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Income Taxes | 6 Months Ended
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Jun. 30, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | 10. Income Taxes For the three months ended June 30, 2024, we recorded income tax benefit of $2.2 million on a loss before taxes of $127.4 million. For the three months ended June 30, 2023, we recorded income tax expense of $15.6 million on income before taxes of $42.0 million. The $17.8 million decrease in tax expense compared to the three months ended June 30, 2023 was primarily driven by a $17.0 million decrease in discrete income tax expense during the second quarter of 2024 primarily related to the impairment of indefinite-lived intangibles, the settlement of certain pensions and the change to uncertain tax positions based on the statutes of limitations. The non-cash goodwill impairment charge of $127.5 million had no associated tax benefit. For the six months ended June 30, 2024, we recorded income tax benefit of $1.2 million on a loss before taxes of $132.7 million. For the six months ended June 30, 2023, we recorded income tax expense of $16.0 million on a income before taxes of $38.7 million. The $17.2 million decrease in tax expense compared to the six months ended June 30, 2023 was primarily driven by a $16.3 million decrease in discrete income tax expense during the first half of 2024 primarily related to the impairment of indefinite-lived intangibles, the settlement of certain pensions, the change to uncertain tax positions based on the statutes of limitations and the Brazilian income tax refunded related to certain interest income generated. The U.S. federal statute of limitations remains open for the years 2020 and forward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from 2 to 6 years. Years still open to examination by foreign tax authorities in major jurisdictions include Australia (2019 forward), Brazil (2018 forward), Canada (2020 forward), Germany (2019 forward), Sweden (2021 forward) and the U.K. (2022 forward). We are currently under examination in certain foreign jurisdictions. Organisation for Economic Co-operation and Development (“OECD”) Global Anti-Base Erosion Model Rules (Pillar Two) Legislatures and taxing authorities in many jurisdictions in which we operate may enact changes to, or seek to enforce, novel interpretations of their tax rules. These changes may include modifications that can be temporary or permanent. For example, the Organisation for Economic Cooperation and Development (the "OECD"), the European Union and other countries (including countries in which we operate) have committed to enacting substantial changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed. In particular, the OECD's Pillar Two initiative introduces a 15% global minimum tax applied on a country-by-country basis and for which many jurisdictions have now committed to an effective enactment date starting January 1, 2024. Management is currently assessing the impact and materiality of these potential new rules as well as any other changes in domestic and international tax rules and regulations. Brazil Tax Assessments In connection with our May 1, 2012, acquisition of the Mead Consumer and Office Products business ("Mead C&OP"), we assumed all of the tax liabilities for the acquired foreign operations including its operating entity in Brazil ("ACCO Brazil"). In December of 2012, the Federal Revenue Department of the Ministry of Finance of Brazil ("FRD") issued a tax assessment against ACCO Brazil, challenging the tax deduction of goodwill from ACCO Brazil's taxable income for the year 2007 (the "First Assessment"). A second assessment challenging the deduction of goodwill from ACCO Brazil's taxable income for the years 2008, 2009 and 2010 was issued by FRD in October 2013 (the "Second Assessment" and together with the First Assessment, the "Brazil Tax Assessments"). The final administrative appeal of the Second Assessment was decided against the Company in 2017. In 2018, we challenged this decision to the first judicial level. In the fourth quarter of 2022, this case was decided against the Company by the first level judicial court. We have appealed this decision to the second judicial level. In the event we do not prevail at the judicial level, we will be required to pay an additional penalty representing attorneys' costs and fees; accordingly, in the first quarter of 2019, the Company recorded an additional reserve in the amount of $5.6 million. In connection with the judicial challenge, we were required to provide security to guarantee payment of the Second Assessment should we not prevail. In the third quarter of 2020, the final administrative appeal of the First Assessment was decided against the Company, and we determined that we would challenge this decision. In 2022, we challenged this adverse decision in the tax authority's lawsuit at the judicial level seeking to collect the tax. In connection with the judicial challenge, we were required to provide security to guarantee payment of the First Assessment should we not prevail. We believe we have meritorious defenses and intend to vigorously contest both of the Brazil Tax Assessments; however, there can be no assurances that we will ultimately prevail. The ultimate outcome will not be determined until the Brazilian judicial process is complete. It is possible we could have a final decision regarding the Second Assessment at any time in the next twelve to eighteen months. If the FRD's initial position is ultimately sustained, payment of the amount assessed would materially and adversely affect our cash flow in the year of settlement. Because there is no settled legal precedent on which to base a definitive opinion as to whether we will ultimately prevail, we consider the outcome of these disputes to be uncertain. Since it is not more likely than not that we will prevail, in 2012, we recorded a reserve in the amount of $44.5 million (at December 31, 2012 exchange rates) in consideration of this contingency, of which $43.3 million was recorded as an adjustment to the purchase price and which included the 2007-2012 tax years plus penalties and interest through December 2012. During the third quarter of 2023, there was a change in Brazilian law which allowed us to seek a cancellation of the 75 percent standard penalty that would be payable in the event we do not prevail in our actions challenging the Brazil Tax Assessments. Following completion of the necessary administrative procedures, during the fourth quarter of 2023, the Company reduced its reserve for this contingency by $13.3 million, representing the amount of the cancelled penalties, as well as interest and other fees related to those penalties. We will continue to actively monitor administrative and judicial court decisions and evaluate their impact, if any, on our legal assessment of the ultimate outcome of our disputes. In addition, we will continue to accrue interest related to this contingency until such time as the outcome is known or until evidence is presented that we are more likely than not to prevail. During the six months ended June 30, 2024 and 2023, we accrued additional interest as a charge to current income tax expense of $0.4 million and $1.0 million, respectively. At current exchange rates, our accrual as of June 30, 2024, including tax, penalties and interest is $19.5 million (reported in "Other non-current liabilities").

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