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INCOME TAXES | 12 Months Ended
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Nov. 03, 2019
INCOME TAXES |
INCOME TAXES | 9. INCOME TAXES On December 22, 2017, the U.S. government enacted tax reform. The primary provisions of tax reform affecting the company in 2018 were a reduction to the corporate income tax rate from 35 percent to 21 percent and a transition from a worldwide corporate tax system to a primarily territorial tax system. The reduction in the corporate income tax rate required the company to remeasure its U.S. net deferred tax assets to the new corporate tax rate and the transition to a territorial tax system required payment of a one-time tax on the deemed repatriation of undistributed and previously untaxed non-U.S. earnings (repatriation tax). The repatriation tax was paid in 2019. In 2019, the company was subject to additional provisions of the U.S. tax reform legislation. The company’s U.S. statutory corporate income tax rate was 21 percent and approximately 23.3 percent for 2019 and 2018, respectively. The main provisions of tax reform affecting the company in 2019 include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion and anti-abuse tax benefits (BEAT) for certain payments between a U.S. corporation and foreign subsidiaries, a limitation on the deductibility of certain executive compensation, a deduction for foreign derived intangible income (FDII), and interest expense limitations. The combined effects of these provisions did not have a significant effect on the 2019 provision for income taxes. In 2019 and 2018, the company recorded discrete tax adjustments related to the remeasurement of the company’s net deferred tax assets to the new corporate income tax rate and for the repatriation tax. The income tax expense (benefit) for the net deferred tax asset remeasurement and the repatriation tax adjustments in millions of dollars follow: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Equipment | ​ | Financial | ​ | ​ | ​
​ | ​ | Operations | ​ | Services | ​ | Total | ​
2019 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net deferred tax asset remeasurement | ​ | $ | 1 | ​ | $ | 5 | ​ | $ | 6 | ​
Deemed earnings repatriation tax | ​ | ​ | (66) | ​ | ​ | (8) | ​ | ​ | (74) | ​
Total discrete tax expense (benefit) | ​ | $ | (65) | ​ | $ | (3) | ​ | $ | (68) | ​
2018 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net deferred tax asset remeasurement |  | $ | 768 |  | $ | (354) |  | $ | 414 | ​
Deemed earnings repatriation tax | ​ | ​ | 277 | ​ | ​ | 13 | ​ |  | 290 | ​
Total discrete tax expense (benefit) | ​ | $ | 1,045 | ​ | $ | (341) | ​ | $ | 704 | ​
​ Included in the equipment operations’ repatriation tax amount was an accrual of approximately $63 million for 2018, which was reduced to $31 million for 2019 for foreign withholding taxes on earnings of subsidiaries outside the U.S. The repatriation tax expense is based on interpretations of existing laws, regulations, and certain assumptions. The company continues to analyze the repatriation tax provisions, and monitor legislative and regulatory developments. The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017 |
Current: | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​
U.S.: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Federal | ​ | $ | 545 | ​ | $ | (268) | ​ | $ | 360 | ​
State | ​ |  | 72 | ​ |  | 123 | ​ |  | 48 | ​
Foreign | ​ |  | 700 | ​ |  | 392 | ​ |  | 463 | ​
Total current | ​ |  | 1,317 | ​ |  | 247 | ​ |  | 871 | ​
Deferred: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
U.S.: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Federal | ​ |  | (345) | ​ |  | 1,233 | ​ |  | 59 | ​
State | ​ |  | (26) | ​ |  | (40) | ​ |  | 7 | ​
