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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The following table sets forth the geographic split of earnings before income taxes:
| Year Ended
(In millions) | December 31
| 2018 |  | 2017 |  | 2016
United States | $ | 972 |  |  | $ | 1,104 |  |  | $ | 1,215 |
Foreign | 1,088 |  |  | 505 |  |  | 607 |
| $ | 2,060 |  |  | $ | 1,609 |  |  | $ | 1,822 |
Significant components of income taxes are as follows:
| Year Ended
(In millions) | December 31
| 2018 |  | 2017 |  | 2016
Current |  |  |  |  |
Federal | $ | 96 |  | 1 |  | $ | 541 |  | 1 |  | $ | 327 |
State | 25 |  |  | 53 |  |  | 5 |
Foreign | 171 |  |  | 127 |  |  | 146 |
Deferred |  |  |  |  |  |
Federal | (55 | ) |  | (645 | ) | 1 |  | 18 |
State | (16 | ) |  | (6 | ) |  | 28 |
Foreign | 24 |  |  | (63 | ) |  | 10 |
| $ | 245 |  |  | $ | 7 |  |  | $ | 534 |
1 Includes the impact of the Tax Cuts and Jobs Act as discussed on page 88. Significant components of deferred tax liabilities and assets are as follows:
| December 31, 2018 |  | December 31, 2017
| (In millions)
Deferred tax liabilities |  |  |
Property, plant, and equipment | $ | 1,074 |  |  | $ | 1,079 |
Equity in earnings of affiliates | 70 |  |  | 91 |
Debt exchange | 81 |  |  | 83 |
Reserves and other accruals | 25 |  |  | 4 |
Other | 83 |  |  | 79 |
| $ | 1,333 |  |  | $ | 1,336 |
Deferred tax assets |  |  |  |
Pension and postretirement benefits | $ | 122 |  |  | $ | 126 |
Stock compensation | 55 |  |  | 52 |
Foreign tax loss carryforwards | 313 |  |  | 254 |
Capital loss carryforwards | 55 |  |  | 64 |
State tax attributes | 74 |  |  | 78 |
Unrealized foreign currency losses | 48 |  |  | 103 |
Reserves and other accruals | 18 |  |  | 17 |
Other | 56 |  |  | 40 |
Gross deferred tax assets | 741 |  |  | 734 |
Valuation allowances | (289 | ) |  | (264 | )
Net deferred tax assets | $ | 452 |  |  | $ | 470 |
Net deferred tax liabilities | $ | 881 |  |  | $ | 866 |
The net deferred tax liabilities are classified as follows: |  |  |  |
Noncurrent assets (foreign) | $ | 186 |  |  | $ | 187 |
Noncurrent liabilities | (929 | ) |  | (934 | )
Noncurrent liabilities (foreign) | (138 | ) |  | (119 | )
| $ | (881 | ) |  | $ | (866 | )
Reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate on earnings is as follows:
| Year Ended
| December 31
| 2018 |  | 2017 |  | 2016
Statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal tax benefit | 0.3 |  |  | 1.7 |  |  | 1.4 |
Foreign earnings taxed at rates other than the U.S. statutory rate | (1.5 | ) |  | (4.7 | ) |  | (4.4 | )
Foreign currency effects/remeasurement | (1.9 | ) |  | (0.7 | ) |  | 2.2 |
Income tax adjustment to filed returns | (1.9 | ) |  | (3.0 | ) |  | 0.8 |
Tax benefit on U.S. biodiesel credits | (2.3 | ) |  | — |  |  | (3.3 | )
Tax benefit on U.S. qualified production activity deduction | — |  |  | (2.2 | ) |  | (1.4 | )
Tax on global intangible low-taxed income | 1.0 |  |  | — |  |  | — |
Tax benefit on foreign derived intangible income deduction | (1.0 | ) |  | — |  |  | — |
U.S. tax reform impacts | (1.1 | ) |  | (23.9 | ) |  | — |
Valuation allowances | — |  |  | 0.3 |  |  | 0.6 |
Other | (0.7 | ) |  | (2.1 | ) |  | (1.6 | )
Effective income tax rate | 11.9 | % |  | 0.4 | % |  | 29.3 | %
The foreign rate differential is primarily due to lower tax rates from the Company's operations in Switzerland, Asia, and the Caribbean. The Company’s foreign earnings, which were taxed at rates lower than the U.S. rate and were generated from these jurisdictions, were 56%, 59%, and 47% of its foreign earnings before taxes in fiscal years 2018, 2017, and 2016, respectively. Undistributed earnings of the Company’s foreign subsidiaries and the Company’s share of the undistributed earnings of affiliated corporate joint venture companies accounted for on the equity method aggregated to approximately $10.5 billion at December 31, 2018. Because the Company’s undistributed foreign earnings and outside basis differences inherent in foreign entities continue to be indefinitely reinvested in foreign operations, no income taxes, other than the transition tax and the minimum tax on Global Intangible Low Taxed Income (GILTI), have been provided. It is not practicable to determine the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis differences in these entities. The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The income tax effects of changes in tax laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and modifications with varying effective dates, which include reducing the U.S. federal corporate income tax rate from 35% to 21%, creating a territorial tax system (with a one-time transition tax on previously deferred foreign earnings), broadening the tax base, and allowing for immediate capital expensing of certain qualified property. As a result, the Company made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax, and recognized a net provisional benefit of $379 million, which is included as a component of income tax expense in the year ended December 31, 2017. The net provisional benefit consisted of a net tax benefit of $528 million related to the remeasurement