XML 36 R23.htm IDEA: XBRL DOCUMENT v3.20.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The components of income (loss) before income taxes were as follows:
Year Ended December 31,
(in millions)202020192018
United States$(109)$(110)$(279)
Foreign49 455 (679)
 $(60)$345 $(958)

The components of the provision (benefit) for income taxes from operations were as follows:
Year Ended December 31,
(in millions)202020192018
Current:   
U.S. federal$(5)$(11)$10 
U.S. state1 1 3 
Foreign91 129 102 
Total$87 $119 $115 
Deferred:   
U.S. federal$— $(2)$46 
U.S. state(2)2 (3)
Foreign(62)(37)(105)
Total$(64)$(37)$(62)
 $23 $82 $53 

The reconciliation of the U.S. federal statutory tax rate to the effective rate were as follows:
Year Ended December 31,
 202020192018
Statutory U.S. federal income tax rate21.0 %21.0 %21.0 %
Effect of:   
State income taxes, net of federal benefit2.3 0.7 (0.1)
Federal benefit of R&D and foreign tax credits15.8 (2.0)1.0 
US other permanent differences(5.6)0.8 (0.1)
Tax effect of international operations4.7 0.4 1.4 
Global Intangible Low Taxed Income (GILTI)(10.9)3.7 (1.1)
Foreign Derived Intangible Income (FDII)9.9 (0.1)— 
Net effect of tax audit activity(6.9)0.4 (1.0)
Tax effect of enacted statutory rate changes on Non-U.S. jurisdictions(0.2)0.1 0.3 
Federal tax on unremitted earnings of certain foreign subsidiaries(4.6)0.1 (0.1)
Valuation allowance adjustments(12.9)(1.3)(5.7)
U.S. tax reform - net impacts— — 0.4 
Tax effect of impairment of goodwill and intangibles(51.0)(0.2)(22.2)
Other0.1 0.2 0.7 
Effective income tax rate on operations(38.3 %)23.8 %(5.5 %)
The tax effect of significant temporary differences giving rise to deferred tax assets and liabilities were as follows:
Year Ended December 31,
 20202019
(in millions)
Deferred Tax Asset
Deferred Tax
Liability
Deferred Tax Asset
Deferred Tax
Liability
Commission and bonus accrual$8 $— $11 $— 
Employee benefit accruals58 — 56 — 
Inventory25 — 15 — 
Identifiable intangible assets— 613 — 631 
Insurance premium accruals3 — 3 — 
Miscellaneous accruals11 — 21 — 
Other11 — — 2 
Unrealized losses included in AOCI98 — 46 — 
Property, plant and equipment— 50 — 50 
Lease right-of-use asset— 42 — 39 
Lease right-of-use liability42 — 40 — 
Product warranty accruals1 — 1 — 
Foreign tax credit and R&D carryforward60 — 73 — 
Restructuring and other cost accruals9 — 4 — 
Sales and marketing accrual7 — 6 — 
Taxes on unremitted earnings of foreign subsidiaries— 6 — 3 
Tax loss carryforwards and other tax attributes280 — 269 — 
Subtotal$613 $711 $545 $725 
Valuation allowances(287)— (288)— 
Total$326 $711 $257 $725 

Deferred tax assets and liabilities are included in the following Consolidated Balance Sheets line items at December 31 were as follows:
(in millions)20202019
Assets
Other noncurrent assets, net$8 $12 
Liabilities
Deferred income taxes$393 $480 

The Company has $57 million of foreign tax credit carryforwards at December 31, 2020, of which $8 million will expire in 2024, $39 million will expire in 2025, and $10 million will expire at various times from 2027 through 2030.

The Company has tax loss carryforwards related to certain foreign and domestic subsidiaries of approximately $1,278 million at December 31, 2020, of which $1,025 million expires at various times through 2040 and $253 million may be carried forward indefinitely. Included in deferred income tax assets at December 31, 2020 are tax benefits totaling $232 million, before valuation allowances, for the tax loss carryforwards. In addition the Company has recorded a deferred tax asset of $48 million, related to tax attributes.

