XML 49 R27.htm IDEA: XBRL DOCUMENT v3.22.0.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income Before Income Taxes

The sources of Income from operations before income taxes are as follows:

(In millions)202120202019
United States$1,528 $915 $1,460 
Foreign872 1,940 1,212 
Total$2,400 $2,855 $2,672 

Provision for Income Taxes

The income tax expense (benefit) consisted of the following components:

(In millions)202120202019
Current:
United States:
Federal $336 $434 $262 
State83 74 72 
Foreign354 244 305 
773 752 639 
Future:
United States:
Federal(125)13 (14)
State(14)6 (2)
Foreign65 78 (106)
(74)97 (122)
Income tax expense$699 $849 $517 

Reconciliation of Effective Income Tax Rate

The differences between the effective income tax rate and the statutory U.S. federal income tax rate are as follows:

202120202019
Statutory U.S. federal income tax rate21.0 %21.0 %21.0 %
State income tax1.9 1.7 2.5 
Tax on international activities7.2 4.2 3.3 
Separation impact— 3.4 (0.7)
Tax audit settlements— — (5.6)
Other(1.0)(0.6)(1.1)
Effective income tax rate29.1 %29.7 %19.4 %

The effective tax rate for the year ended December 31, 2021 includes a net tax charge of $157 million primarily relating to the re-organization and disentanglement of certain Chubb subsidiaries executed in advance of the planned divestiture of Chubb, a $43 million deferred tax charge as a result of the tax rate increase from 19% to 25% in the United Kingdom, partially offset by a favorable tax adjustment of $70 million due to foreign tax credits generated and expected to be utilized in the current year and $21 million resulting from the re-organization of a German subsidiary.
The effective tax rate for the year ended December 31, 2020 reflects a $51 million charge related to a valuation allowance recorded against a United Kingdom tax loss and credit carryforward and a charge of $46 million resulting from the Company's decision to no longer permanently reinvest certain pre-2018 unremitted non-U.S. earnings. These items were impacted by the Separation and are included in "Separation impact" in the previous table.

The effective tax rate for the year ended December 31, 2019 reflects a net tax benefit of $149 million as a result of the filing by a subsidiary of the Company to participate in an amnesty program offered by the Italian Tax Authority and the conclusion of an audit by the IRS for UTC's 2014, 2015 and 2016 tax years.

Deferred Tax Assets and Liabilities

Future income taxes represent the tax effects of transactions, which are reported in different periods for tax and GAAP purposes. These amounts consist of the tax effects of differences between tax and GAAP that are expected to be reversed in the future and tax carryforwards. Future income tax benefits and payables within the same tax paying component of a particular jurisdiction are offset for presentation in the Consolidated Balance Sheet.

The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables as of December 31, 2021 and 2020 are as follows:

(In millions)20212020
Future income tax benefits:
Insurance and employee benefits$198 $109 
Other assets basis differences166 152 
Other liabilities basis differences512 487 
Tax loss carryforward175 258 
Tax credit carryforward24 63 
Valuation allowances(90)(231)
Future income tax benefit$985 $838 
Future income tax payables:
Goodwill and intangible assets$(270)$(411)
Other asset basis differences(307)(336)
Future income tax payables$(577)$(747)

Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards and certain foreign temporary differences to reduce future income tax benefits to expected realizable amounts. As of December 31, 2021, future income tax benefits and future income tax payables exclude a net liability of $266 million classified as held for sale. See Note 20 - Divestitures for additional information.
Changes to valuation allowances consisted of the following:

(In millions)
Balance as of January 1, 2019$107 
Additions charged to income tax expense41 
Reduction credited to income tax expense(16)
Other adjustments(4)
Balance as of December 31, 2019$128 
Additions charged to income tax expense (1)
112 
Reduction credited to income tax expense(13)
Other adjustments4 
Balance as of December 31, 2020$231 
Additions charged to income tax expense 32 
Reduction credited to income tax expense(22)
Other adjustments(41)
Reclassified to held for sale(110)
Balance as of December 31, 2021$90 
(1) Includes $89 million relating to "Separation impact" discussed in section "Reconciliation of Effective Income Tax Rate."

