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INCOME TAXES | 9 Months Ended
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Sep. 30, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES For interim financial statement purposes, U.S. GAAP income tax expense/benefit related to ordinary income is determined by applying an estimated annual effective income tax rate against a company's ordinary income. Income tax expense/benefit related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of the Company's income tax provision requires the use of management forecasts and other estimates, application of statutory income tax rates, and an evaluation of valuation allowances. The Company's estimated annual effective income tax rate may be revised, if necessary, in each interim period. Benefit from income taxes for the nine months ended September 30, 2021 was $36 million and included: (i) $34 million of income tax benefit for the Company's ordinary loss for the nine months ended September 30, 2021 and (ii) $2 million of net income tax benefit for discrete items, which includes: (a) $54 million of net income tax benefit associated with certain legal settlements, (b) a $46 million tax provision related to potential and recognized withholding tax on intercompany dividends, (c) an $11 million tax provision recognized for changes in uncertain tax positions, (d) an $8 million tax benefit related to a deduction for stock compensation and (e) a $3 million tax provision associated with filing certain tax returns. Benefit from income taxes for the nine months ended September 30, 2020 was $133 million and included: (i) $105 million of net income tax benefit for discrete items, which includes: (a) $63 million in net tax benefits related to the release of a valuation allowance, (b) $36 million in tax benefits associated with law changes in the United States, (c) $10 million in tax benefits recognized for changes in uncertain tax positions, (d) a $7 million tax benefit related to a deduction for stock compensation and (e) $11 million of net tax expense associated with filing certain tax returns and (ii) $28 million of income tax benefit for the Company's ordinary loss for the nine months ended September 30, 2020. The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made except that, as a result of the 2018 adoption of guidance regarding intra-entity transfers, any change in valuation allowance surrounding the adoption of the intra-entity transfer resulting from this adoption was recorded within equity. The valuation allowance against deferred tax assets was $2,218 million and $2,252 million as of September 30, 2021 and December 31, 2020, respectively. The decrease was primarily due to changes in uncertain tax positions. The Company will continue to assess the need for a valuation allowance on a go-forward basis. On October 8, 2021, the Organisation for Economic Co-operation and Development ("OECD")/G20 inclusive framework on Base Erosion and Profit Shifting (the "Inclusive Framework") published a statement updating and finalizing the key components of a two-pillar plan on global tax reform originally agreed on July 1, 2021, and a timetable for implementation by 2023. The Inclusive Framework plan has now been agreed to by 136 OECD members, including several countries which did not agree to the initial plan. Under pillar one, taxing rights over multinational businesses with global turnover above €20 billion and a profit margin above 10% will generally be re-allocated to permit market countries to include market countries. Under pillar two, the Inclusive Framework has agreed on a global minimum corporate tax rate of 15% for companies with revenue above €750 million, calculated on a country-by-country basis. On October 30, 2021, the G20 formally endorsed the new global minimum corporate tax rate rules. The Inclusive Framework agreement must now be implemented by the OECD Members who have agreed to the plan, effective in 2023. The Company will continue to monitor the implementation of the Inclusive Framework agreement by the countries in which we operate. While the Company is unable to predict when and how the Inclusive Framework agreement will be enacted into law in these countries, it is possible that the implementation of the Inclusive Framework agreement, including the global minimum corporate tax rate could have a material effect on the Company's liability for corporate taxes and the Company's consolidated effective tax rate. As of September 30, 2021 and December 31, 2020, the Company had $1,117 million and $1,025 million of unrecognized tax benefits, which included $53 million and $49 million of interest and penalties, respectively. Of the total unrecognized tax benefits as of September 30, 2021, $550 million would reduce the Company’s effective tax rate, if recognized. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits at September 30, 2021 could decrease by approximately $194 million in the next 12 months as a result of the resolution of certain tax audits and other events. The Company continues to be under examination by the Canada Revenue Agency. The Company’s position as of September 30, 2021 with regard to proposed audit adjustments was updated to reflect an updated assessment received for 2014 which would primarily result in a loss of tax attributes that are subject to a full valuation allowance. In 2017, the Company undertook an internal restructuring in the form of what is commonly known as a Granite Trust transaction, which resulted in a recorded capital loss (the “2017 capital loss”). In the U.S., the 2014 tax year remains open to the extent of the portion of the 2017 capital loss carried back to that year. The Internal Revenue Service ("IRS") is continuing its examination of the Company’s annual tax filings for 2015 and 2016 and the Company’s short period tax return for the period ended September 8, 2017, which was filed as a result of the Company’s internal restructuring efforts during 2017. Recently, the Company has received a notice of proposed adjustment from the IRS that would disallow the 2017 capital loss. To date, the Company has not received an assessment from the IRS but expects to receive a notice of proposed tax deficiency. The Company intends to contest any proposed tax deficiency through the IRS administrative appeals process, and if necessary, appropriate litigation. If the Company were ultimately unsuccessful in defending its position, and all or a substantial portion of the 2017 capital loss deduction were disallowed, the Company estimates, in a worst case scenario, that it could be liable for additional income taxes (excluding penalties and interest) of up to $2,100 million, which could have an adverse effect on the Company’s financial condition and results of operations. The Company intends to vigorously defend its position, including through appropriate litigation, if necessary, and ultimately believes it will sustain its deduction of the 2017 capital loss, and, accordingly, no income tax provision has been recorded. The Company's U.S. affiliates remain under examination for various state tax audits in the U.S. for years 2015 through 2018. The Company’s subsidiaries in Germany are under audit for tax years 2014 through 2016. At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company's Consolidated Financial Statements. The Company’s subsidiaries in Australia are under audit by the Australian Tax Office for various years beginning in 2011 through 2017. At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company's Consolidated Financial Statements. Certain affiliates of the Company in regions outside of Canada, the U.S., Germany and Australia are currently under examination by relevant taxing authorities, and all necessary accruals have been recorded, including uncertain tax benefits. At this time, the Company does not expect that proposed adjustments, if any, would be material to the Company's Consolidated Financial Statements.

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