The Company has recorded $214 million of valuation allowance to offset the tax benefit of net operating losses, $57 million to offset the tax benefit of foreign tax credits, and $16 million of valuation allowance for other deferred tax assets. The Company has recorded these valuation allowances due to the uncertainty that these assets can be realized in the future.

The Company has provided $6 million of withholding taxes on certain undistributed earnings of its foreign subsidiaries that the Company anticipates will be repatriated.
Tax Contingencies

The total amount of gross unrecognized tax benefits at December 31, 2020 is approximately $31 million, of this total, approximately $30 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. It is reasonably possible that certain amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date of the Company’s consolidated financial statements. Final settlement and resolution of outstanding tax matters in various jurisdictions during the next twelve months could include unrecognized tax benefits of approximately $6 million. Of this approximately $5 million represents the amount of unrecognized tax benefits that, if recognized would affect the effective income tax rate.

The total amount of accrued interest and penalties were $4 million and $3 million at December 31, 2020 and 2019, respectively. The Company has consistently classified interest and penalties recognized in its consolidated financial statements as income taxes based on the accounting policy election of the Company. During the years ended December 31, 2020 and 2018, the Company recognized income tax expense of $2 million and $1 million respectively, related to interest and penalties. During the year ended December 31, 2019, the Company recognized income tax benefit of $2 million related to interest and penalties.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The significant jurisdictions include the U.S., Germany, Sweden and Switzerland. The Company has substantially concluded all U.S. federal income tax matters for years through 2011. The Company is currently under audit for the tax years 2012 and 2013 and 2015 and 2016. For further information on the Internal Revenue Service (“IRS”) Audit, see Note 20, Commitments and Contingencies. The tax years 2014 through 2019 are subject to future potential tax audit adjustments. The Company has concluded audits in Germany through the tax year 2014 and is currently under audit for the years 2015 through 2017. The tax year 2018 is subject to future potential audit adjustments in Germany. The taxable years that remain open for Sweden are 2013 through 2019. For information related to Sweden, see Note 20, Commitments and Contingencies. The taxable years that remain open for Switzerland are 2010 through 2019.

The activity recorded for unrecognized tax benefits were as follows:
(in millions) 202020192018
Unrecognized tax benefits at beginning of period$24 $28 $21 
Gross change for prior-period positions1 — 8 
Gross change for current year positions1 — — 
Decrease due to settlements and payments— (4)— 
Decrease due to statute expirations— — — 
Increase due to effect of foreign currency translation1 — — 
Decrease due to effect from foreign currency translation— — (1)
Unrecognized tax benefits at end of period$27 $24 $28 

U.S. Federal Legislative Changes

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act" or "U.S. tax reform") was enacted. U.S. tax reform, among other things, reduced the U.S. federal income tax rate to 21% in 2018 from 35%, instituted a dividends received deduction for foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings and created a new U.S. minimum tax on earnings of foreign subsidiaries. In addition, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for enactment effects of the Act and provides a measurement period of up to one year from the Act’s enactment date for companies to complete their accounting under Accounting Standards Codification No. 740 “Income Taxes”, (“ASC 740”). In accordance with SAB 118, income tax effects of the Act were refined upon obtaining, preparing, and analyzing additional information during the measurement period. At December 31, 2018 the Company had completed its accounting for the tax effects of the Act.

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $1,807 million at December 31, 2020 and $1,575 million at December 31, 2019. The Act imposed U.S. tax on all post-1986 foreign unrepatriated earnings accumulated through December 31, 2017. Unrepatriated earnings generated after December 31, 2017, are now subject to tax in the current year. All undistributed earnings are still subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed earnings.
For the GILTI provision of the Act, the Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred.

The U.S. Department of the Treasury continues to issue interpretative guidance and regulations associated with the Act.

In March 2020, in response to the impact of the COVID-19 pandemic in the U.S. and across the globe, the U.S. Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. In December 2020, the U.S. Congress passed a second relief package, Consolidated Appropriations Act, 2021. The enactment period impacts to the Company were immaterial to income tax expense.