Foreign | ​ |  | (94) | ​ |  | 287 | ​ |  | 34 | ​
Total deferred | ​ |  | (465) | ​ |  | 1,480 | ​ |  | 100 | ​
Provision for income taxes | ​ | $ | 852 | ​ | $ | 1,727 | ​ | $ | 971 | ​
​ Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2019, 2018, and 2017 was $2,166 million, $2,275 million, and $1,607 million, respectively, and in foreign countries was $1,922 million, $1,796 million, and $1,547 million, respectively. Certain foreign operations are branches or partnerships of Deere & Company and are subject to U.S. as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are not directly related. A comparison of the statutory and effective income tax provision and reasons for related differences in millions of dollars follow: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017 |
U.S. federal income tax provision at the U.S. statutory rate (2019 - 21 percent, 2018 - 23.3 percent, 2017 - 35 percent) | ​ | $ | 859 | ​ | $ | 950 | ​ | $ | 1,104 | ​
Increase (decrease) resulting from: | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​
Net deferred tax asset remeasurement | ​ | ​ | 6 | ​ | ​ | 414 | ​ | ​ | ​ | ​
Deemed earnings repatriation tax | ​ | ​ | (74) | ​ | ​ | 290 | ​ | ​ | ​ | ​
Other effects of tax reform | ​ | ​ | (33) | ​ | ​ | 42 | ​ | ​ | ​ | ​
Differences in taxability of foreign earnings | ​ |  | (94) | ​ |  | (92) | ​ |  | (83) | ​
Valuation allowance on deferred taxes | ​ |  | 28 | ​ |  | 50 | ​ |  | 89 | ​
Research and business tax credits | ​ |  | (85) | ​ |  | (43) | ​ |  | (63) | ​
State and local income taxes, net of federal income tax benefit | ​ |  | 47 | ​ |  | 59 | ​ |  | 37 | ​
Excess tax benefits on equity compensation | ​ | ​ | (40) | ​ | ​ | (49) | ​ | ​ | (30) | ​
Tax rates on foreign earnings | ​ |  | 183 | ​ |  | 44 | ​ |  | (84) | ​
Unrecognized tax benefits | ​ | ​ | (28) | ​ | ​ | 30 | ​ | ​ | 9 | ​
Other—net | ​ |  | 83 | ​ |  | 32 | ​ |  | (8) | ​
Provision for income taxes | ​ | $ | 852 | ​ | $ | 1,727 | ​ | $ | 971 | ​
​ At November 3, 2019, accumulated earnings in certain subsidiaries outside the U.S. totaled $2,608 million, of which a portion were subject to the repatriation tax in 2018, and are not subject to additional U.S. income tax. No provision for foreign withholding taxes has been made since these earnings are expected to remain indefinitely reinvested outside the U.S. Determination of the amount of a foreign withholding tax liability on these unremitted earnings is not practicable. Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of the deferred income tax assets and liabilities at November 3, 2019 and October 28, 2018 in millions of dollars follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 2019 | ​ | 2018 | ​
​ | ​ | Deferred | ​ | Deferred | ​ | Deferred | ​ | Deferred | ​
​ | ​ | Tax | ​ | Tax | ​ | Tax | ​ | Tax | ​
​ |  | Assets |  | Liabilities |  | Assets |  | Liabilities |
OPEB liabilities | ​ | $ | 1,015 | ​ | ​ | ​ | ​ | $ | 984 | ​ | ​ | ​ | ​
Lease transactions | ​ | ​ | ​ | ​ | $ | 599 | ​ | ​ | ​ | ​ | $ | 850 | ​
Tax loss and tax credit carryforwards | ​ |  | 781 | ​ | ​ | ​ | ​ |  | 713 | ​ | ​ | ​ | ​
Accrual for sales allowances | ​ |  | 518 | ​ | ​ | ​ | ​ |  | 464 | ​ | ​ | ​ | ​
Tax over book depreciation | ​ | ​ | ​ | ​ | ​ | 339 | ​ | ​ | ​ | ​ | ​ | 357 | ​
Goodwill and other intangible assets | ​ | ​ | ​ | ​ |  | 378 | ​ | ​ | ​ | ​ |  | 458 | ​
Pension liability - net | ​ |  | 186 | ​ | ​ | ​ | ​ | ​ | 45 | ​ | ​ | ​ | ​
Allowance for credit losses | ​ |  | 70 | ​ | ​ | ​ | ​ |  | 115 | ​ | ​ | ​ | ​
Accrual for employee benefits | ​ |  | 207 | ​ | ​ | ​ | ​ |  | 72 | ​ | ​ | ​ | ​
Share-based compensation | ​ |  | 68 | ​ | ​ | ​ | ​ |  | 58 | ​ | ​ | ​ | ​
Deferred compensation | ​ |  | 39 | ​ | ​ | ​ | ​ |  | 35 | ​ | ​ | ​ | ​
Undistributed foreign earnings | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | 6 | ​
Foreign unrealized losses | ​ | ​ | 8 | ​ | ​ | ​ | ​ | ​ | 10 | ​ | ​ | ​ | ​
Other items | ​ |  | 367 | ​ |  | 311 | ​ |  | 346 | ​ |  | 261 | ​
Less valuation allowances | ​ |  | (661) | ​ | ​ | ​ | ​ |  | (658) | ​ | ​ | ​ | ​
Deferred income tax assets and liabilities | ​ | $ | 2,598 | ​ | $ | 1,627 | ​ | $ | 2,184 | ​ | $ | 1,932 | ​
​ Deere & Company files a consolidated federal income tax return in the U.S., which includes the wholly-owned financial services subsidiaries. These subsidiaries account for income taxes generally as if they filed separate income tax returns, with a modification for realizability of certain tax benefits. At November 3, 2019, tax loss and tax credit carryforwards of $781 million were available with $319 million expiring from 2020 through 2039 and $462 million with an indefinite carryforward period. A reconciliation of the total amounts of unrecognized tax benefits at November 3, 2019, October 28, 2018, and October 29, 2017 in millions of dollars follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018 |  | 2017 |
Beginning of year balance | ​ | $ | 279 | ​ | $ | 221 | ​ | $ | 198 | ​
Increases to tax positions taken during the current year | ​ |  | 30 | ​ |  | 36 | ​ |  | 35 | ​
Increases to tax positions taken during prior years | ​ |  | 357 | ​ |  | 62 | ​ |  | 13 | ​
Decreases to tax positions taken during prior years | ​ |  | (30) | ​ |  | (39) | ​ |  | (17) | ​
Decreases due to lapse of statute of limitations | ​ |  | (6) | ​ |  | (15) | ​ |  | (11) | ​
Acquisitions* | ​ | ​ | ​ | ​ | ​ | 31 | ​ | ​ | ​ | ​
Settlements | ​ |  | (75) | ​ |  | (5) | ​ |  | (1) | ​
Foreign exchange | ​ |  | (2) | ​ |  | (12) | ​ |  | 4 | ​
End of year balance | ​ | $ | 553 | ​ | $ | 279 | ​ | $ | 221 | ​
* See Note 4. ​ The amount of unrecognized tax benefits at November 3, 2019 and October 28, 2018 that would affect the effective tax rate if the tax benefits were recognized was $153 million and $128 million, respectively. The increase from 2018 primarily relates to the interpretation of a recently issued repatriation tax regulation for companies that do not have a calendar fiscal year end. The increase was partially offset by the settlement of U.S. income tax positions related to the 2008 through 2014 tax years. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant. The company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction and various state and foreign jurisdictions. The U.S. Internal Revenue Service (IRS) has completed the examination of the company’s federal income tax returns for periods prior to 2015. The years 2015, 2016, and 2017 federal income tax return are currently under examination. Various state and foreign income tax returns, including major tax jurisdictions in Argentina, Australia, Brazil, Canada, China, Finland, France, Germany, India, Mexico, Russia, Singapore, and Spain also remain subject to examination by taxing authorities. The company’s policy is to recognize interest related to income taxes in interest expense and interest income and recognize penalties in selling, administrative and general expenses. During 2019, 2018, and 2017, the total amount of expense from interest and penalties was $13 million, $23 million, and $6 million and the interest income was $25 million, $12 million, and $6 million, respectively. At November 3, 2019 and October 28, 2018, the liability for accrued interest and penalties totaled $76 million and $90 million, respectively, and the receivable for interest was $4 million and none, respectively.

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- 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
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