XML 35 R20.htm IDEA: XBRL DOCUMENT
v3.20.4

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 11. Income Taxes A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:
(in millions) |  | Unrecognised Tax Benefits |  |  | Interest and Penalties |  |  | Total |
Opening balance at January 1, 2018 |  | $ | 2.2 |  |  | $ | 0.3 |  |  | $ | 2.5 |
Additions for tax positions of prior periods |  |  | 11.7 |  |  |  | 0.4 |  |  |  | 12.1 |
Reductions due to lapsed statute of limitations |  |  | (0.5 | ) |  |  | (0.1 | ) |  |  | (0.6 | )
Closing balance at 31 December, 2018 |  |  | 13.4 |  |  |  | 0.6 |  |  |  | 14.0 |
Current |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Non-current |  | $ | 13.4 |  |  | $ | 0.6 |  |  | $ | 14.0 |
Opening balance at January 1, 2019 |  | $ | 13.4 |  |  | $ | 0.6 |  |  | $ | 14.0 |
Additions for tax positions of prior periods |  |  | 1.0 |  |  |  | 1.4 |  |  |  | 2.4 |
Closing balance at 31 December, 2019 |  |  | 14.4 |  |  |  | 2.0 |  |  |  | 16.4 |
Current |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Non-current |  | $ | 14.4 |  |  | $ | 2.0 |  |  | $ | 16.4 |
Opening balance at January 1, 2020 |  | $ | 14.4 |  |  | $ | 2.0 |  |  | $ | 16.4 |
Reductions for tax positions of prior periods |  |  | (1.2 | ) |  |  | (0.2 | ) |  |  | (1.4 | )
Additions for tax positions of prior periods |  |  | 0.4 |  |  |  | 0.6 |  |  |  | 1.0 |
Closing balance at 31 December, 2020 |  |  | 13.6 |  |  |  | 2.4 |  |  |  | 16.0 |
Current |  |  | 0.0 |  |  |  | 0.0 |  |  |  | 0.0 |
Non-current |  | $ | 13.6 |  |  | $ | 2.4 |  |  | $ | 16.0 |
All of the $16.0 million of unrecognised tax benefits would impact our effective tax rate if recognised. As previously disclosed, a non-US subsidiary, Innospec Performance Chemicals Italia Srl , is subject to an ongoing tax audit in relation to the period 2011 to 2014 inclusive. The Company has determined that additional tax, interest and penalties totaling $3.4 million may arise as a consequence of the tax audit. This includes a reduction in interest accrued of $0.2 million and an increase for foreign exchange movements of $0.2 million recorded during 2020. As any additional tax arising as a consequence of the tax audit would be reimbursed by the previous owner under the terms of the sale and purchase agreement, an indemnification asset of the same amount is recorded in the financial statements to reflect this arrangement. As previously disclosed, in 2018 the Company recorded an unrecognized tax benefit in relation to a potential adjustment that could arise as a consequence of the Tax Act, but for which retrospective adjustment to the filed 2017 U.S. federal income tax returns was not permissible. The Company has determined that additional tax, interest and penalties totaling $12.4 million may arise in relation to this item. This includes an increase in interest accrued of $0.7 million during 2020. As previously disclosed, in 2015 the Company recorded an unrecognized tax benefit of $1.2 million in relation to additional tax that could have arisen if a historical impairment in value of certain of the Company’s non-U.S. subsidiaries was reversed upon challenge by the tax authorities. During 2020, the Company released the provision of $1.2 million in full, together with accrued interest of $0.2 million thereon, following a review of the value of the Company’s investments that confirmed the historical impairment in value undertaken in 2005 was appropriate. Other non-significant items, inclusive of interest and penalties, total $0.2 million. The Company and its U.S. subsidiaries remain open to examination by the IRS for years 2017 onwards under the statute of limitations. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Spain (2016 onwards), France (2017 onwards), Germany (2018 onwards), Switzerland (2018 onwards) and the U.K. (2018 onwards). The sources of income before income taxes were as follows:
(in millions) |  | 2020 |  |  | 2019 |  |  | 2018 |
Domestic |  | $ | (0.7 | ) |  | $ | 52.4 |  |  | $ | 37.1 |
Foreign |  |  | 40.4 |  |  |  | 98.0 |  |  |  | 94.5 |
|  | $ | 39.7 |  |  | $ | 150.4 |  |  | $ | 131.6 |
The components of income tax expense are summarized as follows:
(in millions) |  | 2020 |  |  | 2019 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 6.1 |  |  | $ | 13.8 |  |  | $ | 12.5 |
State and local |  |  | 0.5 |  |  |  | 2.3 |  |  |  | 2.0 |
Foreign |  |  | 6.8 |  |  |  | 22.9 |  |  |  | 26.6 |
|  |  | 13.4 |  |  |  | 39.0 |  |  |  | 41.1 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (2.8 | ) |  |  | (3.0 | ) |  |  | 4.2 |
State and local |  |  | (0.4 | ) |  |  | (0.5 | ) |  |  | 0.3 |
Foreign |  |  | 0.8 |  |  |  | 2.7 |  |  |  | 1.0 |
|  |  | (2.4 | ) |  |  | (0.8 | ) |  |  | 5.5 |
|  | $ | 11.0 |  |  | $ | 38.2 |  |  | $ | 46.6 |
Cash payments for income taxes were $23.4 million, $37.6 million and $35.4 million during 2020, 2019 and 2018, respectively. The effective tax rate varies from the U.S. federal statutory rate because of the factors indicated below:
(in percent) |  | 2020 |  |  | 2019 |  |  | 2018 |
Statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
Foreign income inclusions |  |  | 7.1 |  |  |  | 0.3 |  |  |  | 0.7 |
Foreign tax rate differential |  |  | 4.2 |  |  |  | (0.3 | ) |  |  | (0.8 | )
Tax charge/(credit) from previous years |  |  | 3.7 |  |  |  | 1.8 |  |  |  | 0.7 |
Net charge/(credit) from unrecognized tax benefits |  |  | (1.7 | ) |  |  | 1.1 |  |  |  | 0.3 |
Foreign currency transactions |  |  | (4.5 | ) |  |  | (1.0 | ) |  |  | 1.2 |
Effect of U.S. tax law change |  |  | 0.0 |  |  |  | 0.6 |  |  |  | 9.3 |
Tax on unremitted earnings |  |  | 0.3 |  |  |  | (0.1 | ) |  |  | 0.9 |
Non-deductible foreign interest |  |  | 0.7 |  |  |  | 0.8 |  |  |  | 1.3 |
Change in UK statutory tax rate |  |  | 6.9 |  |  |  | 0.0 |  |  |  | 0.0 |
State and local taxes |  |  | 1.5 |  |  |  | 1.4 |  |  |  | 1.2 |
US incentive for foreign derived intangible income |  |  | (1.5 | ) |  |  | (0.5 | ) |  |  | (1.0 | )
Innovation incentives – current year |  |  | (4.9 | ) |  |  | (0.6 | ) |  |  | (0.6 | )
Innovation incentives – prior years |  |  | (5.3 | ) |  |  | 0.0 |  |  |  | 0.0 |
Non-deductible officer compensation |  |  | 1.8 |  |  |  | 0.2 |  |  |  | 0.4 |
Other items and adjustments, net |  |  | (1.6 | ) |  |  | 0.7 |  |  |  | 0.8 |
|  |  | 27.7 | % |  |  | 25.4 | % |  |  | 35.4 | %
The mix of taxable profits generated in the different geographical jurisdictions in which the Group operates continues to have a significant impact on the effective tax rate. In 2020, a significant proportion of the Group’s profits were generated by non-U.S. subsidiaries located in higher tax jurisdictions, which negatively impacted on the tax rate. Foreign income inclusions arise each year from certain types of income earned overseas being taxable under U.S. tax regulations. Foreign tax credits can fully or partially offset these incremental U.S. taxes from foreign income inclusions. The utilization of foreign tax credits varies year on year as this is dependent on a number of variable factors which are difficult to predict and may prevent offset. The effective tax rate is negatively impacted by the net impact of foreign inclusions post foreign tax credit usage in 2020. The 2020 effective tax rate was negatively impacted by the change in tax estimates for 2019 when compared to finalized