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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of Loss before income taxes for 2022, 2021 and 2020 consist of:
(in millions) |  | 2022 |  | 2021 |  | 2020
Domestic |  | $ | 64 |  |  | $ | (323) |  |  | $ | (410) |
Foreign |  | (193) |  |  | (701) |  |  | (524) |
|  | $ | (129) |  |  | $ | (1,024) |  |  | $ | (934) |
The components of (Provision for) benefit from income taxes for 2022, 2021 and 2020 consist of:
(in millions) |  | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |  |
Domestic |  | $ | (15) |  |  | $ | (23) |  |  | $ | (8) |
Foreign |  | (256) |  |  | 74 |  |  | (216) |
|  | (271) |  |  | 51 |  |  | (224) |
Deferred: |  |  |  |  |  |
Domestic |  | 14 |  |  | 20 |  |  | 9 |
Foreign |  | 174 |  |  | 16 |  |  | 590 |
|  | 188 |  |  | 36 |  |  | 599 |
|  | $ | (83) |  |  | $ | 87 |  |  | $ | 375 |
The (Provision for) benefit from income taxes differs from the expected amount calculated by applying the Company’s Canadian statutory rate of 26.9% to Loss before income taxes for 2022, 2021 and 2020 as follows:
(in millions) |  | 2022 |  | 2021 |  | 2020
Loss before income taxes |  | $ | (129) |  |  | $ | (1,024) |  |  | $ | (934) |
(Provision for) benefit from income taxes |  |  |  |  |  |
Expected benefit from income taxes at Canadian statutory rate |  | $ | 35 |  |  | $ | 275 |  |  | $ | 251 |
Non-deductible amount of share-based compensation |  | (19) |  |  | (9) |  |  | (9) |
Adjustments to tax attributes |  | 53 |  |  | (59) |  |  | 26 |
Change in valuation allowance related to foreign tax credits and NOLs |  | 100 |  |  | 28 |  |  | 62 |
Change in valuation allowance on Canadian deferred tax assets and tax rate changes |  | 24 |  |  | 40 |  |  | 687 |
Change in uncertain tax positions |  | (50) |  |  | 112 |  |  | (163) |
Foreign tax rate differences |  | (57) |  |  | (198) |  |  | (128) |
Non-deductible portion of Goodwill impairments |  | (175) |  |  | (99) |  |  | — |
Tax benefit on intra-entity transfers |  | — |  |  | — |  |  | (338) |
Other |  | 6 |  |  | (3) |  |  | (13) |
|  | $ | (83) |  |  | $ | 87 |  |  | $ | 375 |
Other consists of immaterial adjustments affecting the tax provision such as those related to the filing of tax returns. Deferred tax assets and liabilities as of December 31, 2022 and 2021 consist of:
(in millions) |  | 2022 |  | 2021
Deferred tax assets: |  |  |  |
Tax loss carryforwards |  | $ | 2,872 |  |  | $ | 2,973 |
Provisions |  | 859 |  |  | 991 |
Debt discounts and deferred financing costs |  | 370 |  |  | — |
Research and development tax credits |  | 140 |  |  | 173 |
Scientific Research and Experimental Development pool |  | 48 |  |  | 52 |
Tax credit carryforwards |  | 14 |  |  | 14 |
Deferred revenue |  | 2 |  |  | 3 |
Prepaid expenses |  | 26 |  |  | 26 |
Share-based compensation |  | 22 |  |  | 17 |
Other |  | 24 |  |  | 38 |
Total deferred tax assets |  | 4,377 |  |  | 4,287 |
Less valuation allowance |  | (2,023) |  |  | (2,222) |
Deferred tax assets net of valuation allowance |  | 2,354 |  |  | 2,065 |
Deferred tax liabilities: |  |  |  |
Intangible assets |  | 191 |  |  | 188 |
Plant, equipment and technology |  | 74 |  |  | 44 |
Outside basis differences |  | 125 |  |  | 110 |
Total deferred tax liabilities |  | 390 |  |  | 342 |
Net deferred tax asset |  | $ | 1,964 |  |  | $ | 1,723 |
The following table presents a reconciliation of the deferred tax asset valuation allowance for 2022, 2021 and 2020:
(in millions) |  | 2022 |  | 2021 |  | 2020
Balance, beginning of year |  | $ | 2,222 |  |  | $ | 2,252 |  |  | $ | 2,831 |
Charged to Benefit from income taxes |  | (124) |  |  | (63) |  |  | (773) |
Charged to other accounts |  | (75) |  |  | 33 |  |  | 194 |
Balance, end of year |  | $ | 2,023 |  |  | $ | 2,222 |  |  | $ | 2,252 |
The Company’s U.S. interest expense is subject to limitation rules which limit U.S. interest expense to 30% of adjusted taxable income, defined similar to EBITDA through 2021 and EBIT thereafter. Disallowed interest can be carried forward indefinitely and any unused interest deduction assessed for recoverability. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act also amended the annual limitation on the deduction of interest in the following respects: (i) increasing the limitation to 50% of adjusted taxable income (“ATI”), (ii) providing a rule for a partnership’s 2019 section 163(j)-disallowed interest expense and (iii) allowing an election to apply 2019 ATI to the 2020 section 163(j) computation. For corporations, the increase to 50% of ATI applies to all taxable years beginning in 2019 or 2020 and permits taxpayers whose 2020 income will decrease from its 2019 level, an election to apply their 2019 ATI, rather than their 2020 ATI, to their 2020 computation. The Company considered such provisions and expects to fully utilize any interest carry forwards in future periods. The Company has provided for income taxes in accordance with guidance issued by accounting regulatory bodies, the U.S. Internal Revenue Service and state and local governments through the date of the issuance of these Consolidated Financial Statements. Additional guidance and interpretations can be expected and such guidance, if any, could impact future results. While management continues to monitor these matters, the ultimate impact, if any, as a result