| Income Taxes |
Income TaxesCurrent income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized. On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The TCJA reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The following table provides the components of the Company’s provision for income taxes for 2019, 2018 and 2017: | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | (in millions) | Current: | | | | | | U.S. Federal | $ | 156 |
| | $ | 212 |
| | $ | 366 |
| U.S. State | 35 |
| | 37 |
| | 49 |
| Non-U.S. | 23 |
| | 16 |
| | 22 |
| Total | 214 |
| | 265 |
| | 437 |
| Deferred: | | | | | | U.S. Federal | (7 | ) | | (4 | ) | | (114 | ) | U.S. State | 1 |
| | 2 |
| | 6 |
| Non-U.S. | (23 | ) | | (50 | ) | | — |
| Total | (29 | ) | | (52 | ) | | (108 | ) | Provision for Income Taxes | $ | 185 |
| | $ | 213 |
| | $ | 329 |
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The non-U.S. component of pre-tax income, arising principally from overseas operations, was a loss of $226 million, loss of $14 million and income of $99 million for 2019, 2018 and 2017, respectively. The following table provides the reconciliation between the statutory federal income tax rate and the effective tax rate for 2019, 2018 and 2017: | | | | | | | | | | | 2019 | | 2018 | | 2017 | Federal Income Tax Rate | 21.0 | % | | 21.0 | % | | 33.7 | % | State Income Taxes, Net of Federal Income Tax Effect | (23.0 | %) | | 6.0 | % | | 3.6 | % | Impact of Non-U.S. Operations | (5.7 | %) | | 2.3 | % | | (1.4 | %) | Goodwill Impairment | (80.8 | %) | | — | % | | — | % | Change in Valuation Allowance | (18.5 | %) | | (1.1 | %) | | (0.1 | %) | Divestiture of La Senza | — | % | | (2.7 | %) | | — | % | U.S. Net Deferred Tax Liability Remeasurement | — | % | | — | % | | (12.1 | %) | Deemed Mandatory Repatriation | — | % | | — | % | | 5.1 | % | Share-Based Compensation | (7.7 | %) | | 1.0 | % | | (1.0 | %) | Uncertain Tax Positions | 12.3 | % | | (0.5 | %) | | (1.2 | %) | Other Items, Net | 0.5 | % | | (1.1 | %) | | (1.5 | %) | Effective Tax Rate | (101.9 | %) | | 24.9 | % | | 25.1 | % |
Deferred Taxes The following table provides the effect of temporary differences that cause deferred income taxes as of February 1, 2020 and February 2, 2019. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carryforwards at the end of the respective year. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets | | Liabilities | | Total | | Assets | | Liabilities | | Total | | (in millions) | Operating Loss Carryforwards | $ | 247 |
| | $ | — |
| | $ | 247 |
| | $ | 217 |
| | $ | — |
| | $ | 217 |
| Non-qualified Retirement Plan | 62 |
| | — |
| | 62 |
| | 64 |
| | — |
| | 64 |
| Leases | 746 |
| | (712 | ) | | 34 |
| | 50 |
| | — |
| | 50 |
| Share-based Compensation | 40 |
| | — |
| | 40 |
| | 47 |
| | — |
| | 47 |
| Deferred Revenue | 20 |
| | — |
| | 20 |
| | 28 |
| | — |
| | 28 |
| Property and Equipment | — |
| | (230 | ) | | (230 | ) | | — |
| | (278 | ) | | (278 | ) | Trade Names and Other Intangibles | — |
| | (94 | ) | | (94 | ) | | — |
| | (93 | ) | | (93 | ) | Other Assets | — |
| | (60 | ) | | (60 | ) | | — |
| | (60 | ) | | (60 | ) | Other, Net | 70 |
| | (20 | ) | | 50 |
| | 60 |
| | (27 | ) | | 33 |
| Valuation Allowance | (204 | ) | | — |
| | (204 | ) | | (172 | ) | | — |
| | (172 | ) | Total Deferred Income Taxes | $ | 981 |
| | $ | (1,116 | ) | | $ | (135 | ) | | $ | 294 |
| | $ | (458 | ) | | $ | (164 | ) |
