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Income Taxes | 3 Months Ended
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Mar. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For the three months ended March 31, 2022, we recorded an income tax provision of $401 million on pre-tax income of $1.45 billion, or an effective tax rate of 27.6%, compared to an income tax provision of $18 million on pre-tax income of $193 million, or an effective tax rate of 9.3%, for the three months ended March 31, 2021. For the three months ended March 31, 2022, our income tax provision includes $20 million of income tax benefit due to share-based compensation activity and $78 million of income tax provision related to the Canada Revenue Agency Competent Authority Matter and certain transfer pricing reserves recorded in the period, as discussed below. For the three months ended March 31, 2021, our income tax provision includes a $22 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits. Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CF Industries Nitrogen, LLC (CFN), as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2022 of 27.6%, which is based on pre-tax income of $1.45 billion, including $168 million of earnings attributable to the noncontrolling interest, would be 3.7 percentage points higher if based on pre-tax income exclusive of the $168 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2021 of 9.3%, which is based on pre-tax income of $193 million, including $24 million of earnings attributable to the noncontrolling interest, would be 1.3 percentage points higher if based on pre-tax income exclusive of the $24 million of earnings attributable to the noncontrolling interest. Canada Revenue Agency Competent Authority Matter In 2016, the Canada Revenue Agency (CRA) and Alberta Tax and Revenue Administration (Alberta TRA) issued Notices of Reassessment for tax years 2006 through 2009 to one of our Canadian affiliates asserting a disallowance of certain patronage deductions. We filed Notices of Objection with respect to the Notices of Reassessment with the CRA and Alberta TRA and posted letters of credit in lieu of paying the additional tax liability assessed. The letters of credit serve as security until the matter is resolved. In 2018, the matter, including the related transfer pricing topic regarding the allocation of profits between Canada and the United States, was accepted for consideration under the bilateral settlement provisions of the U.S.-Canada tax treaty (the Treaty) by the United States and Canadian competent authorities, and included tax years 2006 through 2011. In the second quarter of 2021, the Company submitted the transfer pricing aspect of the matter into the arbitration process under the terms of the Treaty. In February 2022, we were informed that a decision was reached by the arbitration panel for tax years 2006 through 2011. In March 2022, we received further details of the results of the arbitration proceedings and the settlement provisions between the United States and Canadian competent authorities, and we accepted the decision of the arbitration panel. Under the terms of the arbitration decision, additional income for tax years 2006 through 2011 will be subject to tax in Canada, resulting in our having additional Canadian tax liability for those tax years of approximately $127 million, based on current estimates. We expect this resulting Canadian tax liability, plus interest of approximately $98 million, will be assessed in the second quarter of 2022 and that payment of those amounts, aggregating to approximately $225 million, based on current estimates, will be due in the third quarter of 2022. The letters of credit we had posted in lieu of paying the additional tax liability assessed by the Notices of Reassessment will be cancelled upon payment of the additional tax and interest to Canada. Due primarily to the availability of additional foreign tax credits to offset in part the increased Canadian tax referenced above, the Company will file amended tax returns in the United States to request a refund of tax overpaid. In the three months ended March 31, 2022, as a result of the impact of these events on our Canadian and U.S. federal and state income taxes, we recognized an income tax provision of $76 million, reflecting the net impact of $127 million of accrued income taxes payable to Canada for tax years 2006 to 2011, partially offset by net income tax receivables of approximately $51 million in the United States, and we accrued net interest of $99 million, primarily reflecting the impact of estimated interest payable to Canada. Transfer pricing reserves As a result of the outcome of the arbitration decision discussed above, we have also evaluated our transfer pricing positions between Canada and the United States for open years 2012 and after. Based on this evaluation, for the three months ended March 31, 2022, we recorded the following: •liabilities for unrecognized tax benefits of $319 million with a corresponding income tax provision, and accrued interest of $91 million related to the liabilities for unrecognized tax benefits, and •noncurrent income tax receivables of $329 million with a corresponding income tax benefit, and accrued interest income of $28 million related to the noncurrent income tax receivables. In the three months ended March 31, 2022, the impact of this evaluation of transfer pricing positions on our consolidated statement of operations, including a $12 million deferred income tax provision for other transfer pricing tax effects, was a $2 million income tax provision and $63 million of net interest expense before tax ($69 million after tax). As of March 31, 2022, as a result of recording these transfer pricing reserves, the total amount of our unrecognized tax benefits was $349 million, and the total amounts accrued for interest and penalties related to income taxes included in other liabilities was $96 million. As of December 31, 2021, the total amount of our unrecognized tax benefits was $27 million and the total amounts accrued for interest and penalties related to income taxes was $4 million. We expect that the ultimate outcome of the transfer pricing reserves will not have a material net impact on our results of operations, financial condition or cash flows. However, we can provide no assurance as to the ultimate outcome. Based on the information currently available, we believe we have adequately reserved for the open tax years.

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