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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Earnings before income taxes consisted of the following:
| December 31,
(DOLLARS IN MILLIONS) | 2022 |  | 2021 |  | 2020
U.S. loss before taxes | $ | (1,918) |  |  | $ | (493) |  |  | $ | (142) |
Foreign income before taxes | 293 |  |  | 847 |  |  | 583 |
Total (loss) income before taxes | $ | (1,625) |  |  | $ | 354 |  |  | $ | 441 |
The income tax provision consisted of the following:
| December 31,
(DOLLARS IN MILLIONS) | 2022 |  | 2021 |  | 2020
Current tax provision |  |  |  |  |
Federal | $ | 102 |  |  | $ | (5) |  |  | $ | (9) |
State and local | 49 |  |  | 13 |  |  | 1 |
Foreign | 325 |  |  | 303 |  |  | 150 |
Total current tax provision | 476 |  |  | 311 |  |  | 142 |
Deferred tax provision |  |  |  |  |
Federal | (77) |  |  | (121) |  |  | (8) |
State and local | (111) |  |  | (34) |  |  | (2) |
Foreign | (49) |  |  | (81) |  |  | (58) |
Total deferred tax benefit | (237) |  |  | (236) |  |  | (68) |
Total provision for income taxes | $ | 239 |  |  | $ | 75 |  |  | $ | 74 |
Effective Tax Rate Reconciliation Reconciliation between the U.S. federal statutory income tax rate to the actual effective tax rate was as follows:
| December 31,
| 2022 |  | 2021 |  | 2020
Statutory tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Tax effect of non-deductible goodwill impairment | (29.1) |  |  | — |  |  | — |
Difference in effective tax rate on foreign earnings and remittances(1) | — |  |  | 8.0 |  |  | (6.9) |
Tax benefit from supply chain optimization | 0.8 |  |  | (5.8) |  |  | (5.0) |
Unrecognized tax benefit, net of reversals | 0.9 |  |  | 0.7 |  |  | 5.7 |
Tax impact on gains on business disposal | (5.9) |  |  | 4.0 |  |  | — |
Deferred taxes on deemed repatriation(2) | (5.6) |  |  | 2.7 |  |  | (0.2) |
Global intangible low-taxed income | (0.8) |  |  | 4.1 |  |  | 5.3 |
Foreign-derived intangible income | 1.1 |  |  | (1.6) |  |  | (0.3) |
U.S. foreign tax credit - general limitation | 0.1 |  |  | (3.1) |  |  | (1.9) |
Research and development credit | 0.8 |  |  | (1.4) |  |  | (1.0) |
Acquisition costs | — |  |  | 2.4 |  |  | 1.0 |
Establishment (release) of valuation allowance on state deferred | — |  |  | (3.0) |  |  | (0.4) |
State and local taxes including rate changes(3) | 4.3 |  |  | (4.8) |  |  | (0.6) |
Other, net | (2.3) |  |  | (2.0) |  |  | 0.1 |
Effective tax rate | (14.7) | % |  | 21.2 | % |  | 16.8 | %
_______________________ (1)For 2021, the rate includes rate change impacts related to the Netherlands and United Kingdom. (2)For 2022, the rate includes establishment of the “held for sale” deferred tax liabilities due to a change in assertion. (3)For 2022, the rate includes rate change impacts related to the remeasurement of the state tax rate on deferred taxes. The effective tax rate reflects the recording of non-tax-deductible impairment charges related to goodwill in the Health & Biosciences operating segment and the tax effects of the divestiture of the Microbial Control business unit. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) that significantly revised the U.S. tax code effective January 1, 2018. The Tax Act created significant international tax provisions, including global intangible low-taxed income (“GILTI”). The Company has elected to treat GILTI as a current period cost if and when incurred. This tax position resulted in approximately a net $112 million income tax expense for the year ended December 31, 2022, offset in part by approximately $99 million in foreign tax credits. The U.S. consolidated group has historically generated taxable income after the inclusion of foreign dividends which has allowed the Company to realize its federal deferred tax assets. Foreign dividends are now subject to a 100% dividends received deduction under the Tax Act and do not serve as a source of federal taxable income. However, as of December 31, 2022, the U.S. consolidated group is in a cumulative income position. It is expected to continue to be in a cumulative income position primarily due to the inclusion of GILTI and expects to realize tax benefits from the reversal of its temporary differences, including capitalized research and experimental expenditures. Further, as of December 31, 2022, the Company has maintained a valuation allowance of approximately $1 million on certain state tax attributes based on a state taxable income forecast. The main inputs into the forecast are the 2022 taxable income projections. Changes in the performance of the North American business, the Company’s transfer pricing policies and adjustments to the Company’s U.S. tax profile could impact the estimate. Deferred Taxes The deferred tax assets and liabilities consisted of the following amounts:
| December 31,
(DOLLARS IN MILLIONS) | 2022 |  | 2021
Employee and retiree benefits | $ | 61 |  |  | $ | 148 |
Credit and net operating loss carryforwards | 315 |  |  | 312 |
Amortizable research and development expenses | 84 |  |  | 42 |
Interest limitation | 3 |  |  | 43 |
Inventory | 19 |  |  | 32 |
Lease obligations | 151 |  |  | 189 |
Other, net | 140 |  |  | 79 |
Gross deferred tax assets | 773 |  |  | 845 |
Property, plant and equipment, net | (229) |  |  | (265) |
Intangible assets(1) | (2,049) |  |  | (2,486) |
Right-of-use assets | (151) |  |  | (187) |
Loss on foreign currency translation | (23) |  |  | (30) |
Deferred taxes on deemed repatriation | (166) |  |  | (81) |
Gross deferred tax liabilities | (2,618) |  |  | (3,049) |
Valuation allowance | (262) |  |  | (232) |