of deferred tax balance and a beneficial impact of $220 million on reserves previously established under ASC Subtopic 740-30, Income Taxes - Other Considerations or Special Areas, partially offset by the $369 million provisional impact of the transition tax. The Company performed a quarterly review of the provisional tax liability recorded in 2017 as new guidance on the Act was issued in 2018. The Company finalized its calculation of the transition tax and recorded a tax benefit of $29 million in the fourth quarter of 2018. The Company is currently assessing the impact of pending Treasury Regulations on the Company’s transition tax calculation, and will record any adjustment in 2019. The Company has elected to pay the one-time transition tax over eight years. The Act also contains new provisions related to GILTI and Foreign Derived Intangible Income (FDII) which are effective for fiscal year 2018. In 2018, the Company incurred additional U.S. taxable income of $101 million related to GILTI, and deducted $101 million related to FDII. The Company made an accounting policy election to treat GILTI as a period cost. During 2018, U.S. tax authorities issued proposed Treasury Regulations addressing some of the tax reform items that were effective in 2018. Once final Treasury Regulations are issued, the Company will record the impact of any changes in 2019. It is also reasonable to expect that global taxing authorities will be reviewing their current legislation for potential modifications in reaction to the implementation of the Act. The additional guidance, along with the potential for additional global tax legislation changes, may affect significant deductions and income inclusions and could have a material adverse effect on the Company's net income or cash flow. The Company had $313 million and $254 million of tax assets related to net operating loss carry-forwards of certain international subsidiaries at December 31, 2018 and 2017, respectively. As of December 31, 2018, approximately $221 million of these assets have no expiration date, and the remaining $92 million expire at various times through fiscal 2028. The annual usage of certain of these assets is limited to a percentage of taxable income of the respective foreign subsidiary for the year. The Company has recorded a valuation allowance of $166 million and $134 million against these tax assets at December 31, 2018 and 2017, respectively, due to the uncertainty of their realization. The Company had $55 million and $64 million of tax assets related to foreign and domestic capital loss carryforwards at December 31, 2018 and 2017, respectively. The Company has recorded a valuation allowance of $55 million and $64 million against these tax assets at December 31, 2018 and 2017, respectively. The Company had $74 million and $78 million of tax assets related to state income tax attributes (incentive credits and net operating loss carryforwards), net of federal tax benefit, at December 31, 2018 and 2017, respectively, which will expire at various times through fiscal 2038. Due to the uncertainty of realization, the Company recorded a valuation allowance of $68 million and $65 million related to state income tax assets net of federal tax benefit as of December 31, 2018 and 2017, respectively. The Company remains subject to federal examination in the U.S. for the calendar tax years 2016, 2017, and 2018. The following table sets forth a rollforward of activity of unrecognized tax benefits for the year ended December 31, 2018 and 2017 as follows:
| Unrecognized Tax Benefits
| December 31, 2018 |  | December 31, 2017
| (In millions)
Beginning balance | $ | 56 |  |  | $ | 55 |
Additions related to current year’s tax positions | 3 |  |  | — |
Additions related to prior years’ tax positions | 46 |  |  | 26 |
Additions related to acquisitions | 7 |  |  | — |
Reductions related to lapse of statute of limitations | (2 | ) |  | (1 | )
Settlements with tax authorities | (3 | ) |  | (24 | )
Ending balance | $ | 107 |  |  | $ | 56 |
The additions and reductions in unrecognized tax benefits shown in the table included effects related to net income and shareholders’ equity. The changes in unrecognized tax benefits did not have a material effect on the Company’s net income or cash flow. At December 31, 2018 and 2017, the Company had accrued interest and penalties on unrecognized tax benefits of $24 million and $23 million, respectively. The Company is subject to income taxation and routine examinations in many jurisdictions around the world and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various jurisdictions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential tax owed by the Company in accordance with applicable accounting standards. Resolution of the related tax positions, through negotiations with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions and the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations. However, the Company does not anticipate that the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months. Given the long periods of time involved in resolving tax positions, the Company does not expect that the recognition