of the application of any guidance issued in the future cannot be determined at this time. The realization of deferred tax assets is dependent on the Company generating sufficient domestic and foreign taxable income in the years that the temporary differences become deductible. A valuation allowance has been provided for the portion of the deferred tax assets that the Company determined is more likely than not to remain unrealized based on estimated future taxable income and tax planning strategies. In 2022, the valuation allowance decreased $199 million primarily due to book taxable income in Canada and the expiration of tax losses in the United States. In 2021, the valuation allowance decreased by $30 million primarily due to book taxable income in Canada, the change in deferred tax assets in Canada and the use of deferred tax assets in the U.S. in connection with internal restructurings. As of December 31, 2022 and 2021, the Company had accumulated taxable losses available to offset future years’ federal and provincial taxable income in Canada of approximately $5,878 million and $6,669 million, respectively. As of December 31, 2022 and 2021, unclaimed ITCs available to offset future federal taxes in Canada were approximately $27 million and $31 million, respectively, which expire in the years 2023 through 2043. In addition, as of December 31, 2022 and 2021, pooled SR&ED expenditures available to offset against future taxable income in Canada were approximately $188 million and $196 million, respectively, which may be carried forward indefinitely. As of December 31, 2022 and 2021, a full valuation allowance against the net Canadian deferred tax assets on the parent company has been provided of $1,869 million and $1,965 million, respectively. As of December 31, 2022 and 2021, the Company had accumulated taxable losses available to offset future years’ federal taxable income in the U.S. of approximately $241 million and $266 million, respectively, including acquired losses which expire in the years 2023 through 2033. While the remaining taxable losses are subject to multiple annual loss limitations as a result of previous ownership changes, the Company believes that the recoverability of the deferred tax assets associated with these taxable losses are more likely than not to be realized. As of December 31, 2022 and 2021 U.S. research and development credits available to offset future years’ federal income taxes in the U.S. were approximately $75 million and $119 million, respectively, which includes acquired research and development credits and which expire in the years 2023 through 2042. As of December 31, 2022 and 2021, the Company had accumulated taxable losses available to offset future years’ taxable income in Ireland of approximately $10,691 million and $10,040 million, respectively. As of December 31, 2022, the Company continues to have a capital loss which is offset by a valuation allowance on the portion of the loss for which a benefit is not expected to be realized. The Company provides for income taxes on the unremitted earnings of its direct foreign affiliates except for its direct U.S. subsidiaries. The Company continues to assert that the unremitted earnings of its U.S. subsidiaries will be permanently reinvested and not repatriated. As of December 31, 2022, the Company estimates that there will be no tax liability attributable to unremitted earnings of its U.S. subsidiaries. However, future distributions could be subject to U.S. withholding tax. As of December 31, 2022 and 2021, unrecognized tax benefits (including interest and penalties) were $881 million and $927 million, of which $384 million and $217 million would affect the effective income tax rate, respectively. In 2022 and 2021, the remaining unrecognized tax benefits would not impact the effective tax rate as the tax positions are offset against existing tax attributes or are timing in nature. In 2022 and 2021, the Company recognized net increases to unrecognized tax benefits for current year tax positions of $156 million and $79 million, respectively. The Company recognized a net reduction of $203 million during 2022 and a net reduction of $177 million during 2021 in the unrecognized tax benefits related to tax positions taken in the prior years. The Company provides for interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2022 and 2021, accrued interest and penalties related to unrecognized tax benefits were approximately $32 million and $41 million, respectively. In 2022, the Company recognized a net decrease of approximately $9 million and, in 2021, recognized an increase of $8 million of interest and penalties, respectively. The Company and one or more of its subsidiaries file federal income tax returns in Canada, the U.S., and other foreign jurisdictions, as well as various provinces and states in Canada and the U.S. The Company and its subsidiaries have open tax years, primarily from 2013 to 2021, with significant taxing jurisdictions, respectively, including Canada and the U.S. These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations and tax treaties, as they relate to the amount, timing, or inclusion of revenues and expenses, or the sustainability of income tax positions of the Company and its subsidiaries. Certain of these tax years are expected to remain open indefinitely.
