XML 35 R19.htm IDEA: XBRL DOCUMENT
v3.20.4

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made changes to the U.S. tax code, which included (1) a reduced U.S. corporate tax rate from 35 percent to 21 percent, (2) implementation of a base erosion and anti-abuse tax, (3) general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, (4) a new provision designed to tax GILTI of foreign subsidiaries which allows for the possibility of utilizing foreign tax credits to offset the tax liability (subject to some limitations), (5) a lower effective U.S. tax rate on certain revenues from sources outside the U.S., and (6) a one-time transition tax on certain undistributed earnings of foreign subsidiaries. In the year ended December 31, 2017, we recorded a provisional discrete net tax benefit associated with the Tax Act and related matters. The provisional amounts recorded in 2017 related to the transition tax, remeasurement of deferred taxes, our reassessment of permanently reinvested earnings, uncertain tax positions and valuation allowances, and actions taken in anticipation of the Tax Act were finalized and a net expense of $36 was recorded during 2018. During 2018, we also recorded discrete net tax expense of $81 primarily related to new guidance issued during 2018 affecting tax benefits we recorded in the year ended December 31, 2017 for the transition tax and certain tax planning actions taken in anticipation of the Tax Act. At December 31, 2018, we finalized our policy and have elected to use the period cost method for GILTI provisions and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods. In December 2019, we generated a nonrecurring capital loss from a legal entity restructuring. We recorded a net benefit of $47 in the fourth quarter. An analysis of the provision for income taxes follows:
| Year Ended December 31
| 2020 |  | 2019 |  | 2018
Current income taxes |  |  |  |  |
United States | $ | 252 |  |  | $ | 215 |  |  | $ | 177 |
State | 81 |  |  | 94 |  |  | 63 |
Other countries | 298 |  |  | 238 |  |  | 229 |
Total | 631 |  |  | 547 |  |  | 469 |
Deferred income taxes |  |  |  |  |
United States | 62 |  |  | 50 |  |  | 16 |
State | 5 |  |  | (16) |  |  | 22 |
Other countries | (22) |  |  | (5) |  |  | (36) |
Total | 45 |  |  | 29 |  |  | 2 |
Total provision for income taxes | $ | 676 |  |  | $ | 576 |  |  | $ | 471 |
Income before income taxes is earned in the following tax jurisdictions:
| Year Ended December 31
| 2020 |  | 2019 |  | 2018
United States | $ | 2,336 |  |  | $ | 2,252 |  |  | $ | 1,606 |
Other countries | 594 |  |  | 398 |  |  | 207 |
Total income before income taxes | $ | 2,930 |  |  | $ | 2,650 |  |  | $ | 1,813 |
Deferred income tax assets and liabilities are composed of the following:
| December 31
| 2020 |  | 2019
Deferred tax assets |  |  |
Pension and other postretirement benefits | $ | 239 |  |  | $ | 253 |
Tax credits and loss carryforwards | 477 |  |  | 411 |
Lease liability | 117 |  |  | 104 |
Other | 465 |  |  | 388 |
| 1,298 |  |  | 1,156 |
Valuation allowances | (272) |  |  | (248) |
Total deferred tax assets | 1,026 |  |  | 908 |
Deferred tax liabilities |  |  |
Property, plant and equipment, net | 900 |  |  | 795 |
Investments in subsidiaries | 111 |  |  | 103 |
Goodwill | 54 |  |  | 66 |
Intangible assets | 159 |  |  | 4 |
Lease asset | 117 |  |  | 105 |
Other | 146 |  |  | 104 |
Total deferred tax liabilities | 1,487 |  |  | 1,177 |
Net deferred tax assets (liabilities) | $ | (461) |  |  | $ | (269) |
Valuation allowances at the end of 2020 primarily relate to tax credits, capital loss carryforwards, and income tax loss carryforwards of $958. If these items are not utilized against taxable income, $441 of the income tax loss carryforwards will expire from 2021 through 2040. The remainin g $517 has no expiration date. Realization of income tax loss carryforwards is dependent on generating sufficient taxable income prior to expiration of these carryforwards. Although realization is not assured, we believe it is more likely than not that all of the deferred tax assets, net of applicable valuation allowances, will be realized. The amount of the deferred tax assets considered realizable could be reduced or increased due to changes in the tax environment or if estimates of future taxable income change during the carryforward period. Presented below is a reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the actual effective tax rate:
| Year Ended December 31
| 2020 |  | 2019 |  | 2018
U.S. statutory rate applied to income before income taxes | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of federal tax benefit | 2.3 |  |  | 2.5 |  |  | 3.7 |
Routine tax incentives | (4.3) |  |  | (3.5) |  |  | (5.4) |
Net tax cost on foreign income | 2.7 |  |  | 1.5 |  |  | 1.6 |
Net impact of the Tax Act | — |  |  | — |  |  | 6.4 |
Valuation allowance | 0.7 |  |  | 1.0 |  |  | 1.6 |
Nonrecurring capital loss | — |  |  | (1.8) |  |  | — |
Other - net(a) | 0.7 |  |  | 1.0 |  |  | (2.9) |
Effective income tax rate | 23.1 | % |  | 21.7 | % |  | 26.0 | %
