Income Taxes

12 Months Ended

Dec. 31, 2019

The components of income before income taxes were as follows:



	2019			2018		2017
U.S.	$	(3	)	$	21	$	10
Foreign	789			719		819
	$	786		$	740	$	829

The provision for income taxes consisted of the following:



	2019			2018			2017
Current tax:
U.S. federal	$	(1	)	$	(2	)	$	—
State and foreign	202			183			154
	$	201		$	181		$	154
Deferred tax:
U.S. federal	$	16		$	31		$	217
State and foreign	(51		)	4			30
	(35		)	35			247
Total	$	166		$	216		$	401

The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to pre-tax income as a result of the following items:



	2019			2018			2017
U.S. statutory rate at 21%, 21% and 35%	$	166		$	155		$	290
Tax on foreign income	7			30			(126		)
U.S. taxes on foreign income, net of credits	15			24			45
Valuation allowance changes	(33		)	(1		)	9
Tax contingencies	19			(2		)	6
Tax law changes	(11		)	4			174
Other items, net	3			6			3
Income tax provision	$	166		$	216		$	401

The Company benefits from certain incentives in Brazil which allow it to pay reduced income taxes. The incentives expire at various dates beginning in December 2022. These incentives increased net income attributable to the Company by $17 in 2019 and $14 in both 2018 and 2017.

The Company paid taxes of $173, $177 and $154 in 2019, 2018 and 2017.

In 2019, the Company recorded an income tax benefit of $36 related to a deferred tax valuation allowance release resulting from an internal reorganization. Additionally, the Company recorded a charge of $15 related to the settlement of a pre-acquisition tax contingency that arose from a transaction that occurred prior to its acquisition of Signode. The Company also recorded a benefit of $9 arising from tax law changes in India.

The Tax Act resulted in significant changes from previous tax law, including reduction of the U.S. corporate tax rate from 35% to 21%, a one-time tax imposed on the unremitted earnings of other non-U.S. subsidiaries (the "transition tax") and a limitation on the tax deduction for interest expense, net of interest income, to 30% of a U.S. corporations adjusted taxable income. As a result of the tax rate reduction, the Company recorded a provisional reduction in net deferred tax assets of $103 as of December 31, 2017 and a corresponding deferred income tax charge. Additionally, as of December 31, 2017, the Company recorded a provisional obligation of $82 for the transition tax, recorded a charge of $25 for the related usage of foreign tax credits and reversed $11 of deferred tax liabilities related to cumulative undistributed foreign earnings. The Company finalized the impact of the Tax Act in 2018 and recorded a net benefit of $2 to adjust its provisional amounts.

In 2018, the Company recorded a charge of $24 related to local taxes on the distributions of foreign earnings, which were previously asserted to be indefinitely reinvested. As of December 31, 2019 the Company has not provided deferred taxes on approximately $1,300 of earnings in certain non-U.S. subsidiaries because such earnings are indefinitely reinvested in its international operations. Upon distribution of such earnings in the form of dividends or otherwise, the Company may be subject to incremental foreign tax. It is not practicable to estimate the amount of foreign tax that might be payable.

The components of deferred taxes at December 31 are:



	2019					2018
	Assets			Liabilities		Assets			Liabilities
Tax carryforwards	$	512		$	—	$	531		$	—
Postretirement and postemployment benefits	40			—		39			—
Pensions	176			124		193			106
Property, plant and equipment	23			174		20			177
Intangible assets	—			401		—			431
Asbestos	66			—		71			—
Accruals and other	88			90		88			73
Right of use assets	—			30		—			—
Lease liabilities	30			—		—			—
Valuation allowances	(243		)	—		(282		)	—
Total	$	692		$	819	$	660		$	787

Tax carryforwards expire as follows:



Year	Amount
2020	$	27
2021	22
2022	82
2023	11
2024	14
Thereafter	211
Unlimited	145

Tax carryforwards expiring in 2022 include $72 of U.S. federal foreign tax credits which based on current projections the Company believes it will utilize before expiration. Tax carryforwards expiring after 2024 include $141 of U.S. state tax loss carryforwards and $53 of Luxembourg tax loss carryforwards. The unlimited category includes $36 related to U.S. disallowed business interest carryforwards and $64 of French tax loss carryforwards.

Realization of any portion of the Company’s deferred tax assets is dependent upon the availability of taxable income in the relevant jurisdictions. The Company considers all sources of taxable income, including (i) taxable income in any available carry back period, (ii) the reversal of taxable temporary differences, (iii) tax-planning strategies, and (iv) taxable income expected to be generated in the future other than from reversing temporary differences. The Company also considers whether there have been cumulative losses in recent years. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company’s valuation allowances at December 31, 2019 includes $205 primarily related to the portion of U.S. state tax loss carryforwards that the Company does not believe are more likely than not to be utilized prior to their expiration. The Company’s ability to utilize state tax loss carryforwards is impacted by several factors including taxable income, expiration dates, limitations imposed by certain states on the amount of loss carryforwards that can be used in a given year to offset taxable income and whether the state permits the Company to file a combined return.

Management’s estimate of the appropriate valuation allowance in any jurisdiction involves a number of assumptions and judgments, including the amount and timing of future taxable income. Should future results differ from management’s estimates, it is possible there could be future adjustments to the valuation allowances that would result in an increase or decrease in tax expense in the period such changes in estimates are made.

A reconciliation of unrecognized tax benefits follows:



	2019			2018			2017
Balance at January 1	$	37		$	29		$	27
Additions related to acquisitions	—			13			—
Additions for prior year tax positions	20			1			6
Reductions to prior period tax positions	—			—			(2		)
Lapse of statute of limitations	(1		)	(3		)	—
Settlements	(15		)	(2		)	(4		)
Foreign currency translation	—			(1		)	2
Balance at December 31	$	41		$	37		$	29

The Company’s unrecognized tax benefits include potential liabilities related to transfer pricing, foreign withholding taxes, and non-deductibility of expenses and exclude $2 of interest and penalties as of December 31, 2019.

The total interest and penalties recorded in income tax expense was less than $1 in 2019, 2018 and 2017. As of December 31, 2019, unrecognized tax benefits of $41, if recognized, would affect the Company's effective tax rate.

The Company’s unrecognized tax benefits are not expected to increase over the next twelve months and are expected to decrease as open tax years lapse or claims are settled. The Company is unable to estimate a range of reasonably possible changes in its

unrecognized tax benefits in the next twelve months as it is unable to predict when, or if, the tax authorities will commence their audits, the time needed for the audits, and the audit findings that will require settlement with the applicable tax authorities, if any.

The tax years that remained subject to examination by major tax jurisdictions as of December 31, 2019 were, 2010 and subsequent years for Germany; 2013 and subsequent years for India; 2015 and subsequent years for the Brazil, Canada, Italy, Mexico and Spain; and 2016 and subsequent years for the U.K. and the U.S.; 2017 and subsequent years for France. In addition, tax authorities in certain jurisdictions, including France and the U.S., may examine earlier years when tax carryforwards that were generated in those years are subsequently utilized.