v3.22.4

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES The provision for income taxes is comprised of the following:
| 2022 | 2021 | 2020
Current: |  |  |
U.S. | $ | (1) |  | $ | 1 |  | $ | 49 |
Foreign | 489 |  | 614 |  | 458 |
Total current | 488 |  | 615 |  | 507 |
Deferred: |  |  |
U.S. | — |  | — |  | (6) |
Foreign | 65 |  | 157 |  | 149 |
Total deferred | 65 |  | 157 |  | 143 |
Provision for income taxes | $ | 554 |  | $ | 772 |  | $ | 650 |
The geographic sources of income (loss) before income taxes are as follows:
| 2022 | 2021 | 2020
U.S. | $ | (668) |  | $ | (724) |  | $ | (14,232) |
Foreign | 720 |  | 1,152 |  | (914) |
Income (loss) before income taxes | $ | 52 |  | $ | 428 |  | $ | (15,146) |
The provision for income taxes differs from the amount computed by applying the U.S. statutory income tax rate to the loss or income before income taxes for the reasons set forth below for the years ended December 31:
| 2022 | 2021 | 2020
Income (loss) before income taxes | $ | 52 |  | $ | 428 |  | $ | (15,146) |
Taxes at the U.S. federal statutory income tax rate | 11 |  | 90 |  | (3,181) |
Impact of goodwill impairment | — |  | — |  | 3,090 |
Effect of foreign operations (1) | 338 |  | 216 |  | 148 |
Tax expense (benefit) due to unrecognized tax benefits | (14) |  | 201 |  | 35 |
Tax impact of partnership structure | 98 |  | 159 |  | 38 |
Change in valuation allowances | 67 |  | 47 |  | 423 |
Other - net | 53 |  | 59 |  | 97 |
Provision for income taxes (2) | $ | 554 |  | $ | 772 |  | $ | 650 |
Actual income tax rate | 1,065.4 | % | 180.4 | % | (4.3) | %
(1)For December 31, 2022, $140 million of this amount relates to the charges associated with the sale and suspension of our Russia operations. (2)For December 31, 2021, $121 million of this amount was previously indemnified under the Tax Matters Agreement with GE of which $119 million was included in tax expense due to unrecognized tax benefits. In December 2022, the Company and GE entered into an agreement to terminate the Tax Matters Agreement. See below for further information. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards. The tax effects of our temporary differences and carryforwards are as follows at December 31:
| 2022 | 2021
Deferred tax assets: |  |
Operating & capital loss carryforwards | $ | 1,977 |  | $ | 2,065 |
Tax credit & other carryforwards | 399 |  | 419 |
Property | 127 |  | 156 |
Employee benefits | 62 |  | 116 |
Goodwill and other intangibles | 46 |  | 97 |
Receivables | 94 |  | 72 |
Inventory | 53 |  | 61 |
Other | 163 |  | 112 |
Total deferred income tax asset | 2,921 |  | 3,098 |
Valuation allowances | (2,366) |  | (2,432) |
Total deferred income tax asset after valuation allowance | 555 |  | 666 |
Deferred tax liabilities: |  |
Other | (34) |  | (4) |
Total deferred income tax liability | (34) |  | (4) |
Net deferred tax asset | $ | 522 |  | $ | 662 |
At December 31, 2022, we had approximately $399 million of non-U.S. tax credits which may be carried forward indefinitely under applicable foreign law. Additionally, we had $1,947 million of net operating loss carryforwards ("NOLs"), of which approximately $301 million will expire within five years, $496 million will expire between six years and 20 years, and the remainder can be carried forward indefinitely. Lastly, we had $30 million of capital loss carryforwards, $16 million of which will expire between six years and 20 years and the remainder can be carried forward indefinitely. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. At December 31, 2022, $2,366 million of valuation allowances are recorded against various deferred tax assets, including foreign operating and capital losses of $1,692 million, U.S. operating losses of $20 million, U.S. foreign and non-U.S. tax credit carryforwards of $394 million, and certain other U.S. and foreign deferred tax assets of $260 million. There are $265 million of deferred tax assets related to NOLs and $290 million of various other deferred tax assets without a valuation allowance as we expect that the deferred tax assets will be realized within the carryforward period. Indefinite reinvestment is determined by management’s intentions concerning the future operations of the Company. In cases where repatriation would otherwise incur significant withholding or income taxes, these earnings have been indefinitely reinvested in the Company's active non-U.S. business operations. As of December 31, 2022, the cumulative amount of undistributed foreign earnings is approximately $3,323 million. Computation of the potential deferred tax liability associated with these undistributed earnings and any other basis differences is not practicable. At December 31, 2022, we had $461 million of tax liabilities for total gross unrecognized tax benefits related to uncertain tax positions. In addition to these uncertain tax positions, we had $127 million and $42 million related to interest and penalties, respectively, for total liabilities of $630 million for uncertain positions. If we were to prevail on all uncertain positions, the net effect would result in an income tax benefit of approximately $578 million. The remaining $52 million is comprised of $32 million for deferred tax assets that represent tax benefits that would be received in different taxing jurisdictions and $20 million increased valuation allowances. The following table presents the changes in our gross unrecognized tax benefits included in the consolidated statements of financial position.
Asset / (Liability) | 2022 | 2021
Balance at beginning of year | $ | (502) |  | $ | (454) |
Additions for tax positions of the current year | (19) |  | (32) |
Additions for tax positions of prior years | (93) |  | (166) |
Reductions for tax positions of prior years | 100 |  | 42 |
Settlements with tax authorities | 24 |  | 95 |
Lapse of statute of limitations | 29 |  | 13 |
Balance at end of year | $ | (461) |  | $ | (502) |
It is expected that the amount of unrecognized tax benefits will change in the next twelve months due to expiring statutes, audit activity, tax payments, and competent authority proceedings related to transfer pricing or final decisions in matters that are the subject of litigation in various taxing jurisdictions in which we operate. At December 31, 2022, we had approximately $65 million of tax liabilities related to uncertain tax positions, each of which are individually insignificant, and each of which are reasonably possible of being settled within the next twelve months. We conduct business in more than 120 countries and are subject to income taxes in most taxing jurisdictions in which we operate, each of which may have multiple open years subject to examination. All Internal Revenue Service examinations have been completed and closed through 2019 for the most significant U.S. returns. We believe that we have made adequate provision for all income tax uncertainties. OTHER In connection with the merger between BHI and the oil and gas business of GE in July 2017, the Company and Baker Hughes had entered into a Tax Matters Agreement ("TMA") with GE. The TMA governed the administration and allocation between the parties of tax liabilities and benefits arising prior to, as a result of, and subsequent to the merger, including the respective rights, responsibilities, and obligations of the parties with respect to various other tax matters. In December 2022, the Company and GE entered into an agreement which resulted in the settlement of claims asserted under the TMA and the termination of the TMA. As a result, we recorded a charge of $59 million, of which $21 million was a cash payment to GE. This charge is reported in the "Other non-operating income (loss), net" caption of the consolidated statements of income (loss).

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