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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Earnings before income taxes and the provision for income taxes are presented in the following table.
| Year Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Earnings (loss) before income taxes: |  |  |  |  |
U.S.1 | $ | (423) |  |  | $ | 437 |  |  | $ | 310 |
Non-U.S.1 | 1,212 |  |  | 527 |  |  | 955 |
Total | $ | 789 |  |  | $ | 964 |  |  | $ | 1,265 |
Provision for income taxes: |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 43 |  |  | $ | 19 |  |  | $ | 32 |
State | 7 |  |  | 2 |  |  | 4 |
Foreign | 276 |  |  | 252 |  |  | 245 |
Total current expense | 326 |  |  | 273 |  |  | 281 |
Deferred: |  |  |  |  |
Federal | (98) |  |  | 70 |  |  | 150 |
State | (13) |  |  | 11 |  |  | 23 |
Foreign | (65) |  |  | 43 |  |  | 14 |
Total deferred (benefit) expense | (176) |  |  | 124 |  |  | 187 |
Total provision for income taxes | $ | 150 |  |  | $ | 397 |  |  | $ | 468 |
__________________________ 1 In 2021, the U.S. loss before income taxes was primarily related to the $362 million unrealized loss related to the Company’s investment in Romeo Power, Inc. In 2020, the Company recognized a $382 million unrealized gain related to its investment in Romeo Power, Inc. The provision for income taxes resulted in an effective tax rate of approximately 19%, 41% and 37% for the years ended December 31, 2021, 2020 and 2019, respectively. The following table provides a reconciliation of tax expense based on the U.S. statutory tax rate to final tax expense.
| Year Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Income taxes at U.S. statutory rate of 21% | $ | 166 |  |  | $ | 203 |  |  | $ | 266 |
Increases (decreases) resulting from: |  |  |  |  |
Valuation allowance adjustments, net | 39 |  |  | 53 |  |  | (2) |
Net tax on remittance of foreign earnings | 43 |  |  | 93 |  |  | 22 |
Foreign rate differentials | 36 |  |  | 21 |  |  | 35 |
U.S. tax on non-U.S. earnings | 12 |  |  | 11 |  |  | 15 |
State taxes, net of federal benefit | 5 |  |  | 12 |  |  | 3 |
Derecognition of Morse TEC | — |  |  | — |  |  | 137 |
Tax credits | (5) |  |  | (12) |  |  | (17) |
Affiliates' earnings | (10) |  |  | (4) |  |  | (7) |
Changes in accounting methods and filing positions | (18) |  |  | (18) |  |  | (7) |
Reserve adjustments, settlements and claims | (17) |  |  | 45 |  |  | 46 |
Impact of tax law and rate change | (20) |  |  | — |  |  | — |
Tax holidays | (76) |  |  | (36) |  |  | (26) |
Research and development super deduction | (27) |  |  | (9) |  |  | (5) |
Other, net | 22 |  |  | 38 |  |  | 8 |
Provision for income taxes, as reported | $ | 150 |  |  | $ | 397 |  |  | $ | 468 |
In 2021, the Company recognized a $55 million tax benefit related to a reduction in certain unrecognized tax benefits and accrued interest for a matter in which the statute of limitations had lapsed. The Company also recognized a discrete tax benefit of $20 million related to an increase in its deferred tax assets as a result of an increase in the United Kingdom (“UK”) tax rate from 19% to 25%. This rate change was enacted in June 2021 and is effective April 2023. Further, a net discrete tax benefit of $36 million was recognized, primarily related to changes to certain withholding rates applied to unremitted earnings. In the fourth quarter of 2021, the Company received approval for tax holiday status reducing the statutory tax rate for two of its legal entities. This resulted in a reduction in tax expense of $28 million in 2021. In 2020, the Company recognized $49 million of income tax expense, which primarily related to final U.S. Department of Treasury regulations issued in the third quarter of 2020, which impacted the net tax on remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020. In addition, the Company recognized incremental valuation allowances of $53 million in 2020. In 2019, the Company recognized an increase in income tax expense of $173 million related to the derecognition of the Morse TEC asbestos-related deferred tax assets and $22 million due to the U.S. Department of the Treasury’s issuance of the final regulations in the first quarter of 2019 related to the calculation of the one-time transition tax. The 2019 effective tax rate also included reductions of income tax expense of $19 million related to restructuring expense, $11 million for a global realignment plan, $8 million related to other one-time adjustments and $6 million related to pension settlement loss. A roll forward of the Company’s total gross unrecognized tax benefits is presented below:
(in millions) | 2021 |  | 2020 |  | 2019
Balance, January 1 | $ | 231 |  |  | $ | 146 |  |  | $ | 120 |
Additions based on tax positions related to current year | 23 |  |  | 14 |  |  | 7 |
Acquisitions | 8 |  |  | 54 |  |  | — |
Additions for tax positions of prior years | — |  |  | 9 |  |  | 26 |
Reductions for lapse in statute of limitations | (36) |  |  | (5) |  |  | (6) |
Translation adjustment | (5) |  |  | 13 |  |  | (1) |
Balance, December 31 | $ | 221 |  |  | $ | 231 |  |  | $ | 146 |
