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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Income from continuing operations before income taxes and equity income for U.S. and non-U.S. operations are as follows:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (in millions)
U.S. income (loss) | $ | 369 |  |  | $ | (32 | ) |  | $ | 150 |
Non-U.S. income | 965 |  |  | 1,287 |  |  | 850 |
Income from continuing operations before income taxes and equity income | $ | 1,334 |  |  | $ | 1,255 |  |  | $ | 1,000 |
The provision (benefit) for income taxes from continuing operations is comprised of:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (in millions)
Current income tax expense (benefit): |  |  |  |  |
U.S. federal | $ | 40 |  |  | $ | 37 |  |  | $ | 47 |
Non-U.S. | 214 |  |  | 214 |  |  | 238 |
U.S. state and local | 10 |  |  | (2 | ) |  | 3 |
Total current | 264 |  |  | 249 |  |  | 288 |
Deferred income tax expense (benefit), net: |  |  |  |  |
U.S. federal | 13 |  |  | (15 | ) |  | (88 | )
Non-U.S. | (16 | ) |  | (12 | ) |  | (33 | )
U.S. state and local | (11 | ) |  | 1 |  |  | — |
Total deferred | (14 | ) |  | (26 | ) |  | (121 | )
Total income tax provision | $ | 250 |  |  | $ | 223 |  |  | $ | 167 |
Cash paid or withheld for income taxes was $283 million, $275 million and $253 million for the years ended December 31, 2018, 2017 and 2016, respectively. For purposes of comparability and consistency, the Company uses the notional U.S. federal income tax rate when presenting the Company’s reconciliation of the income tax provision. The Company was a U.K. resident taxpayer and became an Irish resident taxpayer in April 2018. A reconciliation of the provision for income taxes compared with the amounts at the notional U.S. federal statutory rate was:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (in millions)
Notional U.S. federal income taxes at statutory rate | $ | 280 |  |  | $ | 439 |  |  | $ | 350 |
Income taxed at other rates | (106 | ) |  | (260 | ) |  | (86 | )
Change in valuation allowance | (4 | ) |  | (6 | ) |  | (17 | )
Other change in tax reserves | 36 |  |  | 25 |  |  | 76 |
Withholding taxes | 28 |  |  | 64 |  |  | 44 |
Tax credits | (18 | ) |  | (32 | ) |  | (196 | )
Change in tax law | 26 |  |  | (6 | ) |  | (1 | )
Other adjustments | 8 |  |  | (1 | ) |  | (3 | )
Total income tax expense | $ | 250 |  |  | $ | 223 |  |  | $ | 167 |
Effective tax rate | 19 | % |  | 18 | % |  | 17 | %
The Company’s tax rate is affected by the fact that its parent entity was a U.K. resident taxpayer and became an Irish resident taxpayer in April 2018, the tax rates in Ireland, the U.K. and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. Included in the non-U.S. income taxed at other rates are tax incentives obtained in various non-U.S. countries, primarily the High and New Technology Enterprise (“HNTE”) status in China, a Free Trade Zone exemption in Honduras and the Special Economic Zone exemption in Turkey, which totaled $41 million in 2018, $45 million in 2017 and $45 million in 2016, as well as tax benefit for income earned, and no tax benefit for losses incurred, in jurisdictions where a valuation allowance has been recorded. The Company currently benefits from tax holidays in various non-U.S. jurisdictions with expiration dates from 2019 through 2041. The income tax benefits attributable to these tax holidays are approximately $7 million ($0.03 per share) in 2018, $7 million ($0.03 per share) in 2017 and $10 million ($0.04 per share) in 2016. The effective tax rate in the year ended December 31, 2018 was impacted by additional income tax expense for an adjustment to the provisional effects of the enactment of The Tax Cuts and Jobs Act (the “Tax Legislation”) and the income tax expense recorded as a result of the intra-entity transfer of intellectual property, as described below, partially offset by favorable geographic income mix in 2018 as compared to 2017, primarily due to changes in the underlying operations of the business. The Company also accrued $36 million of reserve adjustments for uncertain tax positions, which included reserves for ongoing audits in foreign jurisdictions, as well as for changes in estimates based on relevant new or additional evidence obtained related to certain of the Company’s tax positions, including tax authority administrative pronouncements and court decisions. The Tax Legislation was enacted in the U.S. on December 22, 2017, significantly revising the U.S. corporate income tax by, among other things, lowering corporate income tax rates and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. Pursuant to ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), the Company recognized the provisional effects of the enactment of the Tax Legislation of approximately $50 million during the year ended December 31, 2017 for which measurement could be reasonably estimated. The impact was primarily the result of increased tax expense due to the one-time deemed repatriation tax and a reduction of our foreign tax credit, partially offset by the favorable impact of the reduced tax rate on the Company’s net deferred tax liabilities. Pursuant to ASU 2018-05, adjustments to the provisional amounts recorded by the Company as of December 31, 2017 identified within a subsequent measurement period of up to one year from the enactment date were to be included, as discussed above, as an adjustment to tax expense from continuing operations in the period the amounts are determined. During 2018, the U.S. Treasury Department and the Internal Revenue Service (“IRS”) issued additional guidance, particularly with respect to computing the transition tax on the untaxed foreign earnings of foreign subsidiaries. As a result, during the year ended December 31, 2018, the Company recorded approximately $30 million to income tax expense as an adjustment to the provisional amounts recorded as of December 31, 2017, primarily related to a reduction of our foreign tax credit as a result of recently issued regulatory guidance. The accounting for the Tax Legislation was finalized in the fourth quarter of 2018, and resulted in no further adjustments beyond the amounts described above. The Tax Legislation also created a provision known as Global Intangible Low-Taxed Income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries. U.S. GAAP allows companies to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred. We have elected to account for GILTI in the year the tax is incurred. During the year ended December 31, 2017, the Company also incurred certain intra-entity gains and related tax impacts in connection with transactions comprising the Separation. During the fourth quarter of 2017, the Company finalized its plan and entered into several transactions to separate these businesses into stand-alone legal and operational structures. As these transactions occurred between related subsidiaries that were consolidated at the time the transactions occurred, the gains were deferred within the consolidated financial statements in accordance with ASC 810. The tax impacts of the gains, which totaled approximately $64 million, were recognized upon the distribution of the related assets to Delphi Technologies and recorded as a reduction to Shareholders’ Equity during the year ended December 31, 2017. The effective tax rate in the year ended December 31, 2016 was impacted by favorable geographic income mix in 2016 as compared to 2015, primarily due to changes in the underlying operations of the business, as well as $17 million for releases of valuation allowances as a result of the Company’s determination that it was more likely than not that certain deferred tax assets would be realized. These benefits were offset by $76 million of reserve adjustments recorded for uncertain tax positions, which included reserves for ongoing audits in foreign jurisdictions, as well as for changes in estimates based on relevant new or additional evidence obtained related to certain of the Company’s tax positions, including tax authority administrative pronouncements and court decisions. These reserve adjustments resulted in foreign tax credit benefits of approximately $18 million. Additionally, following a change in U.S. tax regulation during 2016, the Company recorded a tax credit benefit of approximately $16 million during the year ended December 31, 2016. As described above, certain of the Company’s Chinese subsidiaries benefit from a reduced corporate income tax rate as a result of their HNTE status. Aptiv regularly submits applications to reapply for HNTE status as they expire. The Company believes each of the applicable entities will continue to renew HNTE status going forward and has reflected this in calculating total income tax expense. Intellectual Property Transfer During the year ended December 31, 2018, the Company finalized changes to its corporate entity operating structure, including transferring certain intellectual property among certain of its subsidiaries, primarily to align corporate entities with the Company’s evolving operations and business model following the Separation of its former Powertrain Systems segment. The transfer of assets occurred between wholly-owned legal entities in different U.S. and non-U.S. tax jurisdictions. As the impact of the transfer was the result of an intra-entity transaction, the resulting gain on the transfer was eliminated for purposes of the consolidated financial statements. However, the transferring entity recognized a gain on the transfer of assets that was subject to income tax in its local jurisdiction. In accordance with ASU 2016-16, which the Company adopted in the first quarter of 2018, as further described in Note 2. Significant Accounting Policies, the income tax expense recorded as a result of the intra-entity transfer of the intellectual property was approximately $30 million, net during the year ended December 31, 2018. Deferred Income Taxes The Company accounts for income taxes and the related accounts under the liability method. Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Significant components of the deferred tax assets and liabilities are as follows:
| December 31,
| 2018 |  | 2017
| (in millions)
Deferred tax assets: |  |  |
Pension | $ | 88 |  |  | $ | 94 |
Employee benefits | 43 |  |  | 12 |
Net operating loss carryforwards | 1,089 |  |  | 976 |
Warranty and other liabilities | 63 |  |  | 88 |
Other | 136 |  |  | 210 |
Total gross deferred tax assets | 1,419 |  |  | 1,380 |
Less: valuation allowances | (1,178 | ) |  | (1,008 | )
Total deferred tax assets (1) | $ | 241 |  |  | $ | 372 |
Deferred tax liabilities: |  |  |
Fixed assets | $ | 38 |  |  | $ | 33 |
Tax on unremitted profits of certain foreign subsidiaries | 59 |  |  | 69 |
Intangibles | 234 |  |  | 307 |
Total gross deferred tax liabilities | 331 |  |  | 409 |
Net deferred tax liabilities | $ | (90 | ) |  | $ | (37 | )
(1) | Reflects gross amount before jurisdictional netting of deferred tax assets and liabilities.
Deferred tax liabilities and assets are classified as long-term in the consolidated balance sheet. Net deferred tax assets and liabilities are included in the consolidated balance sheets as follows:
| December 31,
| 2018 |  | 2017
| (in millions)
Long-term assets | $ | 143 |  |  | $ | 185 |
Long-term liabilities | (233 | ) |  | (222 | )
Total deferred tax liability | $ | (90 | ) |  | $ | (37 | )
The net deferred tax liability of $90 million as of December 31, 2018 are primarily comprised of deferred tax liabilities in South Korea, the U.S. and Singapore offset by deferred tax asset amounts primarily in Mexico, China, Turkey and the U.K. Net Operating Loss and Tax Credit Carryforwards As of December 31, 2018, the Company has gross deferred tax assets of approximately $1,073 million for non-U.S. net operating loss (“NOL”) carryforwards with recorded valuation allowances of $1,042 million. These NOL’s are available to offset future taxable income and realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The NOL’s primarily relate to Luxembourg and Germany. The NOL carryforwards have expiration dates ranging from one year to an indefinite period. Deferred tax assets include $64 million and $108 million of tax credit carryforwards with recorded valuation allowances of $62 million and $49 million at December 31, 2018 and 2017, respectively. These tax credit carryforwards expire at various times from 2019 through 2038. Cumulative Undistributed Foreign Earnings No income taxes have been provided on indefinitely reinvested earnings of certain foreign subsidiaries at December 31, 2018. Withholding taxes of $59 million have been accrued on undistributed earnings that are not indefinitely reinvested and are primarily related to China, Turkey, Honduras and Morocco. There are no other material liabilities for income taxes on the undistributed earnings of foreign subsidiaries, as the Company has concluded that such earnings are either indefinitely reinvested or should not give rise to additional income tax liabilities as a result of the distribution of such earnings. Uncertain Tax Positions The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. A reconciliation of the gross change in the unrecognized tax benefits balance, excluding interest and penalties is as follows:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (in millions)
Balance at beginning of year | $ | 224 |  |  | $ | 180 |  |  | $ | 43 |
Additions related to current year | 33 |  |  | 51 |  |  | 94 |
Additions related to prior years | 65 |  |  | 40 |  |  | 67 |
Reductions related to prior years | (19 | ) |  | (31 | ) |  | (15 | )
Reductions due to expirations of statute of limitations | (78 | ) |  | (15 | ) |  | (8 | )
Settlements | (16 | ) |  | (1 | ) |  | (1 | )
Balance at end of year | $ | 209 |  |  | $ | 224 |  |  | $ | 180 |
A portion of the Company’s unrecognized tax benefits would, if recognized, reduce its effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which only the timing of the benefit is uncertain. Recognition of these tax benefits would reduce the Company’s effective tax rate only through a reduction of accrued interest and penalties. As of December 31, 2018 and 2017, the amounts of unrecognized tax benefit that would reduce the Company’s effective tax rate were $203 million and $159 million, respectively. Pursuant to the Company’s redomiciliation from the U.K. to Ireland in 2018, Aptiv PLC forfeited its net operating loss carryforwards. These net operating losses were offset against approximately $60 million of reserves for uncertain tax positions which lapsed in 2018 due to the expiration of the statute of limitations. For 2018 and 2017, respectively, $18 million and $85 million of reserves for uncertain tax positions would be offset by the write-off of a related deferred tax asset, if recognized. The Company recognizes interest and penalties relating to unrecognized tax benefits as part of income tax expense. Total accrued liabilities for interest and penalties were $12 million and $21 million at December 31, 2018 and 2017, respectively. Total interest and penalties recognized as part of income tax expense was a $7 million benefit, a $5 million expense and a $5 million expense for the years ended December 31, 2018, 2017 and 2016, respectively. The Company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. Taxing jurisdictions significant to Aptiv include Barbados, China, Germany, Ireland, Luxembourg, Mexico, South Korea, the U.K. and the U.S. Open tax years related to these taxing jurisdictions remain subject to examination and could result in additional tax liabilities. In general, the Company’s affiliates are no longer subject to income tax examinations by foreign tax authorities for years before 2002. It is reasonably possible that audit settlements, the conclusion of current examinations or the expiration of the statute of limitations in several jurisdictions could impact the Company’s unrecognized tax benefits. A reversal of less than $10 million is reasonably possible in the next 12 months, due to the running of statutes of limitations in various taxing jurisdictions.

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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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