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v3.22.4

Income Taxes | 12 Months Ended
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Dec. 31, 2022
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
| 2022 |  | 2021 |  | 2020
United States | $ | 2,725 |  |  | $ | 2,140 |  |  | $ | 442 |
Foreign | 2,508 |  |  | 1,173 |  |  | 1,441 |
| $ | 5,233 |  |  | $ | 3,313 |  |  | $ | 1,883 |
Significant components of income taxes are as follows:
(In millions) | Year Ended December 31 |
| 2022 |  | 2021 |  | 2020 |
Current |  |  |  |  |  |
Federal | $ | 379 |  |  | $ | 404 |  |  | $ | (164) |  |
State | 97 |  |  | 79 |  |  | 4 |  |
Foreign | 481 |  |  | 224 |  |  | 186 |  |
Deferred |  |  |  |  |  |
Federal | 23 |  |  | (59) |  |  | 41 |  |
State | 7 |  |  | (12) |  |  | (10) |  |
Foreign | (119) |  |  | (58) |  |  | 44 |  |
| $ | 868 |  |  | $ | 578 |  |  | $ | 101 |  |
Significant components of deferred tax liabilities and assets are as follows:
| December 31, 2022 |  | December 31, 2021
| (In millions)
Deferred tax liabilities |  |  |
Property, plant, and equipment | $ | 811 |  |  | $ | 875 |
Intangibles | 417 |  |  | 403 |
Right of use assets | 237 |  |  | 214 |
Equity in earnings of affiliates | 191 |  |  | 153 |
Inventory reserves | 11 |  |  | 29 |
Debt exchange | 52 |  |  | 53 |
Reserves and other accruals | 86 |  |  | 65 |
Other | 108 |  |  | 185 |
| $ | 1,913 |  |  | $ | 1,977 |
Deferred tax assets |  |  |
Pension and postretirement benefits | $ | 104 |  |  | $ | 137 |
Lease liabilities | 244 |  |  | 220 |
Stock compensation | 51 |  |  | 53 |
Foreign tax loss carryforwards | 496 |  |  | 465 |
Capital loss carryforwards | 42 |  |  | 74 |
State tax attributes | 21 |  |  | 21 |
Reserves and other accruals | 22 |  |  | 158 |
Other | 77 |  |  | 44 |
Gross deferred tax assets | 1,057 |  |  | 1,172 |
Valuation allowances | (209) |  |  | (281) |
Net deferred tax assets | $ | 848 |  |  | $ | 891 |
Net deferred tax liabilities | $ | 1,065 |  |  | $ | 1,086 |
The net deferred tax liabilities are classified as follows: |  |  |
Noncurrent assets | $ | — |  |  | $ | 27 |
Noncurrent assets (foreign) | 337 |  |  | 299 |
Noncurrent liabilities | (1,183) |  |  | (1,079) |
Noncurrent liabilities (foreign) | (219) |  |  | (333) |
| $ | (1,065) |  |  | $ | (1,086) |
During 2022, the Company decreased valuation allowances by $68 million primarily related to net operating loss and foreign capital loss carryforwards. 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
| 2022 |  | 2021 |  | 2020
Statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of federal tax benefit | 1.4 |  |  | 1.5 |  |  | (0.3) |
Foreign earnings taxed at rates other than the U.S. statutory rate | (3.8) |  |  | (2.8) |  |  | (2.3) |
Foreign currency effects/remeasurement | 0.6 |  |  | — |  |  | (1.1) |
Income tax adjustment to filed returns | (0.1) |  |  | 0.7 |  |  | (0.4) |
Tax benefit on U.S. biodiesel credits | (1.2) |  |  | (1.9) |  |  | (3.3) |
Tax benefit on U.S. railroad credits | (1.2) |  |  | (2.0) |  |  | (8.0) |
U.S. tax on foreign earnings | 0.2 |  |  | — |  |  | 0.6 |
Valuation allowances | — |  |  | 0.7 |  |  | 0.2 |
Other | (0.3) |  |  | 0.2 |  |  | (1.0) |
Effective income tax rate | 16.6 | % |  | 17.4 | % |  | 5.4 | %
The effective tax rate for 2022 was impacted by the geographic mix of earnings and discrete tax items. The effective tax rates for 2021 and 2020 were impacted by the geographic mix of earnings and U.S. tax credits, including the biodiesel tax credit and the railroad maintenance tax credit. ADM’s operations in foreign jurisdictions accounted for 48%, 35%, and 77% of the Company’s total pre-tax earnings in fiscal years 2022, 2021, and 2020, respectively. The foreign rate differential was primarily due to lower tax rates applicable to the income earned from the Company’s operations in Switzerland, Asia, and the Caribbean. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“Inflation Act”), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income,” and a one percent excise tax on net repurchases of stock for tax years beginning after December 31, 2022. While the Inflation Act has no immediate impact and is not expected to have a material adverse effect on ADM’s results of operations going forward, the Company will continue to evaluate its impact as further information becomes available. Undistributed earnings of the Company’s foreign subsidiaries and corporate joint ventures were approximately $15.5 billion at December 31, 2022. Because these undistributed earnings continue to be indefinitely reinvested in foreign operations, no income taxes, other than the transition tax, the U.S. tax on undistributed Subpart F, and the minimum tax on Global Intangible Low Taxed Income (GILTI), have been provided after the Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. It is not practicable to determine the amount of unrecognized deferred tax liability related to any remaining undistributed earnings of foreign subsidiaries and corporate joint ventures not subject to the transition tax. The Company has elected to pay the one-time transition tax on accumulated foreign earnings over eight years. As of December 31, 2022, the Company’s remaining transition tax liability was $122 million, which will be paid in installments through 2025. The Company incurred U.S. taxable income of $684 million, $244 million, and $259 million related to GILTI and deducted $67 million, $87 million, and $12 million related to FDII in fiscal years 2022, 2021, and 2020 respectively. The Company made an accounting policy election to treat GILTI as a period cost. The Company has recorded and will continue to record the impact of tax reform items as U.S. tax authorities issue Treasury Regulations and other guidance addressing tax reform-related changes. 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 $496 million and $465 million of tax assets related to net operating loss carryforwards of certain international subsidiaries at December 31, 2022 and 2021, respectively. As of December 31, 2022, approximately $399 million of these assets have no expiration date, and the remaining $97 million expire at various times through fiscal 2032. 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 $142 million and $200 million against these tax assets at December 31, 2022 and 2021, respectively, due to the uncertainty of their realization. The Company had $42 million and $74 million of tax assets related to foreign capital loss carryforwards at December 31, 2022 and 2021, respectively. The Company has recorded a valuation allowance of $42 million and $74 million against these tax assets at December 31, 2022 and 2021, respectively, due to the uncertainty of their realization. The Company had $21 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, 2022 and 2021, a majority of which will expire between 2023 and 2027. Due to the uncertainty of realization, the Company recorded a valuation allowance of $15 million and $13 million related to state income tax assets net of federal tax benefit as of December 31, 2022 and 2021, respectively. The change in the valuation allowance was related to the expiration of certain state income tax attributes which were fully reserved in prior years. The Company remains subject to federal examination in the U.S. for the calendar tax years 2016 through 2022. The following table sets forth a rollforward of activity of unrecognized tax benefits for the year ended December 31, 2022 and 2021 as follows:
| Unrecognized Tax Benefits
| December 31, 2022 |  | December 31, 2021
| (In millions)
Beginning balance | $ | 157 |  |  | $ | 151 |
Additions related to current year’s tax positions | 6 |  |  | 7 |
Additions related to prior years’ tax positions | 26 |  |  | 15 |
Additions (adjustments) related to acquisitions | 11 |  |  | — |
Reductions related to lapse of statute of limitations | (6) |  |  | (9) |
Settlements with tax authorities | (43) |  |  | (7) |
Ending balance | $ | 151 |  |  | $ | 157 |
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, 2022 and 2021, the Company had accrued interest and penalties on unrecognized tax benefits of $39 million. 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 $148 million on the tax expense for that period. The Company’s subsidiary in Argentina, ADM Agro SRL (formerly ADM Argentina SA and Alfred C. Toepfer Argentina SRL), received tax assessments challenging transfer prices used to price grain exports for the tax years 1999 through 2011 and 2015. As of December 31, 2022, these assessments totaled $5 million in tax and up to $25 million in interest (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. Currently the Company is under audit for fiscal years 2016 and 2017. While the statute of limitations has expired for tax years 2012 and 2013, the Company cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2015. 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 is more likely than not to be sustained based upon its technical merits, and accordingly, has not recorded a tax liability for these assessments. The Company intends to vigorously defend its position against any 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, 2022, this assessment was $87 million in tax and $31 million in interest (adjusted for variation in currency exchange rates). On April 23, 2020, the court issued an unfavorable ruling and in October 2020, assigned a third party expert to establish a valuation. During the second quarter of 2021, the third party expert issued a final valuation. On September 30, 2022, the court issued a ruling consistent with the valuation report, and the Dutch tax authorities have filed an appeal. ADM intends to file a cross-appeal in the first quarter of 2023. As of December 31, 2022, the Company has accrued its best estimate of what it believes will be the likely outcome of the litigation.

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