As of February 1, 2020, the Company had available for state income tax purposes net operating loss carryforwards which expire, if unused, in the years 2020 through 2039. For those states where the Company has determined that it is more likely than not that the state net operating loss carryforwards will not be realized, a valuation allowance has been provided. As of February 1, 2020, the Company had available for non-U.S. tax purposes net operating loss carryforwards which have an indefinite life and net operating loss carryforwards which expire, if unused, in the years 2028 through 2039. For certain jurisdictions where the Company has determined that it is more likely than not that the net operating loss carryforwards will not be realized, a valuation allowance has been provided on those net operating loss carryforwards as well as other net deferred tax assets. Income tax payments were $228 million for 2019, $324 million for 2018 and $494 million for 2017. Uncertain Tax Positions The following table summarizes the activity related to the Company’s unrecognized tax benefits for U.S. federal, state & non-U.S. tax jurisdictions for 2019, 2018 and 2017, without interest and penalties: | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | (in millions) | Gross Unrecognized Tax Benefits, as of the Beginning of the Fiscal Year | $ | 114 |
| | $ | 67 |
| | $ | 90 |
| Increases to Unrecognized Tax Benefits for Prior Years | 15 |
| | 35 |
| | 3 |
| Decreases to Unrecognized Tax Benefits for Prior Years | (22 | ) | | (25 | ) | | (22 | ) | Increases to Unrecognized Tax Benefits as a Result of Current Year Activity | 3 |
| | 44 |
| | 7 |
| Decreases to Unrecognized Tax Benefits Relating to Settlements with Taxing Authorities | (16 | ) | | — |
| | (2 | ) | Decreases to Unrecognized Tax Benefits as a Result of a Lapse of the Applicable Statute of Limitations | (6 | ) | | (7 | ) | | (9 | ) | Gross Unrecognized Tax Benefits, as of the End of the Fiscal Year | $ | 88 |
| | $ | 114 |
| | $ | 67 |
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Of the total gross unrecognized tax benefits, approximately $81 million, $104 million and $46 million, at February 1, 2020, February 2, 2019, and February 3, 2018, respectively, represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. These amounts are net of the offsetting tax effects from other tax jurisdictions. Of the total unrecognized tax benefits, it is reasonably possible that $66 million could change in the next 12 months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the period in which such matters are effectively settled. The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized an income tax benefit from interest and penalties of less than $1 million, $5 million and $2 million in 2019, 2018 and 2017, respectively. The Company has accrued $12 million for the payment of interest and penalties as of both February 1, 2020 and February 2, 2019. Accrued interest and penalties are included within Other Long-term Liabilities on the Consolidated Balance Sheets. The Company files U.S. federal income tax returns as well as income tax returns in various states and in non-U.S. jurisdictions. The Company is a participant in the Compliance Assurance Process ("CAP"), which is a program made available by the Internal Revenue Service ("IRS") to certain qualifying large taxpayers, under which participants work collaboratively with the IRS to identify and resolve potential tax issues through open, cooperative and transparent interaction prior to the annual filing of their federal income tax return. The IRS is currently examining the Company's 2018 consolidated U.S. federal income tax return. The Company is also subject to various U.S. state and local income tax examinations for the years 2015 to 2018. Finally, the Company is subject to multiple non-U.S. tax jurisdiction examinations for the years 2007 to 2018. In some situations, the Company determines that it does not have a filing requirement in a particular tax jurisdiction. Where no return has been filed, no statute of limitations applies. Accordingly, if a tax jurisdiction reaches a conclusion that a filing requirement does exist, additional years may be reviewed by the tax authority. The Company believes it has appropriately accounted for uncertainties related to this issue.
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