positions as determined for the purpose of filing tax returns. An increase in the enacted income tax rate in the UK on the Company’s deferred tax liabilities, which increased the 2020 tax charge by $2.7 million, had a negative impact on the effective tax rate. The effective tax was also positively impacted by increased claims for innovation reliefs in the UK and the US. This reduced the tax charge in 2020 by $4.0 million. As a consequence of the Company having operations outside of the U.S., it is exposed to foreign currency fluctuations. These have a positive effect on the effective tax rate in 2020. Other items do not have a material impact on the effective tax rate. Details of deferred tax assets and liabilities are analyzed as follows:
(in millions) |  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Stock compensation |  | $ | 5.3 |  |  | $ | 6.7 |
Net operating loss carry forwards |  |  | 9.8 |  |  |  | 7.3 |
Other intangible assets |  |  | 10.6 |  |  |  | 6.0 |
Accretion expense |  |  | 3.2 |  |  |  | 3.3 |
Restructuring provision |  |  | 1.4 |  |  |  | 0.0 |
Foreign tax credits |  |  | 2.0 |  |  |  | 3.6 |
Operating lease liabilities |  |  | 9.2 |  |  |  | 7.4 |
Other |  |  | 6.9 |  |  |  | 5.9 |
Subtotal |  |  | 48.4 |  |  |  | 40.2 |
Less valuation allowance |  |  | (1.1 | ) |  |  | (0.8 | )
Total net deferred tax assets |  | $ | 47.3 |  |  | $ | 39.4 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Property, plant and equipment |  | $ | (21.3 | ) |  | $ | (19.5 | )
Intangible assets including goodwill |  |  | (28.3 | ) |  |  | (28.1 | )
Pension asset |  |  | (20.5 | ) |  |  | (18.2 | )
Investment impairment recapture |  |  | 0.0 |  |  |  | (1.0 | )
Customer relationships |  |  | (4.4 | ) |  |  | (4.2 | )
Unremitted overseas earnings |  |  | (2.0 | ) |  |  | (1.0 | )
Right-of-use assets |  |  | (9.2 | ) |  |  | (7.4 | )
Other |  |  | (0.9 | ) |  |  | (0.5 | )
Total deferred tax liabilities |  | $ | (86.6 | ) |  | $ | (79.9 | )
Net deferred tax liability |  | $ | (39.3 | ) |  | $ | (40.5 | )
Deferred tax assets |  | $ | 7.6 |  |  | $ | 9.1 |
Deferred tax liabilities |  |  | (46.9 | ) |  |  | (49.6 | )
|  | $ | (39.3 | ) |  | $ | (40.5 | )
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative losses incurred in certain jurisdictions over the three-year period ended December 31, 2020. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2020, a valuation allowance of $1.1 million has been recorded to recognise only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carry forward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. Gross net operating loss carry forwards of $67.1 million result in a deferred tax asset of $8.7 million, net of valuation allowances. The net operating loss carry forwards arose in the U.S. and in five of the Company’s foreign subsidiaries. Net operating loss carry forwards of $36.5 million arose in the U.S. It is expected that sufficient taxable profits will be generated in the U.S. against which $10.7 million of State net operating loss carry forwards can be relieved before their expiration in the period 2031 to 2040. The remaining U.S. State net operating losses and all U.S. Federal net operating losses can be carried forward indefinitely without expiration. Net operating loss carry forwards of $30.6 million arose in five of the Company’s foreign subsidiaries, of which $1.3 million were generated in 2020 . It is expected that sufficient taxable profits will be generated against which $24.4 million of these net operating loss carry forwards can be relieved. These losses can be carried forward indefinitely without expiration.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration