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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income TaxesThe components of income from continuing operations before income taxes were as follows:
For the year ended December 31, | 2021 |  | 2020 |  | 2019
United States | $ | 28 |  |  | $ | 84 |  |  | $ | 128 |
Foreign | 296 |  |  | 87 |  |  | 82 |
Total | $ | 324 |  |  | $ | 171 |  |  | $ | 210 |
The provision for income taxes consisted of the following:
For the year ended December 31, | 2021 |  | 2020 |  | 2019
Current: |  |  |  |  |
Federal(1) | $ | (9) |  |  | $ | (2) |  |  | $ | — |
Foreign | 39 |  |  | 2 |  |  | 86 |
State and local | (2) |  |  | (2) |  |  | — |
| 28 |  |  | (2) |  |  | 86 |
Deferred: |  |  |  |  |
Federal | 22 |  |  | (67) |  |  | 33 |
Foreign | 11 |  |  | 11 |  |  | (41) |
State and local | 5 |  |  | 18 |  |  | 6 |
| 38 |  |  | (38) |  |  | (2) |
Total | $ | 66 |  |  | $ | (40) |  |  | $ | 84 |
(1)Includes U.S. taxes related to foreign income. A reconciliation of the U.S. federal statutory rate to Howmet’s effective tax rate was as follows (the effective tax rate for 2021 and 2019 was a provision on income and 2020 was a benefit on income):
For the year ended December 31, | 2021 |  | 2020 |  | 2019
U.S. federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Foreign tax rate differential | (0.7) |  |  | (1.2) |  |  | 10.9 |
U.S. and residual tax on foreign earnings(1) | 6.5 |  |  | 5.6 |  |  | 15.3 |
U.S. State and local taxes | 1.0 |  |  | 2.2 |  |  | 0.8 |
Federal (cost) benefit of state tax | (0.3) |  |  | (2.0) |  |  | 1.2 |
Permanent differences related to asset disposals and items included in restructuring and other charges | (0.3) |  |  | 6.8 |  |  | (1.3) |
Non-deductible officer compensation | 1.6 |  |  | 3.5 |  |  | 4.9 |
Statutory tax rate and law changes(2) | 1.0 |  |  | (15.9) |  |  | (0.6) |
Tax holidays | (0.4) |  |  | (0.4) |  |  | (8.2) |
Tax credits(3) | (10.4) |  |  | (0.4) |  |  | (1.3) |
Changes in valuation allowances(4) | 5.1 |  |  | 74.8 |  |  | (52.2) |
Changes in uncertain tax positions(5) | — |  |  | (116.9) |  |  | 0.3 |
Prior year tax adjustments(6) | (3.7) |  |  | (1.7) |  |  | 44.3 |
Other | — |  |  | 1.2 |  |  | 4.9 |
Effective tax rate | 20.4 | % |  | (23.4) | % |  | 40.0 | %
(1)It is Howmet’s policy to treat taxes due from future inclusions in U.S. taxable income related to GILTI as a current period expense when incurred. (2)In 2020, final regulations were issued that provided an election to exclude from GILTI any foreign earnings subject to a local country tax rate of at least 90% of the U.S. tax rate. The Company recorded a $30 benefit related to this tax law change. (3)In 2021, a $32 benefit for income tax credits related to development incentives in Hungary was recognized. (4)In 2020, a $104 valuation allowance was recorded related to deferred tax assets that were previously subject to a reserve that was otherwise released in 2020 as a result of a favorable Spanish tax case decision. In 2019, the Company released a $112 valuation allowance related to 2015 and 2016 foreign tax credits, subsequent to filing U.S. amended tax returns to deduct, rather than credit, foreign taxes. (5)In 2020, the Company released a $64 reserve liability and a $104 reserve recorded as a contra balance against deferred tax assets as a result of a favorable Spanish tax case decision. A $30 benefit related to a previously uncertain U.S. tax position was also recognized in 2020. (6)In 2019, the Company filed U.S. amended tax returns to deduct, rather than credit, 2015 and 2016 foreign taxes resulting in a $112 tax cost associated with the write-off of the deferred tax asset for the credit, partially offset by a $24 tax benefit for the deduction. The components of net deferred tax assets and liabilities were as follows:
| 2021 |  | 2020
December 31, | Deferred tax assets |  | Deferred tax liabilities |  | Deferred tax assets |  | Deferred tax liabilities
Depreciation | $ | 8 |  |  | $ | 538 |  |  | $ | 21 |  |  | $ | 506 |
Employee benefits | 300 |  |  | 3 |  |  | 364 |  |  | — |
Loss provisions | 20 |  |  | 1 |  |  | 24 |  |  | 1 |
Deferred income/expense | 50 |  |  | 1,098 |  |  | 41 |  |  | 1,033 |
Interest | 105 |  |  | — |  |  | 3 |  |  | — |
Tax loss carryforwards | 3,226 |  |  | — |  |  | 3,267 |  |  | — |
Tax credit carryforwards | 358 |  |  | — |  |  | 378 |  |  | — |
Other | 10 |  |  | 7 |  |  | 7 |  |  | 13 |
| $ | 4,077 |  |  | $ | 1,647 |  |  | $ | 4,105 |  |  | $ | 1,553 |
Valuation allowance | (2,279) |  |  | — |  |  | (2,307) |  |  | — |
| $ | 1,798 |  |  | $ | 1,647 |  |  | $ | 1,798 |  |  | $ | 1,553 |
The following table details the expiration periods of the deferred tax assets presented above:
December 31, 2021 | Expires within 10 years |  | Expires within 11-20 years |  | No Expiration(1) |  | Other(2) |  | Total
Tax loss carryforwards | $ | 422 |  |  | $ | 580 |  |  | $ | 2,224 |  |  | $ | — |  |  | $ | 3,226 |
Tax credit carryforwards | 278 |  |  | 66 |  |  | 14 |  |  | — |  |  | 358 |
Other(3) | — |  |  | — |  |  | 424 |  |  | 69 |  |  | 493 |
Valuation allowance | (637) |  |  | (293) |  |  | (1,329) |  |  | (20) |  |  | (2,279) |
| $ | 63 |  |  | $ | 353 |  |  | $ | 1,333 |  |  | $ | 49 |  |  | $ | 1,798 |
(1)Deferred tax assets with no expiration may still have annual limitations on utilization. (2)Other represents deferred tax assets whose expiration is dependent upon the reversal of the underlying temporary difference. (3)A substantial amount of Other deferred tax assets relates to employee benefits that will become deductible for tax purposes in jurisdictions with unlimited expiration over an extended period of time as contributions are made to employee benefit plans and payments are made to retirees. The total deferred tax asset (net of valuation allowance) is supported by projections of future taxable income exclusive of reversing temporary differences (10%), and taxable temporary differences that reverse within the carryforward period (90%). Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and Howmet’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also remeasured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays. It is Howmet’s policy to apply a tax law ordering approach when considering the need for a valuation allowance on net operating losses expected to offset GILTI income inclusions. Under this approach, reductions in cash tax savings are not considered as part of the valuation allowance assessment. Instead, future GILTI inclusions are considered a source of taxable income that support the realizability of deferred tax assets. Howmet’s foreign tax credits in the United States have a 10-year carryforward period with expirations ranging from 2022 to 2027 (as of December 31, 2021). Valuation allowances were initially established in prior years on a portion of the foreign tax credit carryforwards, primarily due to insufficient foreign source income to allow for full utilization of the credits within the expiration period. Foreign tax credits of $22 and $88 expired at the end of 2021 and 2019, respectively, resulting in a corresponding decrease to the valuation allowance. The valuation allowance was also reduced in 2021 by $9 as a result of updated U.S. regulatory guidance concerning the utilization of foreign tax credits in connection with the one-time transition tax on the deemed repatriation of previously non-taxed post-1986 earnings and profits of certain foreign subsidiaries enacted as part of the 2017 Act, and by $4 as a result of a corresponding reduction in the deferred tax asset related to suspended foreign tax credits. The valuation allowance was also reduced by $113 in 2019 as a result of the Company filing amended tax returns to deduct foreign taxes that were previously claimed as a U.S. foreign tax credit. At December 31, 2021, the cumulative amount of the valuation allowance was $180. The need for this valuation allowance will be reassessed on a continuous basis in future periods and, as a result, the allowance may increase or decrease based on changes in facts and circumstances. During 2021, the Company concluded that it would not pursue a deduction related to a capital investment for which a deferred tax asset of $9 and offsetting valuation allowance had previously been recorded. As such, both the deferred tax asset and the valuation allowance were eliminated. The need for valuation allowances against other capital investments will be reassessed on a continuing basis. As of December 31, 2021, there is no valuation allowance recorded related to capital investments. The Company recorded a net $3 increase, $20 increase, and $11 decrease to U.S. state valuation allowances in 2021, 2020 and 2019, respectively. After weighing all available positive and negative evidence, the Company determined the adjustments based on the underlying net deferred tax assets that were more likely than not realizable based on projected taxable income. Changes in fully reserved U.S. state tax losses, credits and other deferred tax assets resulting from expirations, audit adjustments, tax rate, and tax law changes also resulted in a corresponding net $20 increase, $58 decrease, and $5 increase in the valuation allowance in 2021, 2020, and 2019, respectively. Valuation allowances of $632 remain against state deferred tax assets expected to expire before utilization. The need for valuation allowances against state deferred tax assets will be reassessed on a continuous basis in future periods and, as a result, the allowance may increase or decrease based on changes in facts and circumstances. In 2021, after weighing all available evidence, the Company recognized a discrete income tax cost to establish a valuation allowance of $8 in Switzerland. In 2020, the Company increased a valuation allowance by $104 as a result of releasing a tax reserve following a favorable Spanish tax case decision. The need for valuation allowances will be reassessed by entity and by jurisdiction on a continuous basis in future periods and, as a result, the allowances may increase or decrease based on changes in facts and circumstances. The following table details the changes in the valuation allowance:
December 31, | 2021 |  | 2020 |  | 2019
Balance at beginning of year | $ | 2,307 |  |  | $ | 2,121 |  |  | $ | 2,357 |
Increase to allowance | 113 |  |  | 136 |  |  | 19 |
Release of allowance | (94) |  |  | (50) |  |  | (211) |
Acquisitions and divestitures | — |  |  | — |  |  | (2) |
Tax apportionment, tax rate and tax law changes | 63 |  |  | (23) |  |  | (13) |
Foreign currency translation | (110) |  |  | 123 |  |  | (29) |
Balance at end of year | $ | 2,279 |  |  | $ | 2,307 |  |  | $ | 2,121 |
Foreign U.S. GAAP earnings that have not otherwise been subject to U.S. tax, will generally be exempt from future U.S. tax under the 2017 Act when distributed. Such distributions, as well as distributions of previously taxed foreign earnings, could potentially be subject to U.S. state tax in certain states, and foreign withholding taxes. Foreign currency gains/losses related to the translation of previously taxed earnings from functional currency to U.S. dollars could also be subject to U.S. tax when distributed. The Company has made the determination to no longer permanently reinvest earnings in certain subsidiaries and has consequently recognized $9 of tax charges related to withholding tax and capital gains on amounts distributable in those entities in excess of tax basis. To the extent that additional earnings are distributed from other foreign subsidiaries, Howmet would expect the potential withholding tax, U.S. state tax, and U.S. capital gains tax impacts to be immaterial and the potential deferred tax liability associated with future currency gains to be impracticable to determine. Howmet and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With a few minor exceptions, Howmet is no longer subject to income tax examinations by tax authorities for years prior to 2014. All U.S. tax years prior to 2021 have been audited by the Internal Revenue Service. Various state and foreign jurisdiction tax authorities are in the process of examining the Company’s income tax returns for various tax years through 2020. The Company had net cash income tax payments of $53 and $122 in 2021 and 2019, respectively, and net cash refunds of $33 in 2020. A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) was as follows:
December 31, | 2021 |  | 2020 |  | 2019
Balance at beginning of year | $ | 2 |  |  | $ | 176 |  |  | $ | 148 |
Additions for tax positions of the current year | — |  |  | — |  |  | 34 |
Additions for tax positions of prior years | — |  |  | — |  |  | — |
Reductions for tax positions of prior years | — |  |  | (182) |  |  | (1) |
Settlements with tax authorities | — |  |  | (1) |  |  | — |
Expiration of the statute of limitations | — |  |  | — |  |  | (2) |
Foreign currency translation | — |  |  | 9 |  |  | (3) |
Balance at end of year | $ | 2 |  |  | $ | 2 |  |  | $ | 176 |
For all periods presented, a portion of the balance pertains to state tax liabilities, which are presented before any offset for federal tax benefits. The effect of unrecognized tax benefits, if recorded, that would impact the annual effective tax rate for 2021, 2020, and 2019 would be approximately 1%, 1%, and 36%, respectively, of pre-tax book income. Howmet does not anticipate that changes in its unrecognized tax benefits will have a material impact on the Statement of Consolidated Operations during 2022. It is Howmet’s policy to recognize interest and penalties related to income taxes as a component of the Provision for income taxes in the Statement of Consolidated Operations. Howmet recognized interest of less than $1, $2, and $6 in 2021, 2020, and 2019, respectively. Due to the expiration of the statute of limitations, settlements with tax authorities, reductions in prior accruals, and refunded overpayments, Howmet recognized interest income of $3, $25, and less than $1 in 2021, 2020, and 2019, respectively. As of December 31, 2021, 2020, and 2019, the amount accrued for the payment of interest and penalties was less than $1, $2, and $23, 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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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