(a) Other - net is composed of numerous items, none of which is greater than 1.05 percent of income before income taxes. As of December 31, 2020, we have accumulated undistributed earnings generated by our foreign subsidiaries of approximately $7.9 billion. Earnings of $5.2 billion were previously subject to tax, primarily due to the one-time transition tax on foreign earnings required by the Tax Act. Any additional taxes due with respect to such previously-taxed earnings, if repatriated, would generally be limited to foreign and U.S. state income taxes. Deferred taxes have been recorded on $0.7 billion of earnings, most of which were previously taxed for U.S. federal income tax purposes, of foreign consolidated subsidiaries expected to be repatriated. We do not intend to distribute the remaining $4.5 billion of previously-taxed foreign earnings and therefore have not recorded deferred taxes for foreign and U.S. state income taxes on such earnings. Prior to the transition tax, we had an excess of the amount for financial reporting over the tax basis in our foreign subsidiaries. While the transition tax resulted in a reduction of the excess amount for financial reporting over the tax basis in our foreign subsidiaries, any remaining amount of financial reporting over tax basis after such reduction could be subject to additional taxes, if repatriated. However, we consider any excess to be indefinitely reinvested. The determination of deferred tax liabilities on the amount of financial reporting over tax basis or the $4.5 billion of previously taxed foreign earnings is not practicable. Presented below is a reconciliation of the beginning and ending amounts of unrecognized income tax benefits:
| 2020 |  | 2019 |  | 2018
Balance at January 1 | $ | 383 |  |  | $ | 298 |  |  | $ | 354 |
Gross increases for tax positions of prior years | 144 |  |  | 36 |  |  | 75 |
Gross decreases for tax positions of prior years | (34) |  |  | (13) |  |  | (86) |
Gross increases for tax positions of the current year | 36 |  |  | 87 |  |  | 41 |
Settlements | (22) |  |  | (13) |  |  | (70) |
Other | (10) |  |  | (12) |  |  | (16) |
Balance at December 31 | $ | 497 |  |  | $ | 383 |  |  | $ | 298 |
Of the amounts recorded as unrecognized tax benefits at December 31, 2020, $427 would reduce our effective tax rate if recognized. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During each of the three years ended December 31, 2020, the net impact of interest and penalties was not significant. Total accrued penalties and net accrued interest was $20 and $16 at December 31, 2020 and 2019, respectively. It is reasonably possible that a number of uncertainties could be resolved within the next 12 months. The aggregate resolution of the uncertainties could be up to $180, while none of the uncertainties is individually significant. Resolution of these matters is not expected to have a material effect on our financial condition, results of operations or liquidity. As of December 31, 2020, the following tax years remain subject to examination for the major jurisdictions where we conduct business:
Jurisdiction | Years
United States | 2016 to 2020
United Kingdom | 2017 to 2020
Brazil | 2015 to 2020
Australia | 2014 to 2020
China | 2009 to 2020
Our U.S. federal income tax returns have been audited through 2015 and U.S. federal income tax amended returns are being audited for 2005, 2007 and 2013. State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state effect of any changes to filed federal positions remains subject to examination by various states for a period of up to two years after formal notification to the states. We have various state income tax return positions in the process of examination, administrative appeals or litigation. The Brazilian tax authority, Secretaria da Receita Federal do Brasil ("RFB"), concluded an audit for the taxable periods from 2008-2013. This audit included a review of our determinations of amortization of certain goodwill arising from prior acquisitions in Brazil, and the RFB has proposed adjustments that effectively eliminate the goodwill amortization benefits related to these transactions. Administrative appeals have been exhausted, and the dispute is moving into the judicial phase. The amount of the proposed tax adjustments and penalties is approximately $70 a s of December 31, 2020 (translated at the December 31, 2020 currency exchange rate). The amount ultimately in dispute will be significantly greater because of interest. We believe we have meritorious defenses and intend to vigorously defend against these proposed adjustments; however, it is expected to take a number of years to reach resolution of this matter. The U.S. Internal Revenue Service ("IRS") is currently auditing our federal tax return for the taxable year ended December 31, 2017. As part of this tax audit, the IRS is reviewing our one-time transition tax on certain undistributed earnings of foreign subsidiaries under the Tax Act. The IRS has proposed an adjustment that would increase the amount of the transition tax owed by us. We believe we have adequate reserves and meritorious defenses and intend to vigorously defend against the proposed adjustment; however, it is expected to take a number of years to reach resolution of this matter.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration