Income Taxes

A summary of consolidated income before provision for income taxes and equity in net income of affiliates and the components of provision for income taxes is shown below (in millions):



For the year ended December 31,	2015			2014			2013
Consolidated income before provision for income taxes and equity in net income of affiliates:
Domestic	$	344.7		$	228.0		$	218.5
Foreign	686.8			559.4			391.6
	$	1,031.5		$	787.4		$	610.1
Domestic provision for income taxes:
Current provision	$	45.4		$	24.3		$	16.8
Deferred provision	55.0			47.0			64.9
Total domestic provision	100.4			71.3			81.7
Foreign provision for income taxes:
Current provision	191.5			155.1			130.5
Deferred benefit	(6.4		)	(105.0		)	(19.5		)
Total foreign provision	185.1			50.1			111.0
Provision for income taxes	$	285.5		$	121.4		$	192.7

The domestic provision includes withholding taxes related to dividends and royalties paid by the Company’s foreign subsidiaries, as well as state and local taxes. In 2015, 2014 and 2013, the foreign deferred benefit includes the benefit of prior unrecognized net operating loss carryforwards of $1.7 million, $10.0 million and $4.1 million, respectively.

A summary of the differences between the provision for income taxes calculated at the United States federal statutory income tax rate of 35% and the consolidated provision for income taxes is shown below (in millions):



For the year ended December 31,	2015			2014			2013
Consolidated income before provision for income taxes and equity in net income of affiliates multiplied by the United States federal statutory income tax rate	$	361.0		$	275.6		$	213.5
Differences in income taxes on foreign earnings, losses and remittances	(79.2		)	(47.8		)	(38.7		)
Valuation allowance adjustments	24.6			(74.2		)	0.2
Tax credits	(5.7		)	(0.7		)	(16.4		)
Tax audits and assessments	0.7			(12.8		)	2.7
Other	(15.9		)	(18.7		)	31.4
Provision for income taxes	$	285.5		$	121.4		$	192.7

For the years ended December 31, 2015, 2014 and 2013, income in foreign jurisdictions with tax holidays was $72.2 million, $57.6 million and $73.7 million, respectively. Such tax holidays generally expire from 2016 through 2027.

Deferred income taxes represent temporary differences in the recognition of certain items for financial reporting and income tax purposes. A summary of the components of the net deferred income tax asset is shown below (in millions):



December 31,	2015			2014
Deferred income tax assets:
Tax loss carryforwards	$	559.8		$	588.9
Tax credit carryforwards	326.0			419.0
Retirement benefit plans	100.6			119.8
Accrued liabilities	131.8			136.7
Self-insurance reserves	7.8			8.6
Current asset basis differences	42.9			38.7
Long-term asset basis differences	(88.6		)	(48.7		)
Deferred compensation	58.0			48.3
Recoverable customer engineering, development and tooling	(9.5		)	(12.1		)
Undistributed earnings of foreign subsidiaries	(50.6		)	(54.2		)
Derivative instruments and hedging activities	16.0			12.5
Other	1.9			1.4
	1,096.1			1,258.9
Valuation allowance	(495.7		)	(508.5		)
Net deferred income tax asset	$	600.4		$	750.4

As of December 31, 2015 and 2014, the valuation allowance with respect to the Company’s deferred tax assets was $495.7 million and $508.5 million, respectively, a net decrease of $12.8 million.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence, such as cumulative losses in recent years, which is objective and verifiable. When measuring cumulative losses in recent years, the Company uses a rolling three-year period of pretax book income, adjusted for permanent differences between book and taxable income and certain other items. As of December 31, 2015, the Company continues to maintain a valuation allowance of $35.0 million with respect to certain U.S. deferred tax assets that, due to their nature, are not likely to be realized. In addition, the Company continues to maintain a valuation allowance of $460.7 million with respect to its deferred tax assets in several international jurisdictions.

The classification of the net deferred income tax asset is shown below (in millions):



December 31,	2015			2014
Long-term deferred income tax assets	$	646.0		$	804.2
Long-term deferred income tax liabilities	(45.6		)	(53.8		)
Net deferred income tax asset	$	600.4		$	750.4

Deferred income taxes have not been provided on $1.7 billion of certain undistributed earnings of the Company’s foreign subsidiaries as such amounts are considered to be permanently reinvested. It is not practicable to determine the unrecognized deferred tax liability on these earnings because the actual tax liability on these earnings, if any, is dependent on circumstances existing when remittance occurs.