Total net deferred tax liabilities | $ | (2,107) |  |  | $ | (2,436) |
_______________________ (1)Includes deferred taxes on intangible assets owned by a fully consolidated partnership. Net operating loss carryforwards were approximately $301 million and $272 million at December 31, 2022 and 2021, respectively. If unused, approximately $98 million will expire between 2023 and 2042. The remainder, totaling approximately $203 million, may be carried forward indefinitely. Tax credit carryforwards were approximately $14 million and $40 million at December 31, 2022 and 2021, respectively. If unused, the $14 million will expire between 2023 and 2042. Of the $315 million deferred tax asset for net operating loss carryforwards and credits at December 31, 2022, the Company considers it unlikely that a portion of the tax benefit will be realized. Accordingly, a valuation allowance of approximately $261 million on net operating loss carryforwards and $1 million of tax credits has been established against these deferred tax assets. Uncertain Tax Positions A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| December 31,
(DOLLARS IN MILLIONS) | 2022 |  | 2021 |  | 2020
Balance of unrecognized tax benefits at beginning of year | $ | 130 |  |  | $ | 99 |  |  | $ | 75 |
Gross amount of increases in unrecognized tax benefits as a result of positions taken during a prior year(1) | 1 |  |  | 42 |  |  | 11 |
Gross amount of decreases in unrecognized tax benefits as a result of positions taken during a prior year | (18) |  |  | (3) |  |  | — |
Gross amount of increases in unrecognized tax benefits as a result of positions taken during the current year | 31 |  |  | 5 |  |  | 24 |
The amounts of decreases in unrecognized benefits relating to settlements with taxing authorities | (27) |  |  | (1) |  |  | (2) |
Reduction in unrecognized tax benefits due to the lapse of applicable statute of limitation | (5) |  |  | (12) |  |  | (9) |
Balance of unrecognized tax benefits at end of year | $ | 112 |  |  | $ | 130 |  |  | $ | 99 |
_______________________ (1)For 2021, the amount includes positions related to N&B opening balance sheet amounts. At December 31, 2022, 2021 and 2020, there were approximately $98 million, $130 million and $98 million, respectively, of unrecognized tax benefits recorded to Other liabilities. There was approximately $14 million recorded to Other current liabilities for 2022, less than $1 million recorded to Other current liabilities for 2021 and approximately $1 million recorded to Other current liabilities for 2020. If these unrecognized tax benefits were recognized, all the benefits and related interest and penalties would be recorded as a benefit to income tax expense. The Company decreased its liabilities for interest and penalties by approximately $1 million, net, for the year ended December 31, 2022, and increased its liabilities for interest and penalties by approximately $19 million and $3 million, net, for the years ended December 31, 2021 and 2020, respectively. At December 31, 2022, 2021 and 2020, the Company had accrued approximately $31 million, $36 million and $17 million, respectively, of interest and penalties classified as Other liabilities, $4 million classified as Other current liabilities for December 31, 2022 and less than $1 million classified as Other current liabilities for December 31, 2021 and 2020. As of December 31, 2022, the Company’s aggregate provision for unrecognized tax benefits, including interest and penalties, was approximately $147 million associated with various tax positions principally asserted in foreign jurisdictions. The Company’s reversal of uncertain tax positions due to the expiration of related statutes of limitations over the next 12 months was estimated to be approximately $18 million, which has been classified as current. The total changes to the uncertain tax positions over the next 12 months is impracticable to estimate and is dependent on the resolution of new or existing tax disputes. Other Tax benefits credited to Shareholders’ equity were not material for the years ended December 31, 2022, 2021 and 2020 associated with stock option exercises and PRSU dividends. The Company regularly repatriates earnings from non-U.S. subsidiaries. As the Company repatriates these funds to the U.S., they will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as of December 31, 2022, the Company had a deferred tax liability of approximately $166 million for the effect of repatriating the funds to the U.S., attributable to various non-U.S. subsidiaries. There is no deferred tax liability associated with non-U.S. subsidiaries where we intend to indefinitely reinvest the earnings to fund local operations and/or capital projects. The Company has ongoing income tax audits and legal proceedings which are at various stages of administrative or judicial review, of which the material items are discussed below. In addition, the Company has other ongoing tax audits and legal proceedings that relate to indirect taxes, such as value-added taxes, capital tax, sales and use and property taxes, which are discussed in Note 19. The Company also has several other tax audits in process and has open tax years with various taxing jurisdictions that range primarily from 2012 to 2021. Based on currently available information, the Company does not believe the ultimate outcome of any of these tax audits and other tax positions related to open tax years, when finalized, will have a material impact on its results of operations and financial position.

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