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2021, 2020 and 2019, the Company recognized $16 million, $21 million and $15 million, respectively. In addition, the Company recorded a reduction in tax expense of $34 million for previously recorded interest. The Company has an accrual of approximately $51 million and $69 million for the payment of interest and penalties at December 31, 2021 and 2020, respectively. As of December 31, 2021, approximately $242 million represents the amount that, if recognized, would affect the Company's effective income tax rate in future periods. This amount includes a decrease in U.S. federal income taxes that would occur upon recognition of the state tax benefits and U.S. foreign tax credits included therein. The Company estimates that it is reasonably possible there could be a decrease of approximately $21 million in unrecognized tax benefits and interest in the next 12 months related to the closure of an audit and the lapse in statute of limitations subsequent to the reporting period from certain taxing jurisdictions. The Company and/or one of its subsidiaries files income tax returns in the U.S. federal, various state jurisdictions and various foreign jurisdictions. In certain tax jurisdictions, the Company may have more than one taxpayer. The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:
Tax jurisdiction |  | Years no longer subject to audit |  | Tax jurisdiction |  | Years no longer subject to audit
U.S. Federal |  | 2013 and prior |  | Japan |  | 2018 and prior
Barbados |  | 2016 and prior |  | Luxembourg |  | 2016 and prior
China |  | 2015 and prior |  | Mexico |  | 2015 and prior
France |  | 2015 and prior |  | Poland |  | 2016 and prior
Germany |  | 2011 and prior |  | South Korea |  | 2016 and prior
Hungary |  | 2015 and prior |  | United Kingdom |  | 2015 and prior
In the U.S., certain tax attributes created in years prior to 2017 were subsequently utilized. Even though the U.S. federal statute of limitations may have expired for years prior to 2017, the years in which these tax attributes were created could still be subject to examination, limited to only the examination of the creation of the tax attribute. The components of deferred tax assets and liabilities consist of the following:
| December 31,
(in millions) | 2021 |  | 2020
Deferred tax assets: |  |  |
Net operating loss and capital loss carryforwards | $ | 634 |  |  | $ | 656 |
Interest limitation carryforwards | 123 |  |  | 111 |
Research and development capitalization | 91 |  |  | 57 |
Employee compensation | 44 |  |  | 39 |
Pension and other postretirement benefits | 41 |  |  | 93 |
Other comprehensive loss | 39 |  |  | 106 |
Unrecognized tax benefits | 32 |  |  | 47 |
Warranty | 31 |  |  | 27 |
State tax credits | 28 |  |  | 28 |
Foreign tax credits | 8 |  |  | 16 |
Other | 167 |  |  | 161 |
Total deferred tax assets | $ | 1,238 |  |  | $ | 1,341 |
Valuation allowance | (554) |  |  | (529) |
Net deferred tax asset | $ | 684 |  |  | $ | 812 |
Deferred tax liabilities: |  |  |
Goodwill and intangible assets | (274) |  |  | (279) |
Unremitted foreign earnings | (146) |  |  | (156) |
Fixed assets | (123) |  |  | (176) |
Unrealized gain on equity securities | (5) |  |  | (91) |
Other | (88) |  |  | (95) |
Total deferred tax liabilities | $ | (636) |  |  | $ | (797) |
Net deferred taxes | $ | 48 |  |  | $ | 15 |
At December 31, 2021, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $2.4 billion available to offset future taxable income. Of the total $2.4 billion, $1.5 billion expire at various dates from 2022 through 2041, and the remaining $870 million have no expiration date. The Company has a valuation allowance recorded of $474 million against the $2.4 billion of non-U.S. net operating loss carryforwards. Certain U.S. subsidiaries have state net operating loss carryforwards totaling $619 million, of which the Company has a valuation allowance of $16 million recorded against the carryforwards. The state net operating loss carryforwards expire at various dates from 2022 to 2041. Certain U.S. subsidiaries also have state tax credit carryforwards of $28 million, which are offset by a valuation allowance of $28 million. Certain non-U.S. subsidiaries located in China had tax exemptions or tax holidays, which reduced local tax expense approximately $76 million and $36 million in 2021 and 2020, respectively. The tax holidays for these subsidiaries are issued in three-year terms with expirations for certain subsidiaries ranging from 2021 to 2023. The Company reviews the likelihood that the benefit of its deferred tax assets will be realized and, therefore, the need for valuation allowances on a quarterly basis. The Company assesses existing deferred tax assets, net operating loss carryforwards, and tax credit carryforwards by jurisdiction and expectations of its ability to utilize these tax attributes through a review of past, current, and estimated future taxable income and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. Due to recent restructurings, the Company concluded that the weight of the negative evidence outweighs the positive evidence in certain foreign jurisdictions. As a result, the Company believes it is more likely than not that the net deferred tax assets in certain foreign jurisdictions that include entities in Luxembourg, Sweden, Hungary, France, Ireland and the U.K. will not be realized in the future. As of December 31, 2021, the Company recorded deferred tax liabilities of $146 million with respect to foreign unremitted earnings. The Company did not provide deferred tax liabilities with respect to certain book versus tax basis differences not represented by undistributed earnings of approximately $1.1 billion as of December 31, 2021, because the Company continues to assert indefinite reinvestment of these basis differences. These basis differences would become taxable upon the sale or liquidation of the foreign subsidiaries. The Company’s best estimate of the unrecognized deferred tax liability on these basis differences is approximately $70 million as of December 31, 2021.

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