8. Tax

The effective tax rate for the three months ended March 31, 2016 was 50.0%, compared to 37.6% for the same period in 2015. Compared to the U.S. statutory rate, the effective tax rate was positively impacted in the periods by the effect of lower tax rates on income earned in foreign jurisdictions, foreign exchange losses for tax reporting in Norway, and a reduction in tax reserves due to audit settlements and the expiration of the statute of limitations on open tax years. The effective tax rate was negatively impacted by foreign dividends net of foreign tax credits, nondeductible expenses, and an increase in valuation allowance on deferred taxes.

The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate of 35% was as follows (in millions):


	Three Months Ended March 31,
	2016			2015
Federal income tax at U.S. federal statutory rate	$	(83	)	$	176
Foreign income tax rate differential		(27	)		(46	)
State income tax, net of federal benefit		(4	)		4
Nondeductible expenses		12			5
Tax benefit of manufacturing deduction		—			(10	)
Foreign dividends, net of foreign tax credits		5			7
Tax impact of foreign exchange		(8	)		1
Change in valuation allowance		10			—
Tax rate change on temporary differences		2			(4	)
Change in tax reserves		(25	)		69
Other		—			(13	)

Provision for income taxes	$	(118	)	$	189

The balance of unrecognized tax benefits at March 31, 2016 was $24 million. The Company does not anticipate its total unrecognized tax benefits at March 31, 2016 to significantly change due to the settlement of audits or the expiration of statutes of limitation within 12 months of this reporting date.

The Company is subject to taxation in the U.S., various states and foreign jurisdictions. The Company has significant operations in the United States, Canada, the United Kingdom, the Netherlands and Norway. Tax years that remain subject to examination by major tax jurisdiction vary by legal entity, but are generally open in the U.S. for tax years after 2012 and outside the U.S. for tax years after 2008.

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts have been classified as a component of income tax expense in the financial statements.

For the three-month period ended March 31, 2016, the Company is utilizing the discrete-period method to compute its interim tax provision due to significant variations in the relationship between income tax expense and pre-tax accounting income or loss; consequently, the actual effective rate for the interim period is being reported. The discrete-period method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate.

For the three-month period ended March 31, 2015, the Company utilized the estimated annual effective tax rate method in computing its interim tax provisions. The relationship between pre-tax accounting income and income tax for these periods allowed the Company to estimate the annual effective tax rate to be applied to year-to-date income in those periods.

On January 1, 2016, the Company adopted FASB ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” on a retrospective basis. Rather than classify deferred tax assets and liabilities as current and non-current, this update requires that deferred tax assets and liabilities be classified as non-current in the Consolidated Balance Sheet. Adoption of this ASU resulted in a reclassification of our current deferred tax assets and liabilities to non-current deferred tax assets and liabilities in our Consolidated Balance Sheet as of March 31, 2016. Prior periods have been retrospectively adjusted. At December 31, 2015, $376 million of current deferred tax assets have been reclassified to non-current deferred tax liabilities, $358 million of non-current deferred tax assets have been reclassified to non-current deferred tax liabilities, and $291 million of current deferred tax liabilities have been reclassified to non-current deferred tax liabilities.