Tax Credit and Loss Carryforwards

As of December 31, 2021, tax credit carryforwards and tax loss carryforwards, excluding amounts associated with Chubb entities, were as follows:

(In millions)Tax Loss CarryforwardsTax Credit Carryforwards
Expiration period:
2022-2026$100 $7 
2027-203158 5 
2032-204132 4 
Indefinite599 8 
Total$789 $24 

The Company assesses the realizability of its deferred tax assets on a quarterly basis through an analysis of potential sources of future taxable income, including prior year taxable income available to absorb a carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies and forecasts of taxable income. The Company considers all negative and positive evidence, including the weight of the evidence, to determine if valuation allowances against deferred tax assets are required. The Company maintains valuation allowances against certain deferred tax assets, primarily in non-U.S. jurisdictions.
Unrecognized Tax Benefits

As of December 31, 2021, the Company had unrecognized tax benefits of $251 million, all of which, if recognized, would impact its effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and related interest expense is as follows:
(In millions)202120202019
Balance at beginning of period$162 $166 $316 
Additions for tax positions related to the current year86 22 30 
Additions for tax positions of prior years (1)
24 14 14 
Reductions for tax positions of prior years (2)
(1)(40)(19)
Settlements(18)— (175)
Reclassified as held for sale
(2)— — 
Balance at end of period$251 $162 $166 
Gross interest expense related to unrecognized tax benefits$8 $6 $8 
Total accrued interest balance at end of period$35 $25 $25 
(1) Includes $14 million related to acquisitions during the year ended December 31, 2021.
(2) Includes an adjustment of $37 million recorded in UTC Net investment for the year ended December 31, 2020 for tax positions of prior years.

The Company conducts business globally and, as a result, the Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. In certain jurisdictions, the Company's operations were included in UTC's combined tax returns for the periods through the Separation and the Distribution. The IRS commenced an audit of UTC's tax years 2017 and 2018 in the second quarter of 2020. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including the U.S., Australia, Belgium, Canada, China, Czech Republic, France, Germany, Hong Kong, India, Italy, Mexico, the Netherlands, Singapore and the United Kingdom. The Company is no longer subject to U.S. federal income tax examination for years prior to 2017 and, with few exceptions, is no longer subject to U.S. state and local and foreign income tax examinations for tax years before 2012.

During the second quarter of 2019, a subsidiary of the Company that was engaged in litigation before the Italian Supreme Court filed to participate in the Italian amnesty program. In addition, during the second quarter of 2019, the IRS completed its review of UTC’s 2014, 2015 and 2016 tax years and certain U.S. state income tax exams concluded. As a result of the amnesty filing in Italy and the conclusion of the IRS and U.S. state audits, the Company recognized a non-cash gain of approximately $166 million, including pre-tax interest of approximately $16 million.

In the ordinary course of business, there is inherent uncertainty in quantifying the Company's income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. It is reasonably possible that a net decrease in unrecognized tax benefits from $10 million to $65 million may occur within 12 months as a result of additional worldwide uncertain tax positions, the revaluation of uncertain tax positions arising from examinations, appeals, court decisions or the closure of tax statutes.

As a result of the Tax Cuts and Jobs Act ("TCJA"), the Company no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, the Company has recorded the taxes associated with the future remittance of these earnings. In addition, the Company no longer intends to permanently reinvest the book and tax basis difference including the undistributed earnings of the Company's Chubb business due to its divestiture. For the remainder of the Company's undistributed international earnings, unless tax effective to repatriate, the Company intends to continue to permanently reinvest these earnings. As of December 31, 2021 such undistributed earnings were approximately $6.0 billion, excluding other comprehensive income amounts. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts. In addition, the TCJA subjects the Company to a tax on global intangible low-taxed income ("GILTI"). GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations which the Company has elected to account for as a period cost.