, 2015, the Company recorded an uncertain tax benefit and related U.S. foreign tax credits of approximately $44.0 million. In the second quarter of 2016, the Company received the signed APA from the tax authorities and reclassified the related uncertain tax benefit to a current tax payable, which the Company paid in the third quarter of 2016. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The amount recognized in income tax expense for 2017 and 2016 is $6.4 million and $3.2 million, respectively. The Company has an accrual of approximately $22.6 million and $16.0 million for the payment of interest and penalties at December 31, 2017 and 2016, respectively. The Company estimates that payments of approximately $0.8 million will be made in the next 12 months for assessed tax liabilities from certain taxing jurisdictions and has reclassified this amount to current in the balance sheet as shown in the Balance Sheet Information footnote. 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 |  | 2013 and prior |  | Japan |  | 2015 and prior
China |  | 2011 and prior |  | Mexico |  | 2011 and prior
France |  | 2013 and prior |  | Poland |  | 2011 and prior
Germany |  | 2011 and prior |  | South Korea |  | 2011 and prior
Hungary |  | 2008 and prior |  |  |  |
In the U.S., certain tax attributes created in years prior to 2013 were subsequently utilized. Even though the U.S. federal statute of limitations has expired for years prior to 2013, the years in which these tax attributes were created could still be subject to examination, limited to only the examination of the creation of the tax attribute. The gross components of deferred tax assets and liabilities as of December 31, 2017 and 2016 consist of the following:
| December 31,
(millions of dollars) | 2017 |  | 2016
Deferred tax assets: |  |  |  |  |
Foreign tax credits | $ | — |  |  | $ | 139.5 |
Employee compensation | 26.4 |  |  | 41.3 |
Other comprehensive loss | 54.5 |  |  | 66.3 |
Research and development capitalization | 76.4 |  |  | 145.1 |
Net operating loss and capital loss carryforwards | 74.6 |  |  | 71.5 |
Pension and other postretirement benefits | 19.1 |  |  | 38.8 |
Asbestos-related | 167.1 |  |  | 263.0 |
Other | 146.6 |  |  | 128.9 |
Total deferred tax assets | $ | 564.7 |  |  | $ | 894.4 |
Valuation allowance | (95.9 | ) |  | (71.2 | )
Net deferred tax asset | $ | 468.8 |  |  | $ | 823.2 |
Deferred tax liabilities: |  |  |  |  |
Goodwill and intangible assets | (193.9 | ) |  | (251.3 | )
Fixed assets | (104.6 | ) |  | (147.1 | )
Unremitted foreign earnings | (98.5 | ) |  | (38.5 | )
Other | (12.0 | ) |  | (16.5 | )
Total deferred tax liabilities | $ | (409.0 | ) |  | $ | (453.4 | )
Net deferred taxes | $ | 59.8 |  |  | $ | 369.8 |
At December 31, 2017, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $168.9 million available to offset future taxable income. Of the total $168.9 million, $110.0 million expire at various dates from 2018 through 2036 and the remaining $58.9 million have no expiration date. The Company has a valuation allowance recorded against $88.0 million of the $168.9 million of non-U.S. net operating loss carryforwards. Certain U.S. subsidiaries have state net operating loss carryforwards totaling $791.1 million which are partially offset by a valuation allowance of $779.2 million. The state net operating loss carryforwards expire at various dates from 2018 to 2037. Certain U.S. subsidiaries also have state tax credit carryforwards of $19.7 million which are fully offset by a valuation allowance of $19.7 million. Certain non-U.S. subsidiaries located in China had tax exemptions or tax holidays, which reduced local tax expense approximately $31.0 million and $25.5 million in 2017 and 2016, respectively. The U.S. foreign tax credit carryforwards of $139.5 million from 2016 were fully utilized in 2017 as a result of the transition tax.

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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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