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Income Tax
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Tax

 

24.

INCOME TAX

Income (loss) before income tax is comprised of the following:

 

 

 

Year ended

December 31,

2021

 

 

Year ended

December 31,

2020

 

 

Year ended

December 31,

2019

 

Income (loss) recorded in the Netherlands

 

 

(20

)

 

 

(19

)

 

 

(9

)

Income (loss) from foreign operations

 

 

2,357

 

 

 

1,286

 

 

 

1,198

 

Income (loss) before income tax benefit (expense)

 

 

2,337

 

 

 

1,267

 

 

 

1,189

 

 

STMicroelectronics N.V.  and its subsidiaries are individually liable for income taxes in their jurisdictions.

Income tax benefit (expense) is comprised of the following:

 

 

 

Year ended

December 31,

2021

 

 

Year ended

December 31,

2020

 

 

Year ended

December 31,

2019

 

The Netherlands taxes - current

 

 

—

 

 

 

—

 

 

 

—

 

Foreign taxes - current

 

 

(285

)

 

 

(171

)

 

 

(131

)

Total current taxes

 

 

(285

)

 

 

(171

)

 

 

(131

)

The Netherlands taxes - deferred

 

 

—

 

 

 

—

 

 

 

—

 

Foreign taxes - deferred

 

 

(46

)

 

 

12

 

 

 

(25

)

Total deferred taxes

 

 

(46

)

 

 

12

 

 

 

(25

)

Income tax expense

 

 

(331

)

 

 

(159

)

 

 

(156

)

Effective tax rate

 

 

14

%

 

 

13

%

 

 

13

%

 

 

The principal items comprising the differences in income taxes computed at the Netherlands statutory rate of 25.0% in 2021, 2020 and 2019, and the effective income tax rate are the following:

 

 

 

Year ended

December 31,

2021

 

 

Year ended

December 31,

2020

 

 

Year ended

December 31,

2019

 

Income tax benefit (expense) computed at

   statutory rate

 

 

(584

)

 

 

(316

)

 

 

(297

)

Non-deductible and non-taxable permanent

   differences, net

 

 

4

 

 

 

(1

)

 

 

4

 

Valuation allowance adjustments

 

 

(2

)

 

 

11

 

 

 

2

 

Effect on deferred taxes of changes in enacted

   tax rates

 

 

6

 

 

 

(5

)

 

 

14

 

Current year credits

 

 

39

 

 

 

40

 

 

 

50

 

Other tax and credits

 

 

(22

)

 

 

(40

)

 

 

(51

)

Benefits from tax holidays

 

 

49

 

 

 

37

 

 

 

129

 

Net impact of changes to uncertain tax positions

 

 

(8

)

 

 

(1

)

 

 

(5

)

Earnings of subsidiaries taxed at different rates

 

 

187

 

 

 

116

 

 

 

(2

)

Income tax benefit (expense)

 

 

(331

)

 

 

(159

)

 

 

(156

)

 

The increase in the benefit from tax holidays between 2020 and 2021 is the result of the increase in profit in the countries where tax holidays are applicable.

The tax holidays represent a tax exemption period aimed to attract foreign technological investment in certain tax jurisdictions.  The effect of the tax benefits, from tax holidays for countries which are profitable, on basic earnings per share was $0.05, $0.04 and $0.14 for the years ended December 31, 2021, 2020, and 2019, respectively.  These agreements are present in various countries and include programs that reduce up to and including 100% of taxes in years affected by the agreements.  The Company’s tax holidays expire at various dates through the year ending December 31, 2029.  In certain countries, tax holidays can be renewed depending on the Company still meeting certain conditions at the date of expiration of the current tax holidays.

Component of the Net Deferred Tax Asset and Liability

Deferred tax assets and liabilities consisted of the following:

 

 

 

December 31,

2021

 

 

December 31,

2020

 

Tax loss carryforwards and investment credits

 

 

707

 

 

 

702

 

Less unrecognized tax benefit

 

 

(81

)

 

 

(19

)

Tax loss carryforwards net of unrecognized tax

   benefit

 

 

626

 

 

 

683

 

Inventory valuation

 

 

28

 

 

 

34

 

Impairment and restructuring charges

 

 

4

 

 

 

3

 

Fixed asset depreciation in arrears

 

 

52

 

 

 

82

 

Increased depreciation incentives

 

 

128

 

 

 

182

 

Capitalized development costs

 

 

121

 

 

 

107

 

Receivables for government funding

 

 

64

 

 

 

40

 

Tax credits granted on past capital investments

 

 

213

 

 

 

215

 

Pension service costs

 

 

82

 

 

 

104

 

Stock awards

 

 

14

 

 

 

11

 

Operating lease liabilities

 

 

39

 

 

 

36

 

Commercial accruals

 

 

12

 

 

 

13

 

Other temporary differences

 

 

25

 

 

 

26

 

Total deferred tax assets

 

 

1,408

 

 

 

1,536

 

Valuation allowances

 

 

(576

)

 

 

(638

)

