XML 35 R12.htm IDEA: XBRL DOCUMENT v3.20.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
PROVISION FOR INCOME TAXES INCOME TAXES
Components of earnings before income taxes and the provision for U.S. and other income taxes from operations follow:
 For years ended December 31,
(Dollars in millions)202020192018
Earnings before income taxes    
United States$164 $454 $718 
Outside the United States366 448 592 
Total$530 $902 $1,310 
Provision for income taxes 
United States Federal 
Current$70 $55 $161 
Deferred(96)19 (11)
Outside the United States
Current77 62 86 
Deferred(14)(32)(22)
State and other
Current5 — 30 
Deferred(1)36 (18)
Total$41 $140 $226 

The following represents the deferred tax (benefit) charge recorded as a component of "Accumulated other comprehensive income (loss)" ("AOCI") in the Consolidated Statements of Financial Position:
 For years ended December 31,
(Dollars in millions)202020192018
Defined benefit pension and other postretirement benefit plans$(7)$(10)$(10)
Derivatives and hedging(4)(2)3 
Total$(11)$(12)$(7)
Total income tax expense (benefit) included in the consolidated financial statements was composed of the following:
 For years ended December 31,
(Dollars in millions)202020192018
Earnings before income taxes$41 $140 $226 
Other comprehensive income(11)(12)(7)
Total$30 $128 $219 

Differences between the provision for income taxes and income taxes computed using the U.S. Federal statutory income tax rate follow:
 For years ended December 31,
 (Dollars in millions)202020192018
Amount computed using the statutory rate$109 $189 $274 
State income taxes, net2 36 6 
Foreign rate variance(49)(68)(52)
Change in reserves for tax contingencies4 36 21 
General business credits(39)(52)(60)
U.S. tax on foreign earnings13 (17)10 
Foreign tax credits— — (12)
Tax law changes and tax loss from outside-U.S. entity reorganizations— 7 20 
Other1 9 19 
Provision for income taxes$41 $140 $226 
Effective income tax rate8 %16 %17 %

The 2020 effective tax rate includes a $27 million decrease to the provision for income taxes as a result of a decrease in previously unrecognized tax positions and a $7 million decrease to the provision for income taxes related to adjustments to certain prior year tax returns.

The 2019 effective tax rate includes a $7 million increase to the provision for income taxes resulting from adjustments to the net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the 2017 Tax Cuts and Jobs Act (the "Tax Reform Act"). The 2019 effective tax rate also includes adjustments to the tax provision to reflect finalization of prior year's income tax returns and an increase to state income taxes related to additional valuation allowance provided against state income tax credits.

The 2018 effective tax rate included the impact of the U.S. corporate tax rate reduction resulting from the Tax Reform Act and the repeal of the domestic manufacturing deduction. The 2018 effective tax rate also included a $20 million increase to the provision for income taxes resulting from adjustments to the net tax benefit recognized in fourth quarter 2017 resulting from tax law changes, primarily the Tax Reform Act. These adjustments related to the one-time transition tax on deferred foreign income and changes in valuation of deferred tax assets associated with tax law changes and outside-U.S. entity reorganizations as part of the formation of an international treasury services center.

Income tax incentives, in the form of tax holidays, have been granted to the Company in certain jurisdictions to attract investment and encourage industrial development. The expiration of these tax holidays varies by country. The tax holidays are conditional on the Company meeting certain requirements, including employment and investment thresholds; determination of compliance with these conditions may be subject to challenge by tax authorities in those jurisdictions. No individual tax holiday had a material impact to the Company’s earnings in 2020, 2019, or 2018.
The significant components of deferred tax assets and liabilities follow:
 December 31,
(Dollars in millions)20202019
Deferred tax assets 
Post-employment obligations$280 $247 
Net operating loss carryforwards619 606 
Tax credit carryforwards216 239 
Environmental contingencies68 68 
Unrealized derivative loss22 18 
Other213 173 
Total deferred tax assets1,418 1,351 
Less: Valuation allowance393 453 
Deferred tax assets less valuation allowance$1,025 $898 
Deferred tax liabilities 
Property, plant, and equipment$(893)$(895)
Intangible assets(388)(439)
Investments(305)(235)
Other(175)(178)
Total deferred tax liabilities$(1,761)$(1,747)
Net deferred tax liabilities$(736)$(849)
As recorded in the Consolidated Statements of Financial Position: 
Other noncurrent assets$112 $66 
Deferred income tax liabilities(848)(915)
Net deferred tax liabilities$(736)$(849)

All foreign earnings, with the exception of short-term liquid assets on certain foreign subsidiaries, including basis differences, continue to be considered indefinitely reinvested. As of December 31, 2020, unremitted earnings of subsidiaries outside the U.S. totaled approximately $2.7 billion of which a substantial portion has already been subject to U.S. tax. The Company has not determined the deferred tax liability associated with these unremitted earnings and basis differences, as such determination is not practicable.

For certain consolidated foreign subsidiaries, income and losses directly flow through to taxable income in the U.S. These entities are also subject to taxation in the foreign tax jurisdictions. Net operating loss carryforwards exist to offset future taxable income in foreign tax jurisdictions and valuation allowances are provided to reduce deferred related tax assets if it is more likely than not that this benefit will not be realized. Changes in the estimated realizable amount of deferred tax assets associated with net operating losses for these entities could result in changes in the deferred tax asset valuation allowance in the foreign tax jurisdiction. At the same time, because these entities are also subject to tax in the U.S., a deferred tax liability for the expected future taxable income will be established concurrently. Therefore, the impact of any reversal of valuation allowances on consolidated income tax expense will be only to the extent that there are differences between the U.S. statutory tax rate and the tax rate in the foreign jurisdiction. A valuation allowance of $29 million at December 31, 2020 has been provided against the deferred tax asset resulting from these operating loss carryforwards.

At December 31, 2020, foreign net operating loss carryforwards totaled $2.2 billion. Of this total, $700 million will expire in 1 to 20 years and $1.5 billion have no expiration date. A valuation allowance of approximately $217 million has been provided against such net operating loss carryforwards.

At December 31, 2020, federal net operating loss carryforwards of $3 million were available to offset future taxable income, which expire from 2028 to 2030. At December 31, 2020, foreign tax credit carryforwards of approximately $56 million were available to reduce possible future U.S. income taxes and which expire from 2021 to 2030. As a result of the Tax Reform Act, the Company may no longer be able to utilize certain U.S. foreign tax credit carryforwards. A valuation allowance of $24 million has been established on a portion of deferred tax assets as of December 31, 2020.
At December 31, 2020, a partial valuation allowance of $72 million has been provided against state tax credits that the Company may not be able to utilize.

A partial valuation allowance of $47 million has been established for the Solutia, Inc. ("Solutia") state net operating loss carryforwards. The valuation allowance will be retained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized, or the related statute expires.

Amounts due to and from tax authorities as recorded in the Consolidated Statements of Financial Position:
 December 31,
(Dollars in millions)20202019
Miscellaneous receivables$311 $211 
Payables and other current liabilities$147 $36 
Other long-term liabilities83 139 
Total income taxes payable$230 $175 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(Dollars in millions)202020192018
Balance at January 1$202 $182 $142 
Adjustments based on tax positions related to current year14 25 9 
Adjustments based on tax positions related to prior years63 (3)35 
Lapse of statute of limitations(22)(2)(4)
Balance at December 31 (1)
$257 $202 $182 
(1)All of the unrecognized tax benefits would, if recognized, impact the Company's effective tax rate.

A reconciliation of the beginning and ending amounts of accrued interest related to unrecognized tax positions is as follows:
(Dollars in millions)202020192018
Balance at January 1$13 $10 $6 
Expense for interest, net of tax5 5 4 
Income for interest, net of tax(5)(2)— 
Balance at December 31$13 $13 $10 

Accrued penalties related to unrecognized tax positions were immaterial as of December 31, 2020, 2019, and 2018.

Eastman files federal income tax returns in the U.S. and income tax returns in various state and foreign jurisdictions. The Company is no longer subject to U.S. Federal income tax examinations by tax authorities for years before 2012 for Eastman legal entities and years before 2002 for Solutia legal entities. With few exceptions, Eastman is no longer subject to state and local income tax examinations by tax authorities for years before 2012. Solutia and related subsidiaries are no longer subject to state and local income tax examinations for years before 2000. With few exceptions, the Company is no longer subject to foreign income tax examinations by tax authorities for tax years before 2012.

It is reasonably possible that, as a result of the resolution of federal, state, and foreign examinations and appeals, and the expiration of various statutes of limitation, unrecognized tax benefits could decrease within the next twelve months by up to $120 million.