Note  1 -- Summary of Significant Accounting Policies Note  2 -- Accounting Changes Note  3 -- Special Charges Note  4 -- Segment Information Note  5 -- Leases Note  6 -- Supplementary Income Statement Information Note  7 -- Provision for Income Taxes Note  8 -- Earnings Per Share Note  9 -- Supplementary Balance Sheet Information Note 10 -- Property, Plant and Equipment - Net Note 11 -- Deferred Income Taxes Note 12 -- Goodwill Note 13 -- Other Intangible Assets Note 14 -- Debt Note 15 -- Financial Instruments Note 16 -- Shareholder's Equity Note 17 -- Preferred Stock Note 18 -- Incentive Plans and Stock Options Note 19 -- Retirement Programs Note 20 -- Commitments and Contingencies Note 21 -- Quarterly Data (Unaudited)
 

NOTE 7. PROVISION FOR INCOME TAXES
Pre-tax income applicable to U.S. and foreign operations is as follows:

(Millions of dollars)
YEAR ENDED DECEMBER 31,	2003	2002	2001
United States	$213	$233	$210
Foreign	558	484	366
Total income before income taxes	$771	$717	$576

The following is an analysis of the provision for income taxes:

(Millions of dollars)
YEAR ENDED DECEMBER 31,	2003	2002	2001
CURRENT TAX EXPENSE
U.S. Federal	$  39	$  25	$  38
State and local	1	5	3
Foreign	101	91	58
	141	121	99
DEFFERRED TAX EXPENSE (BENEFIT)
U.S. Federal	(9)	50	30
Foreign	42	(13)	6
	33	37	36
Total income taxes	$174	$158	$135

An analysis of the difference between the provision for income taxes and the amount computed by applying the U.S. statutory income tax rate to pre-tax income follows:

(Dollar amounts in millions)
YEAR ENDED DECEMBER 31,	2003			2002			2001
U.S. statutory income tax rate	$270	35.0	%	$251	35.0	%	$202	35.0	%
State and local taxes	1	0.1	%	3	0.4	%	2	0.3	%
U.S. tax credits and deductions(a)	(23)	-3.0	%	(4)	-0.6	%	(12)	-2.1	%
Foreign tax rate differentials(b)	(53)	-6.8	%	(92)	-12.8	%	(47)	-8.2	%
Tax audit settlement(c)	(10)	-1.3	%	—	—		—	—
Other ­ net	(11)	-1.4	%	—	—		(10)	-1.6	%
Provision for income taxes	$174	22.6	%	$158	22.0	%	$135	23.4	%
(a) U.S. tax credits and deductions relate to research and experimentation tax credits, capital loss deductions and donations of certain intellectual property.
(b) Foreign tax rate differentials include various tax incentives in Spain. The company also operates in various jurisdictions in Asia and South America that currently offer tax holidays.
(c) The Tax audit settlement represents a non-recurring benefit resulting from the settlement of various tax matters in the United States.

The company recognized $15 million and $23 million during 2002 and 2001, respectively, of tax benefits related to current-year foreign net operating losses.

The company has implemented various tax planning strategies minimizing its state tax liabilities.

During 2003, the taxing authority in Italy decreased its top marginal rate. During 2002, taxing authorities in Belgium, Canada, France and Italy decreased their top marginal tax rates. The effects of these tax rate changes were immaterial.

A provision has not been made for additional federal or foreign taxes at December 31, 2003 on $1,071 million of undistributed earnings of foreign subsidiaries because Praxair has planned to reinvest these funds indefinitely. These earnings could become subject to additional tax if they are remitted as dividends, loaned to Praxair, or upon sale of the subsidiary’s stock. It is not practicable to estimate the amount or timing of the additional tax, if any, that might eventually be paid on the foreign earnings.