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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes |
Income Taxes | 11. Income Taxes The provision for income taxes was calculated based on the following components of earnings (loss) before income taxes:
Continuing operations |  | 2018 |  | 2017 |  | 2016 |
U.S. |  | $ | (100) |  | $ | (43) |  | $ | (27) |
Non-U.S. |  |  | 377 |  |  | 318 |  |  | 383 |
|  | $ | 277 |  | $ | 275 |  | $ | 356 |
Discontinued operations |  | 2018 |  | 2017 |  | 2016 |
U.S. |  | $ | — |  | $ | — |  | $ | — |
Non-U.S. |  |  | 113 |  |  | (3) |  |  | (7) |
|  | $ | 113 |  | $ | (3) |  | $ | (7) |
The provision (benefit) for income taxes consists of the following:
|  | 2018 |  | 2017 |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 8 |  | $ | (5) |  | $ | — |
Non-U.S. |  |  | 109 |  |  | 87 |  |  | 123 |
|  |  | 117 |  |  | 82 |  |  | 123 |
Deferred: |  |  |  |  |  |  |  |  |  |
U.S. |  |  | — |  |  | 6 |  |  | 3 |
Non-U.S. |  |  | (9) |  |  | (18) |  |  | (7) |
|  |  | (9) |  |  | (12) |  |  | (4) |
Total: |  |  |  |  |  |  |  |  |  |
U.S. |  |  | 8 |  |  | 1 |  |  | 3 |
Non-U.S. |  |  | 100 |  |  | 69 |  |  | 116 |
Total for continuing operations |  |  | 108 |  |  | 70 |  |  | 119 |
Total for discontinued operations |  |  | — |  |  | — |  |  | — |
|  | $ | 108 |  | $ | 70 |  | $ | 119 |
A reconciliation of the provision for income taxes based on the statutory U.S. Federal tax rate of 21% for 2018 and 35% for 2017 and 2016 to the provision for income taxes is as follows:
|  | 2018 |  | 2017 |  | 2016 |
Tax provision on pretax earnings from continuing operations at statutory U.S. Federal tax rate |  | $ | 58 |  | $ | 96 |  | $ | 124 |
Increase (decrease) in provision for income taxes due to: |  |  |  |  |  |  |  |  |  |
Non-U.S. tax rates |  |  | 25 |  |  | (29) |  |  | (22) |
Global intangible low taxed income |  |  | 32 |  |  |  |  |  |  |
U.S. Tax Cuts and Jobs Act: transition tax, net of foreign tax credits |  |  | (2) |  |  | 2 |  |  |  |
Tax law changes |  |  | 4 |  |  | 152 |  |  | (3) |
Change in valuation allowance: U.S. tax law change |  |  | (2) |  |  | (162) |  |  |  |
Change in valuation allowance: other |  |  | (18) |  |  | (283) |  |  | 3 |
Tax attribute expiration |  |  | 6 |  |  | 330 |  |  |  |
Withholding tax |  |  | 10 |  |  | 8 |  |  | 7 |
Non-deductible expenses |  |  | 4 |  |  | 9 |  |  | 20 |
U.S. tax on intercompany dividends and interest |  |  | 1 |  |  | 2 |  |  | 3 |
Tax exempt income |  |  | (2) |  |  | (3) |  |  | (2) |
Intraperiod tax allocation |  |  |  |  |  |  |  |  | (8) |
Tax credits and incentives |  |  | (23) |  |  | (37) |  |  | (19) |
Changes in tax reserves |  |  | 13 |  |  | (18) |  |  | 8 |
Mexico inflationary adjustments |  |  | 8 |  |  | 13 |  |  | 6 |
Equity earnings |  |  | (13) |  |  | (13) |  |  | (9) |
Intercompany financing |  |  | 1 |  |  | (4) |  |  | (5) |
Other taxes based on income |  |  | 7 |  |  | 10 |  |  | 11 |
Other items |  |  | (1) |  |  | (3) |  |  | 5 |
Provision for income taxes |  | $ | 108 |  | $ | 70 |  | $ | 119 |
Deferred income taxes reflect: (1) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their relevant tax basis; and (2) carryovers and credits for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2018 and 2017 are as follows:
|  | 2018 |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |
Accrued postretirement benefits |  | $ | 38 |  | $ | 44 |
Asbestos-related liabilities |  |  | 127 |  |  | 122 |
Foreign tax credit carryovers |  |  | 96 |  |  | 124 |
Operating and capital loss carryovers |  |  | 286 |  |  | 342 |
Other credit carryovers |  |  | 18 |  |  | 17 |
Accrued liabilities |  |  | 65 |  |  | 69 |
Pension liabilities |  |  | 92 |  |  | 77 |
Other |  |  | 57 |  |  | 41 |
Total deferred tax assets |  |  | 779 |  |  | 836 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property, plant and equipment |  |  | 97 |  |  | 101 |
Intangibles and deferred software |  |  | 92 |  |  | 97 |
Total deferred tax liabilities |  |  | 189 |  |  | 198 |
Valuation allowance |  |  | (495) |  |  | (543) |
Net deferred taxes |  | $ | 95 |  | $ | 95 |
Deferred taxes are included in the Consolidated Balance Sheets at December 31, 2018 and 2017 as follows:
|  | 2018 |  | 2017 |
Other assets |  | $ | 191 |  | $ | 194 |
Deferred taxes |  |  | (96) |  |  | (99) |
Net deferred taxes |  | $ | 95 |  | $ | 95 |
The deferred tax benefit associated with the reduction in the valuation allowance of $48 million was primarily allocated $41 million to income from continuing operations due to the primacy of continuing operations, changes in tax law and expiration of certain tax attribute carryovers, and $7 million to other comprehensive income. Deferred tax assets and liabilities are determined separately for each tax jurisdiction on a separate or on a consolidated tax filing basis, as applicable, in which the Company conducts its operations or otherwise incurs taxable income or losses. A valuation allowance is recorded when it is more likely than not that some portion or all of the gross deferred tax assets will not be realized. The realization of deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets:
| · |  | taxable income in prior carryback years;
| · |  | future reversals of existing taxable temporary differences;
| · |  | future taxable income exclusive of reversing temporary differences and carryforwards; and
| · |  | prudent and feasible tax planning strategies that the Company would be willing to undertake to prevent a deferred tax asset from otherwise expiring.
The assessment regarding whether a valuation allowance is required or whether a change in judgment regarding the valuation allowance has occurred also considers all available positive and negative evidence, including but not limited to:
| · |  | nature, frequency, and severity of cumulative losses in recent years;
| · |  | duration of statutory carryforward and carryback periods;
| · |  | statutory limitations against utilization of tax attribute carryforwards against taxable income;
| · |  | historical experience with tax attributes expiring unused; and
| · |  | near‑ and medium‑term financial outlook.
The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accordingly, it is generally difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. The Company uses the actual results for the last two years and current year results as the primary measure of cumulative losses in recent years. The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events recognized in the financial statements or tax returns and future profitability. The recognition of deferred tax assets represents the Company’s best estimate of those future events. Changes in the current estimates, due to unanticipated events or otherwise, could have a material effect on the Company’s results of operations and financial condition. In certain tax jurisdictions, the Company’s analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence which is objective and verifiable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative and, accordingly, the Company considers all other available positive and negative evidence in its analysis. Based on its analysis, the Company has recorded a valuation allowance for the portion of deferred tax assets where based on the weight of available evidence it is unlikely to realize those deferred tax assets. Based on the evidence available including a lack of sustainable earnings, the Company in its judgment previously recorded a valuation allowance against substantially all of its net deferred tax assets in the United States. If a change in judgment regarding this valuation allowance were to occur in the future, the Company will record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period. The U.S. Tax Cuts and Jobs Act (“Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate to 21% from 35%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. In 2017 and the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB 118 because the Company had not yet completed its enactment-date accounting for these effects. At December 31, 2018, the Company has now completed its accounting for all of the enactment-date income tax effects of the Act. At December 31, 2017, the Company originally recorded a provisional amount for its one-time transition tax of $331 million, which was expected to be substantially offset by available foreign tax credits resulting in a provisional net tax expense of $2 million, primarily attributable to state taxes. Upon further analyses of certain aspects of the Act and refinement of its calculations during 2018, the Company decreased its provisional amount of transition tax by $17 million, to $314 million. This resulted in no change to U.S. federal income tax expense due to the impact of foreign tax credits. In addition, the provisional net tax expense, which was estimated at approximately $2 million, primarily attributable to state taxes, was substantially eliminated. The Company recognized this favorable adjustment of $2 million as a component of income tax expense from continuing operations. As of December 31, 2017, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21%) and based on the expected future benefit to be realized as a result of changes to the tax base provided in the Act. The Company recorded a provisional net tax charge of $162 million related to the remeasurement of net deferred tax assets, which was fully offset by an adjustment to valuation allowance. Upon further analysis of certain aspects of the Act and refinement of its calculations during 2018, the Company adjusted its provisional amount by $2 million, which is fully offset by an adjustment to valuation allowance. Additionally, as of December 31, 2017, the Company recorded a provisional deferred tax benefit of $11 million for the reduction of a deferred tax liability related to an indefinite lived intangible asset. No adjustment was made to this provisional amount. At December 31, 2018, before valuation allowance, the Company had unused foreign tax credits of $96 million expiring in 2020 through 2027 and research tax credits of $17 million expiring from 2019 to 2037. Approximately $146 million of the deferred tax assets related to operating and capital loss carryforwards can be carried over indefinitely, with the remaining $140 million expiring between 2019 and 2038. Approximately $14 million of other deferred tax assets are related to interest carryforwards that can be carried over indefinitely. As a result of the Act, in 2018, the Company has had a change in judgement regarding the gross book-tax basis differences in its non-U.S. consolidated subsidiaries. Since a majority of the pre-2018 non-U.S. earnings (net of losses) were substantially taxed under the Act, distributions of those net earnings no longer attract significant U.S. income taxes except for any associated currency gains. Therefore, the Company does not assert that these net earnings (to the extent of foreign distributable reserves) and any associated gross book-tax basis differences, if any, are indefinitely reinvested. For all remaining gross book-tax basis differences in its non-U.S. consolidated subsidiaries, the Company maintains its assertion that it intends these to be indefinitely reinvested. The Company also records deferred foreign taxes on gross book-tax basis differences to the extent of foreign distributable reserves for certain foreign subsidiaries. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings is not practicable. The Company records a liability for unrecognized tax benefits related to uncertain tax positions. The Company accrues interest and penalties associated with unrecognized tax benefits as a component of its income tax expense. The following is a reconciliation of the Company’s total gross unrecognized tax benefits for the years ended December 31, 2018, 2017, and 2016:
|  | 2018 |  | 2017 |  | 2016 |
Balance at January 1 |  | $ | 79 |  | $ | 74 |  | $ | 74 |
Additions and reductions for tax positions of prior years |  |  | (4) |  |  | 1 |  |  |  |
Additions based on tax positions related to the current year |  |  | 15 |  |  | 17 |  |  | 15 |
Reductions due to the lapse of the applicable statute of limitations |  |  |  |  |  | (7) |  |  | (3) |
Reductions due to settlements |  |  |  |  |  | (9) |  |  | (12) |
Foreign currency translation |  |  | (3) |  |  | 3 |  |  |  |
Balance at December 31 |  | $ | 87 |  | $ | 79 |  | $ | 74 |
Unrecognized tax benefits, which if recognized, would impact the Company’s effective income tax rate |  | $ | 78 |  | $ | 72 |  | $ | 66 |
Accrued interest and penalties at December 31 |  | $ | 10 |  | $ | 8 |  | $ | 23 |
Interest and penalties included in tax expense for the years ended December 31 |  | $ | 2 |  | $ | (15) |  | $ | (2) |
Based upon the outcome of tax examinations, judicial proceedings, or expiration of statute of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. The Company believes that it is reasonably possible that the estimated liability could decrease up to $8 million within the next 12 months. This is primarily the result of anticipated audit settlements or statute expirations in several taxing jurisdictions. The Company is currently under income tax examination in various tax jurisdictions in which it operates, including Bolivia, Brazil, Canada, Colombia, France, Germany, Indonesia and Italy. The years under examination range from 2004 through 2017. The Company has received tax assessments in excess of established reserves. The Company is contesting these tax assessments, and will continue to do so, including pursuing all available remedies such as appeals and litigation, if necessary. The Company believes that adequate provisions for all income tax uncertainties have been made. However, if tax assessments are settled against the Company at amounts in excess of established reserves, it could have a material impact to the Company’s results of operations, financial position or cash flows. During 2018, the Company concluded income tax audits in several jurisdictions, including Czech Republic, France, Germany and Indonesia.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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