Jurisdiction: |  | Open Years
United States - Federal |  | 2015 - 2021
Canada |  | 2012 - 2021
Germany |  | 2014 - 2021
France |  | 2013 - 2021
Ireland |  | 2018 - 2021
Australia |  | 2018 - 2021
Luxembourg |  | 2017 - 2021
The Internal Revenue Service (the “IRS”) completed its examinations of the Company’s U.S. consolidated federal income tax returns for the years 2013 and 2014. There were no material adjustments to the Company’s taxable income as a result of these examinations. However, the 2014 tax year remains open to the extent of a 2017 capital loss carried back to that year. The Company’s annual tax filings for 2015 and 2016 and 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 is currently under IRS examination. As part of its examination, the Company received a notice of proposed adjustment from the IRS that would disallow the 2017 Capital Loss resulting from its internal restructuring. The Company has contested this proposed tax deficiency through the IRS administrative appeals process, and if necessary, will continue to contest any proposed tax deficiency through appropriate litigation. Accordingly, no income tax provision has been recorded as of December 31, 2022. 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. In January 2023, as part of an alternative dispute resolution process with the IRS, the Company has reached a tentative settlement on the 2017 Capital Loss. This tentative settlement is subject to further review and approvals before it is finalized. The Company expects that the tentative settlement, if finalized without further modification, will affect the Company’s 2023 income tax provision, and while such settlement may be material to the Company’s results of operations or cash flows in the quarter in which it is recorded, will not be material to its results of operations or cash flows for the year ended December 31, 2023. The Company is currently under examination by the Canada Revenue Agency (“CRA”) for three separate cycles: (a) years 2012 through 2013 (b) years 2014 through 2015, and (c) years 2016 through 2017. The Company believes that the CRA will open an audit cycle for the years 2018 – 2019 in 2023. The Company settled the tax years from 2005 through 2009 with the CRA. The Company had previously filed a Notice of Objection related to the assessment of these years and reduced net operating losses with a full valuation allowance by CAD 44 million to close these years. The adjustment did not result in a material change to the provision for income taxes. The CRA audits of the 2010 and 2011 tax years were closed in 2016 and resulted in no material adjustments. The Company received an assessment for certain transfer pricing matters in 2012 and 2013 for CAD 85 million and CAD 90 million, respectively. The Company disagrees with the adjustments and has filed a Notice of Objection for 2012 and 2013. The Company settled certain transfer pricing matters relating the 2015 and 2016 tax years resulting in a reduction to its NOLs of approximately CAD 21 million for 2015 and CAD 23 million for 2016. The adjustments for 2015 and 2016 will reduce NOLs currently offset by a full valuation allowance. 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. On November 8, 2022 the Company’s affiliate in Netherlands received an assessment from the Luxembourg Tax Authorities as successor in interest to its affiliate in Luxembourg for tax years 2018 – 2019 for €271.7 million. The Company is vigorously defending its position and no reserves have been recorded. The Company’s subsidiaries in Australia were under audit by the Australian Tax Office for various years beginning in 2010. On August 8, 2017, the Australian Taxation Office (“ATO”) issued a notice of assessment for the tax years 2011 through 2017 in the aggregate amount of $117 million, which includes penalties and interest. On April 13, 2022, the Company and the ATO entered into a settlement agreement resulting in an immaterial income tax provision. The Company’s U.S. affiliates remain under examination for various state tax audits in the U.S. for years 2015 through 2021. Certain affiliates of the Company in regions outside of Canada, the U.S., Germany, Luxembourg 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. The following table presents a reconciliation of the unrecognized tax benefits for 2022, 2021 and 2020:
(in millions) |  | 2022 |  | 2021 |  | 2020
Balance, beginning of year |  | $ | 927 |  |  | $ | 1,025 |  |  | $ | 1,002 |
Additions based on tax positions related to the current year |  | 156 |  |  | 79 |  |  | 66 |
Additions for tax positions of prior years |  | 10 |  |  | 121 |  |  | 171 |
Reductions for tax positions of prior years |  | (127) |  |  | (129) |  |  | (209) |
Lapse of statute of limitations |  | (85) |  |  | (169) |  |  | (5) |
Balance, end of year |  | $ | 881 |  |  | $ | 927 |  |  | $ | 1,025 |
The Company believes it is reasonably possible that the total amount of unrecognized tax benefits at December 31, 2022 could decrease by approximately $4 million in the next twelve months as a result of the resolution of certain tax and transfer pricing audits and other events.

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