of unrecognized tax benefits will have a material impact on the Company’s effective income tax rate in any given period. If the total amount of unrecognized tax benefits were recognized by the Company at one time, there would be a reduction of $107 million on the tax expense for that period. The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM do Brasil), has received three separate tax assessments from the Brazilian Federal Revenue Service (BFRS) challenging the tax deductibility of commodity hedging losses and related expenses for the tax years 2004, 2006 and 2007. These assessments totaled approximately $109 million in tax and $308 million in interest and penalties as of December 31, 2018 (adjusted for variation in currency exchange rates). The statute of limitations for tax years 2005 and 2008 to 2011 has expired. The Company does not expect to receive any additional tax assessments with respect to this issue. ADM do Brasil enters into commodity hedging transactions that can result in gains, which are included in ADM do Brasil’s calculation of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. The Company has evaluated its tax position regarding these hedging transactions and concluded, based upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilian income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging losses in its financial statements and has not recorded any tax liability for the amounts assessed by the BFRS. ADM do Brasil filed an administrative appeal for each of the assessments. The appeal panel found in favor of the BFRS on these assessments and ADM do Brasil filed a second level administrative appeal. The second administrative appeal panel continues to conduct customary procedural activities, including ongoing dialogue with the BFRS auditor. If ADM do Brasil continues to be unsuccessful in the administrative appellate process, the Company intends to file appeals in the Brazilian federal courts. While the Company believes its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of additional payments of, and expense for, income tax and the associated interest and penalties. The Company intends to vigorously defend its position against the current assessment. In 2012, the Company’s subsidiaries in Argentina, ADM Argentina and Alfred Toepfer Argentina, received tax assessments challenging transfer prices used to price grain exports for the tax years 2004 through 2010. As of December 31, 2018, these assessments totaled $17 million in tax and $58 million in interest and penalties (adjusted for variation in currency exchange rates). The Argentine tax authorities conducted a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. The Company strongly believes that it has complied with all Argentine tax laws. To date, the Company has not received assessments for tax years subsequent to 2010. However, it cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for these years, and estimates that these potential assessments could be approximately $52 million in tax and $58 million in interest (adjusted for variation in currency exchange rates). The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, has not recorded a tax liability for these assessments. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2010. In accordance with the accounting requirements for uncertain tax positions, the Company has not recorded an uncertain tax liability for these assessments because it has concluded that it is more likely than not to prevail on the Brazil and Argentina matters based upon their technical merits and because the taxing jurisdictions’ processes do not provide a mechanism for settling at less than the full amount of the assessment. The Company’s consideration of these tax assessments requires judgments about the application of income tax regulations to specific facts and circumstances. The final outcome of these matters cannot reliably be predicted, may take many years to resolve, and could result in financial impacts of up to the entire amount of these assessments. In 2014, the Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., received a tax assessment from the Netherlands tax authority challenging the transfer pricing aspects of a 2009 business reorganization which involved two of its subsidiary companies in the Netherlands. As of December 31, 2018, this assessment was $93 million in tax and $31 million in interest (adjusted for variation in currency exchange rates). The Company has appealed the assessment and carefully evaluated the underlying transactions and has concluded that the amount of the gain recognized on the reorganization for tax purposes was appropriate. While the Company plans to vigorously defend its position against the assessment, it has accrued an amount it believes would be the likely outcome of the litigation. The Company’s defense of the judicial appeal may take an extended period of time and could result in additional financial impacts of up to the entire amount of this assessment.

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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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