In connection with our initial analysis of the impact of the 2017 Tax Act, we recorded a net discrete tax benefit of $370 million during the third quarter of 2018. This net benefit mainly arises from changing the expected future consequences of settling differences between the book and tax basis of assets and liabilities, mainly driven by a decrease of our deferred tax liabilities for inventories and investments; partially offset by establishing a new obligation for the taxation of certain unrepatriated earnings of our foreign subsidiaries. Although our accounting for the impact of the 2017 Tax Act is incomplete, we have made reasonable estimates and recorded provisional amounts as follows:
Reduction of U.S. federal corporate tax rate: The 2017 Tax Act reduces the corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. U.S. tax law stipulates that our fiscal year 2018 will have a blended tax rate of 31.6 percent, which is based on the pro rata number of days in the fiscal year before and after the effective date. For the fiscal year 2019, the tax rate will be 21 percent. As a result, we have remeasured certain deferred tax assets and deferred tax liabilities and recorded a provisional net discrete tax benefit of $1.26 billion, mainly driven by a decrease of our deferred tax liabilities for inventories and investments. While we were able to make a reasonable estimate of the impact of the reduction in the corporate tax rate, it may be affected by, among other items, changes to estimates the company has utilized to calculate the reversal pattern of our existing temporary differences and the state effect of adjustments made to federal temporary differences.
Deemed Repatriation Transition Tax (“Transition Tax”): The 2017 Tax Act imposes a Transition Tax on certain accumulated earnings and profits (“E&P”) of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the impact of the Transition Tax and recorded a provisional discrete tax expense of $434 million. This estimate may change as we gather additional information to more precisely compute the amount of the Transition Tax.
Uncertainty relating to the application of the new legislation: The 2017 Tax Act makes broad and complex changes to the U.S. tax code, including substantial changes to the taxation of cumulative foreign earnings and the treatment of future U.S. inclusions. The application of certain provisions of the 2017 Tax Act may involve some uncertainty. Accordingly, we recognized a provisional discrete tax expense of $452 million to increase our unrecognized tax benefits and to reflect the amount of benefit that is more likely than not expected to be sustained. This estimate may change, among other things, due to clarifications of the application of certain provisions of the 2017 Tax Act.