Deferred tax assets, net

 

 

832

 

 

 

898

 

Accelerated fixed asset depreciation

 

 

(32

)

 

 

(21

)

Acquired intangible assets

 

 

(22

)

 

 

(40

)

Advances of government funding

 

 

(115

)

 

 

(94

)

Operating lease right-of-use assets

 

 

(39

)

 

 

(36

)

Other temporary differences

 

 

(36

)

 

 

(43

)

Deferred tax liabilities

 

 

(244

)

 

 

(234

)

Net deferred income tax asset

 

 

588

 

 

 

664

 

 

For a particular tax-paying component of the Company and within a particular tax jurisdiction, all deferred tax liabilities and assets are offset and presented as a single amount.  The Company does not offset deferred tax liabilities and assets attributable to different tax-paying components or to different tax jurisdictions.

A valuation allowance is provided for deferred tax assets when management considers it is more likely than not that they will not be realized.

Deferred tax asset expiration

As at December 31, 2021, the Company and its subsidiaries have gross deferred tax assets on tax loss carryforwards and investment credits that expire starting from 2022, as follows:

 

Year

 

 

 

 

2022

 

 

11

 

2023

 

 

11

 

2024

 

 

10

 

2025

 

 

11

 

2026

 

 

8

 

Thereafter

 

 

656

 

Total

 

 

707

 

 

 

The “Tax credits granted on past capital investments” is mainly related to a 2003 agreement granting the Company certain tax credits for capital investments purchased through the year ending December 31, 2006.  Any unused tax credits granted under the agreement will be impacted yearly by a legal inflationary index (currently -0.45% per annum).  The credits may be utilized depending on the Company meeting certain program criteria and have no expiration date.  In addition to this agreement, starting from 2007 the Company continues to receive tax credits on the yearly capital investments, which may be used to offset that year’s tax liabilities and increases by the legal inflationary rate.  However, pursuant to the inability to utilize these credits currently and in future years, the Company did not recognize any deferred tax asset on such tax allowance.  As a result, there is no financial impact to the net deferred tax assets of the Company.

Deferred Tax expense recognised through Other Comprehensive Income

In 2021, we recognized a deferred tax expense of $3 million as a component of other comprehensive income (loss), compared to a deferred tax expense of $11 million in 2020.  They were related primarily to the tax effects of the recognized unfunded status on defined benefits plan.

Deferred tax on undistributed Earnings from foreign subsidiaries

The cumulative amount of distributable earnings related to the Company’s investments in foreign subsidiaries and corporate joint ventures was $4,148 million and $3,783 million as at December 31, 2021 and December 31, 2020, respectively.  Due to the Company’s legal and tax structure, with the parent company established in the Netherlands, there is no significant tax impact from the distribution of earnings for $3,701 million from investments in foreign subsidiaries and corporate joint ventures.  This is because there is no tax impact on dividends paid up to a Dutch holding company by qualifying investments. The amount of distributable earnings becoming taxable upon repatriation amount to $447 million. An amount of $377 million is indefinitely reinvested by the foreign subsidiaries. As of December 31, 2021, a deferred tax liability is recognised for $7 million on the amount of earnings expected to be repatriated in a foreseeable future.

Unrecognised Tax Benefits

A reconciliation of 2021, 2020 and 2019 beginning and ending amounts of unrecognized tax benefits is as follows:

 

 

 

December 31,

2021

 

 

December 31,

2020

 

 

December 31,

2019

 

Balance at beginning of year

 

 

48

 

 

 

48

 

 

 

38

 

Additions based on tax positions related to the

   current year

 

 

72

 

 

 

1

 

 

 

7

 

Additions based on acquisitions related to the

   current year

 

 

—

 

 

 

—

 

 

 

5

 

Additions for tax positions of prior years

 

 

1

 

 

 

1

 

 

 

1

 

Reduction for tax positions of prior years

 

 

(1

)

 

 

(2

)

 

 

(1

)

Settlements

 

 

—

 

 

 

(1

)

 

 

(2

)

Foreign currency translation

 

 

(2

)

 

 

1

 

 

 

—

 

Balance at end of year

 

 

118

 

 

 

48

 

 

 

48

 

 

In addition, at December 31, 2021, $81 million of unrecognized tax benefits were classified as a reduction of deferred tax assets (at December 31, 2020, the amount was $19 million).  It is reasonably possible that certain of the uncertain tax positions disclosed in the table above could increase or decrease within the next 12 months due to ongoing tax audits.  The Company is not able to make an estimate of the range of the reasonably possible change impacting the annual effective tax rate.

Additionally, the Company elected to classify accrued interest and penalties related to uncertain tax positions as components of income tax expense in the consolidated statements of income.  They were less than $1 million in 2021, less than $1 million in 2020 and $1 million in 2019.  Accrued interest and penalties amounted to $7 million as at December 31, 2021 and $7 million as at December 31, 2020.

The tax years that remain open for review in the Company’s major tax jurisdictions, including France, Italy, United States and India, are from 1997 to 2021.