In 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes," which requires all deferred tax assets and liabilities, as well as related valuation allowances, to be classified as non-current rather than as current and non-current based on the classification of the related assets and liabilities. The Company adopted the provisions of this update in 2015. Accordingly, $210.8 million, $9.5 million and $3.4 million of deferred taxes have been reclassified from other current assets, accrued liabilities and other long-term liabilities, respectively, to other long-term assets in the accompanying consolidated balance sheet as of December 31, 2014.

As of December 31, 2015, the Company had tax loss carryforwards of $2.0 billion. Of the total tax loss carryforwards, $1.8 billion have no expiration date, and $217.0 million expire between 2016 and 2035. In addition, the Company had tax credit carryforwards of $371.5 million, comprised principally of U.S. foreign tax credits, research and development credits and investment tax credits that generally expire between 2016 and 2035. As of December 31, 2015, the deferred tax asset related to domestic tax credit carryforwards is lower than the actual amount reported on the Company’s domestic tax returns by approximately $45.4 million. This difference is the result of tax deductions in excess of financial statement amounts for stock-based compensation. When these amounts are realized, the Company will record the tax benefit as an increase to additional paid in capital.

As of December 31, 2015 and 2014, the Company’s gross unrecognized tax benefits were $30.4 million and $39.7 million (excluding interest and penalties), respectively, all of which, if recognized, would affect the Company’s effective tax rate. The gross unrecognized tax benefits are recorded in other long-term liabilities.

A summary of the changes in gross unrecognized tax benefits is shown below (in millions):



For the year ended December 31,	2015			2014			2013
Balance at beginning of period	$	39.7		$	45.2		$	34.4
Additions based on tax positions related to current year	5.0			5.6			5.0
Additions (reductions) based on tax positions related to prior years	(0.2		)	(1.8		)	14.3
Settlements	(12.3		)	(6.5		)	(6.7		)
Statute expirations	(0.6		)	—			(0.8		)
Foreign currency translation	(1.2		)	(2.8		)	(1.0		)
Balance at end of period	$	30.4		$	39.7		$	45.2

The Company recognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As of December 31, 2015 and 2014, the Company had recorded gross reserves of $7.5 million and $6.1 million (excluding federal benefit of $0.4 million as of December 31, 2015 and 2014), respectively, related to interest and penalties, of which $7.4 million and $6.1 million, respectively, if recognized, would affect the Company’s effective tax rate.

The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign tax authorities. During the next twelve months, it is reasonably possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute of limitations in multiple jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits by approximately $1.0 million, all of which, if recognized, would affect the Company’s effective tax rate. The gross unrecognized tax benefits subject to potential decrease involve issues related to transfer pricing and various other tax items in multiple jurisdictions. However, as a result of ongoing examinations, tax proceedings in certain countries, additions to the gross unrecognized tax benefits for positions taken and interest and penalties, if any, arising in 2016, it is not possible to estimate the potential net increase or decrease to the Company’s gross unrecognized tax benefits during the next twelve months.

The Company considers its significant tax jurisdictions to include China, Germany, Hungary, Italy, Mexico, Poland, Spain, the United Kingdom and the United States. The Company or its subsidiaries generally remain subject to income tax examination in certain U.S. state and local jurisdictions for years after 2009. Further, the Company or its subsidiaries remain subject to income tax examination in Mexico and Spain for years after 2006, in Hungary and Poland for years after 2009, in Germany and Italy generally for years after 2010, in China and the United Kingdom for years after 2011 and in the United States generally for years after 2014.

Legislation

In December 2015, the Protecting Americans from Tax Hike (“PATH”) Act of 2015 was enacted, which retroactively extended various business and individual tax provisions, including the Research & Development Tax Credit. In 2015, the impact of the PATH Act was not significant to the Company.

In January 2013, the American Taxpayer Relief Act of 2012 was enacted, which retroactively reinstated and extended various tax provisions applicable to the Company, including the Research & Development Tax Credit. In 2013, the Company recognized a tax benefit of $3.4 million, which reduced the Company’s effective tax rate.