6. Income taxes

Income before Income Taxes

	For Years Ended December 31,
	2016		2015		2014
U.S.	$	3,953	$	3,218	$	2,684
Non-U.S.		977		998		1,190
Total	$	4,930	$	4,216	$	3,874

Provision (Benefit) for Income Taxes

	For Years Ended December 31,
	2016							2015							2014
	Current		Deferred			Total		Current		Deferred			Total		Current		Deferred			Total
U.S. federal	$	1,289	$	(122	)	$	1,167	$	1,110	$	(72	)	$	1,038	$	911	$	(73	)	$	838
Non-U.S.		238		(80	)		158		168		14			182		194		11			205
U.S. state		10		—			10		7		3			10		9		1			10
Total	$	1,537	$	(202	)	$	1,335	$	1,285	$	(55	)	$	1,230	$	1,114	$	(61	)	$	1,053

Principal reconciling items from the U.S. statutory income tax rate to the effective tax rate (Provision for income taxes as a percentage of Income before income taxes) are as follows:

	For Years Ended December 31,
	2016			2015				2014
U.S. statutory income tax rate		35.0%			35.0%				35.0%
Non-U.S. effective tax rates		(3.7	)			(4.0	)			(5.5	)
U.S. excess tax benefit for stock compensation (a)		(3.0	)		—				—
U.S. tax benefit for manufacturing		(1.5	)			(1.6	)			(1.3	)
U.S. R&D tax credit		(1.2	)			(1.3	)			(1.5	)
U.S. non-deductible expenses		0.3				0.3				0.2
Impact of changes to uncertain tax positions		0.6				0.2				0.1
Other		0.6				0.6				0.2
Effective tax rate		27.1	%			29.2	%			27.2	%

(a)	This is related to the adoption of ASU 2016-09 as discussed in Note 2.

Our effective tax rate benefits from lower rates (compared with the U.S. statutory income tax rate) applicable to our operations in many of the jurisdictions in which we operate, and from U.S. tax benefits. These lower non-U.S. tax rates are generally statutory in nature, without expiration and available to companies that operate in those taxing jurisdictions. Also included in the non-U.S. effective tax rates reconciling item above are benefits from tax holidays of $30 million, $50 million and $44 million in 2016, 2015 and 2014, respectively. The tax benefits relate to our operations in Malaysia and the Philippines, and expire in 2018 and 2017, respectively. The terms of the Malaysia tax holiday are currently under governmental review as required for the end of the first five years of the holiday period.

The primary components of deferred income tax assets and liabilities are as follows:

	December 31,
	2016			2015
Deferred income tax assets:
Stock compensation	$	220		$	244
Accrued expenses		219			215
Deferred loss and tax credit carryforwards		214			226
Inventories and related reserves		145			147
Retirement costs for defined benefit and retiree health care		82			87
Other		81			101
Total deferred income tax assets, before valuation allowance		961			1,020
Valuation allowance		(128	)		(186	)
Total deferred income tax assets, after valuation allowance		833			834
Deferred income tax liabilities:
Acquisition-related intangibles and fair-value adjustments		(460	)		(565	)
International earnings		(32	)		(105	)
Total deferred income tax liabilities		(492	)		(670	)
Net deferred income tax asset	$	341		$	164

The deferred income tax assets and liabilities based on tax jurisdictions are presented on our Consolidated Balance Sheets as follows:

	December 31,
	2016			2015
Deferred income tax assets	$	374		$	201
Deferred income tax liabilities		(33	)		(37	)
Net deferred income tax asset	$	341		$	164

We make an ongoing assessment regarding the realization of U.S. and non-U.S. deferred tax assets. This assessment is based on our evaluation of relevant criteria, including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, taxable income in prior carryback years and expectations for future taxable income. Changes in valuation allowance balances in 2016 and 2015 of $58 million and $9 million, respectively, impacted Net income by $63 million and $0 million, respectively.

We have U.S. and non-U.S. tax loss carryforwards of approximately $12 million, none of which will expire before the year 2026.

A provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend payments from these subsidiaries are expected to result in additional tax liability. The remaining undistributed earnings of approximately $9.03 billion as of December 31, 2016, have been indefinitely reinvested outside of the United States; therefore, no U.S. tax provision has been made for taxes due upon remittance of these earnings. The indefinitely reinvested earnings of our non-U.S. subsidiaries are primarily invested in working capital and property, plant and equipment. Determination of the amount of unrecognized deferred income tax liability is not practical because of the complexities associated with its hypothetical calculation.

Cash payments made for income taxes, net of refunds, were $1.15 billion, $1.17 billion and $1.10 billion in 2016, 2015 and 2014, respectively.

Uncertain tax positions

We operate in a number of tax jurisdictions, and our income tax returns are subject to examination by tax authorities in those jurisdictions who may challenge any item on these tax returns. Because the matters challenged by authorities are typically complex, their ultimate outcome is uncertain. Before any benefit can be recorded in our financial statements, we must determine that it is “more likely than not” that a tax position will be sustained by the appropriate tax authorities. We recognize accrued interest related to uncertain tax positions and penalties as components of OI&E.

The changes in the total amounts of uncertain tax positions are as follows:

	2016			2015			2014
Balance, January 1	$	84		$	108		$	91
Additions based on tax positions related to the current year		4			11			10
Additions for tax positions of prior years		189			3			52
Reductions for tax positions of prior years		(2	)		(21	)		(9	)
Settlements with tax authorities		(32	)		(17	)		(36	)
Balance, December 31	$	243		$	84		$	108

Interest income (expense) recognized in the year ended December 31	$	4		$	8		$	6

Interest receivable (payable) as of December 31	$	13		$	9		$	—

The liability for uncertain tax positions is a component of Deferred credits and other liabilities on our Consolidated Balance Sheets.

All of the $243 million liability for uncertain tax positions as of December 31, 2016, is comprised of positions that, if recognized, would benefit the effective tax rate. If these tax liabilities are ultimately realized, $12 million of existing deferred tax assets would also be realized, related to refunds from counterparty jurisdictions resulting from procedures for relief from double taxation.

All of the $84 million liability for uncertain tax positions as of December 31, 2015, is comprised of positions that, if recognized, would benefit the effective tax rate. If these tax liabilities are ultimately realized, $12 million of existing deferred tax assets would also be realized, related to refunds from counterparty jurisdictions resulting from procedures for relief from double taxation.

As of December 31, 2016, the statute of limitations remains open for U.S. federal tax returns for 2010 and following years. Audit activities related to our U.S. federal tax returns through 2012 have been completed except for certain pending tax treaty procedures for relief from double taxation. The procedures for relief from double taxation pertain to U.S. federal tax returns for the years 2006 through 2011.

In non-U.S. jurisdictions, the years open to audit represent the years still open under the statute of limitations. With respect to major jurisdictions outside the United States, our subsidiaries are no longer subject to income tax audits for years before 2007.