Income Taxes

3 Months Ended

Mar. 31, 2020

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. As a result of the 2017 Tax Act, the Company changed its indefinite reversal assertion related to its undistributed earnings of its foreign subsidiaries and no longer considers a majority of its foreign earnings permanently reinvested outside of the United States ("U.S."). As a result, the effective tax rates in the periods presented are largely based upon the forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business.

The effective tax rate is as follows:



	Three Months Ended March 31,
In millions	2020		2019
Effective tax rate	1,300.0	%	—	%

For the three months ended March 31, 2020, a net $152 million discrete tax benefit was recorded. The Company recorded approximately $157 million of discrete tax benefit related to an intra-entity asset transfer of certain of its intellectual property ("IP") to one of its Irish subsidiaries, which occurred on January 1, 2020. The tax benefit for this intra-entity asset transfer was recorded as a deferred tax asset and represents the book and tax basis difference on the transferred assets measured based on the applicable Irish statutory tax rate. The tax deductions for amortization of the IP asset will be recognized in the future, and any amortization not deducted for tax purposes will be carried forward indefinitely under Irish tax laws. The Company expects to be able to realize the deferred tax assets resulting from these intra-entity asset transfers. This tax benefit was offset by discrete tax expense of $6 million related to equity compensation vesting. As a result of these discrete items, the Company recorded $182 million of income tax benefit on a on a pre-tax net loss of $14 million for the three months ended March 31, 2020, resulting in an effective income tax rate of 1,300.0%.

For the three months ended March 31, 2019, no material discrete tax items were recorded.

The Company estimates its annual effective tax rate for 2020 to be approximately 4,800%, which takes into consideration, among other things, the forecasted earnings mix by jurisdiction and the impact of discrete tax items described above. The 2017 Tax Act subjects U.S. shareholders to a tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The Company has elected to provide for the tax expense related to GILTI in the year the tax is incurred and does not anticipate a material impact of GILTI tax to our forecasted marginal effective tax rate for 2020.

In April 2020 we became aware of a withholding tax regulation that could be interpreted to apply to certain of our previous intra-group transactions. We are evaluating whether the interpretation of this regulation could apply to our facts and circumstances, and, upon conclusion of our analysis, we may establish a reserve related to this matter

during the second quarter of 2020. If a reserve is required, we do not expect that the exposure will be material to our results of operations, cash flows or financial position.