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INCOME TAXES | 9 Months Ended
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Sep. 30, 2023
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. Provision for income taxes for the nine months ended September 30, 2023 was $181 million and included: (i) $90 million of income tax provision for the Company’s ordinary loss for the nine months ended September 30, 2023 and (ii) $91 million of net income tax provision for discrete items, which includes: (a) $41 million of net income tax expense related to final and potential settlements of various tax audits in the nine months ended September 30, 2023, (b) $27 million of income tax expense related to changes in uncertain tax positions, (c) $18 million of income tax expense associated with the establishment of a valuation allowance against deferred tax assets of B+L’s Canadian parent and (d) $7 million of income tax expense associated with stock compensation. Provision for income taxes for the nine months ended September 30, 2022 was $30 million and included: (i) $42 million of income tax expense for the Company’s ordinary income for the nine months ended September 30, 2022 and (ii) $9 million of net income tax benefit for discrete items, which includes: (a) $37 million of net income tax benefit recognized for changes in uncertain tax positions, (b) a $22 million tax provision associated with filing certain tax returns and (c) a $5 million tax provision associated with stock compensation. 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. The valuation allowance against deferred tax assets was approximately $2,200 million as of September 30, 2023 and December 31, 2022. The Company will continue to assess the need for valuation allowances on an ongoing basis. As of September 30, 2023 and December 31, 2022, the Company had $924 million and $881 million, respectively, of unrecognized tax benefits, which included $48 million and $32 million of interest and penalties, respectively. Of the total unrecognized tax benefits as of September 30, 2023, $409 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, 2023 could decrease by approximately $4 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 (“CRA”). In the first quarter of 2023, the Company recorded income tax expense related to prior year withholding tax returns. During October 2023, the Company received a notice of proposed adjustment for the 2017-2018 taxation years from the CRA associated with its Canadian distribution entity. The Company believes its current reserves are adequate for the eventual resolution of this notice. On April 19, 2021, the Canadian federal government delivered its 2021 budget which contained proposed measures related to limitations on interest deductibility and changes in relation to international taxation. Draft legislative proposals pertaining to interest deductibility were initially released for public comment on February 4, 2022, with revised legislative proposals subsequently released on November 3, 2022. On August 4, 2023, the Canadian Department of Finance released an updated version of the draft legislation to implement the excessive interest and financing expenses limitation (EIFEL) rules. For tax years beginning after October 1, 2023, new rules on interest deductibility will be effective. The rules are not expected to have a material adverse impact on the Company’s consolidated effective tax rate or financial results in future years. This legislation does not change the Company’s position that its tax carryforwards in Canada are not expected to be realized. The Internal Revenue Service (the “IRS”) previously 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 previously contested this proposed tax deficiency through the IRS administrative appeals process and if necessary, intends to continue to contest any proposed tax deficiency through appropriate litigation. Accordingly, no income tax provision had 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 reached a tentative settlement on the 2017 Capital Loss. This tentative settlement is subject to further review and approvals before it is finalized. In anticipation of the finalization of this settlement agreement the Company recorded an estimate for the impact of the settlement during the first quarter of 2023. The Company’s U.S. affiliates remain under examination for various state tax audits in the U.S. for years 2015 through 2022. The Company’s subsidiaries in Germany are under audit for tax years 2014 through 2019. During the three months ended September 30, 2023, the Company received a preliminary assessment from the German taxing authority that would disallow certain transfer pricing adjustments. The Company intends to contest this alleged tax deficiency through the appropriate appeals process, and if necessary, intends to continue to contest any alleged tax deficiency through appropriate litigation. Accordingly, no income tax provision has been recorded as of September 30, 2023. On November 8, 2022 the Company’s affiliate in the Netherlands received an assessment from the Luxembourg Tax Authorities as successor in interest to its affiliate in Luxembourg for tax years 2018 – 2019 for €272 million. The Company is vigorously defending its position and has not recorded any reserves for this assessment. Certain affiliates of the Company in regions outside of Canada, the U.S., Germany and Luxembourg 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 Condensed Consolidated Financial Statements.

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