v3.20.4

Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes In 2020, NXP generated income before income taxes of $1 million (2019: income of $291 million; 2018: income of $2,375 million). The components of income (loss) before income taxes are as follows:
| 2020 |  | 2019 |  | 2018
Netherlands | 447 |  |  | 429 |  |  | 2,570 |
Foreign | (446) |  |  | (138) |  |  | (195) |
| 1 |  |  | 291 |  |  | 2,375 |
The components of income tax benefit (expense) are as follows:
| 2020 |  | 2019 |  | 2018
Current taxes: |  |  |  |  |
Netherlands | (147) |  |  | (90) |  |  | (296) |
Foreign | (119) |  |  | (105) |  |  | (91) |
| (266) |  |  | (195) |  |  | (387) |
Deferred taxes: |  |  |  |  |
Netherlands | 58 |  |  | (28) |  |  | 2 |
Foreign | 291 |  |  | 203 |  |  | 209 |
| 349 |  |  | 175 |  |  | 211 |
Total income tax benefit (expense) | 83 |  |  | (20) |  |  | (176) |
A reconciliation of the statutory income tax rate in the Netherlands as a percentage of income (loss) before income taxes and the effective income tax rate is as follows:
| 2020 |  | 2019 |  | 2018 |
| amount |  | % |  | amount |  | % |  | amount |  | % |
Statutory income tax rate in the Netherlands | — |  |  | 25.0 |  |  | 73 |  |  | 25.0 |  |  | 594 |  |  | 25.0 |  |
Rate differential between the local statutory rates and the statutory rate of the Netherlands | 22 |  |  | 2,175.0 |  |  | 16 |  |  | 5.5 |  |  | 19 |  |  | 0.8 |  |
Net change in valuation allowance | 35 |  |  | 3,500.0 |  |  | 59 |  |  | 20.2 |  |  | 10 |  |  | 0.4 |  |
Non-deductible expenses/losses | 61 |  |  | 6,100.0 |  |  | 52 |  |  | 17.8 |  |  | 64 |  |  | 2.7 |  |
Netherlands tax incentives | (48) |  |  | (4,800.0) |  |  | (68) |  |  | (23.2) |  |  | (252) |  |  | (10.6) |  |
Foreign tax incentives | (117) |  |  | (11,700.0) |  |  | (118) |  |  | (40.5) |  |  | (119) |  |  | (5.0) |  |
Changes in estimates of prior years' income taxes | (13) |  |  | (1,300.0) |  |  | (3) |  |  | (1.2) |  |  | (83) |  |  | (3.5) |  |
Sale of non-deductible goodwill | 10 |  |  | 1,000.0 |  |  | — |  |  | — |  |  | — |  |  | — |  |
Withholding taxes | (31) |  |  | (3,100.0) |  |  | 5 |  |  | 1.8 |  |  | (12) |  |  | (0.6) |  |
Other differences | (2) |  |  | (200.0) |  |  | 4 |  |  | 1.5 |  |  | (45) |  |  | (1.8) |  |
Effective tax rate | (83) |  |  | (8,300.0) |  |  | 20 |  |  | 6.9 |  |  | 176 |  |  | 7.4 |  |
. We recorded an income tax benefit of $83 million in 2020, which reflects an effective tax rate of (8300.0)% compared to an expense of $20 million and an effective rate of 6.9% in 2019.The effective tax rate reflects the impact of tax incentives, a portion of our earnings being taxed in foreign jurisdictions at rates different than the Netherlands statutory tax rate, changes in estimates of prior years' income taxes, change in valuation allowance and non-deductible expenses, sale of non-deductible goodwill and withholding taxes. The impact of these items results in offsetting factors that attribute to the change in the effective tax rate between the two periods, with the significant drivers outlined below: •The Company benefits from certain tax incentives, which reduce the effective tax rate. The dollar amount of the incentive in any given year is commensurate with the taxable income in that same period. For 2020, the Netherlands tax incentives was lower than 2019 by $20 million, mainly due to the fact that NXP has a lower qualifying income. Note that for 2019, the Netherlands tax incentives was lower than 2018, mainly due to the fact that NXP had received a break-up fee from Qualcomm of $2 billion in 2018 which drove a higher income before tax in 2018. •The increase in the valuation allowance is mostly due to new Dutch corporate income tax law applicable as from 2019. A portion of the interest expenses is non-deductible in the year it is recorded but can be carried forward without expiration. The difference in valuation allowance in 2020 as compared with 2019 is mainly due to the fact that there was less Netherlands related interest expense impacted by the interest limitation rules as a result of higher qualifying income mainly linked to the divestiture of the VAS business and the lower Netherlands tax incentives. •The tax effect of the non-deductible goodwill of $10 million is linked to the divestiture of the VAS business in 2020. •The difference of $36 million in the withholding tax benefit in 2020 as compared with 2019 is mainly due to changes in the applicable deferred tax liability rate regarding future remittances of the earnings of foreign subsidiaries and due to additional undistributed earnings being considered permanently reinvested. •The change in estimates of prior years’ income taxes was higher in 2020 as compared to 2019, mostly relating to NXP USA ($20 million) primarily due to the early adoption of the U.S. regulations issued in Q3 2020. This was partly offset by other changes in estimates relating to multiple jurisdictions. •The changes in estimates of prior years' income taxes was higher in 2018 comparing with 2019 as a result of the agreement NXP reached with the Dutch tax authorities relative to the application of the Dutch innovation box regime to the taxable income attributable to the Netherlands. This agreement is effective from January 1, 2017. As such, the Company was able to refine its estimate of the Dutch tax liability, recognizing an additional income tax benefit of $67 million in 2018. •The higher other differences in 2018 relate primarily to a tax benefit on the liquidation of a former investment of $45 million. The Company benefits from income tax holidays in certain jurisdictions which provide that we pay reduced income taxes in those jurisdictions for a fixed period of time that varies depending on the jurisdiction. The predominant income tax holiday is expected to expire at the end of 2026. The impact of this tax holiday decreased foreign income taxes by $11 million in 2020 (2019: $12 million; 2018: $21 million). The benefit of this tax holiday on net income per share (diluted) was $0.04 in 2020 (2019: $0.04; 2018: $0.06). Deferred tax assets and liabilities The principal components of deferred tax assets and liabilities are presented below:
| 2020 |  | 2019
Operating loss and tax credit carry forwards | 480 |  |  | 499 |
Disallowed interest carry forwards | 69 |  |  | 103 |
Other accrued liabilities | 107 |  |  | 111 |
Pensions | 121 |  |  | 95 |
Other non-current liabilities | 58 |  |  | 53 |
Share-based compensation | 13 |  |  | 15 |
Restructuring liabilities | 15 |  |  | 5 |
Receivables | 55 |  |  | 64 |
Inventories | 8 |  |  | 4 |
Total Deferred Tax Assets | 926 |  |  | 949 |
Valuation allowance | (227) |  |  | (190) |
Total Deferred Tax Assets, net of valuation allowance | 699 |  |  | 759 |
Identified intangible assets, net | (116) |  |  | (520) |
Undistributed earnings of foreign subsidiaries | (54) |  |  | (99) |
Property, plant and equipment, net | (15) |  |  | (34) |
Goodwill | (66) |  |  | (43) |
Other current and non-current assets | (56) |  |  | (52) |
Total Deferred Tax Liabilities | (307) |  |  | (748) |
Net Deferred Tax Position | 392 |  |  | 11 |
The classification of the deferred tax assets and liabilities in the Company’s Consolidated Balance Sheets is as follows:
| 2020 |  | 2019
Deferred tax assets within other non-current assets | 477 |  |  | 293 |
Deferred tax liabilities within non-current liabilities | (85) |  |  | (282) |
| 392 |  |  | 11 |
The Company has significant deferred tax assets resulting from net operating loss carryforwards, tax credit carryforwards and deductible temporary differences that may reduce taxable income or income taxes payable in future periods. Valuation allowances have been established for deferred tax assets based on a “more likely than not” threshold. The realization of our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The valuation allowance increased by $37 million during 2020 (2019: $45 million increase). Besides the net change in the valuation allowance of $35 million this mainly includes an increase of the valuation allowance due to a change in tax rates for $6 million and a decrease of the valuation allowance due to the expiration of tax attributes for $9 million. We consider all available evidence in forming a judgment regarding the valuation allowance as of December 31, 2020, including events that occur subsequent to year end but prior to the issuance of the financial statements. The deferred tax assets are recognized to the extent that we consider it more likely than not that these assets will be realized. In making such a determination, we consider all available positive and negative evidence, including reversal of existing temporary differences, projected future taxable income and tax planning strategies. At December 31, 2020 tax loss carryforwards of $737 million (inclusive of $162 million of U.S. state tax losses) will expire as follows:
|  | Balance |  | Scheduled expiration
|  | December 31, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026-2030 |  | later |  | unlimited
Tax loss carryforwards |  | 737 |  |  | — |  |  | 12 |  |  | 2 |  |  | 3 |  |  | 81 |  |  | 160 |  |  | 70 |  |  | 409 |
This overview is excluding disallowed interest carryforwards of $276 million which have an unlimited expiration date. The Company also has tax credit carryforwards of $468 million (excluding the effect of unrecognized tax benefits), which are available to offset future tax, if any, and which will expire as follows:
|  | Balance |  | Scheduled expiration
|  | December 31, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026-2030 |  | later |  | unlimited
Tax credit carryforwards |  | 468 |  |  | 1 |  |  | 11 |  |  | 10 |  |  | 11 |  |  | 18 |  |  | 71 |  |  | 294 |  |  | 52 |
The net income tax payable (excluding the liability for unrecognized tax benefits) as of December 31, 2020 amounted to $117 million (2019: net income tax receivable of $2 million) and includes amounts directly receivable from or payable to tax authorities. The Company does not indefinitely reinvest the majority of the undistributed earnings of its subsidiaries. Consequently, the Company has recognized a deferred tax liability of $54 million at December 31, 2020 (2019: $99 million) for the additional income taxes and withholding taxes payable upon the future remittances of these earnings of foreign subsidiaries. The Company considers $114 million of the undistributed earnings indefinitely reinvested although the timing of the reversal can be controlled. Upon repatriation of those earnings the Company would be subject to tax of $11 million which is not recognized as deferred tax liability at December 31, 2020. A reconciliation of the beginning and ending amount of unrecognized tax benefits excluding interest and penalties is as follows:
| 2020 |  | 2019 |  | 2018
Balance as of January 1, | 159 |  |  | 165 |  |  | 177 |
Translation differences | — |  |  | (1) |  |  | (4) |
Lapse of statute of limitations | (4) |  |  | (3) |  |  | — |
Increases from tax positions taken during prior periods | 5 |  |  | 4 |  |  | 7 |
Decreases from tax positions taken during prior periods | — |  |  | (4) |  |  | (17) |
Increases from tax positions taken during current period | 7 |  |  | 7 |  |  | 7 |
Decreases relating to settlements with the tax authorities | (6) |  |  | (9) |  |  | (5) |
Balance as of December 31, | 161 |  |  | 159 |  |  | 165 |
Of the total unrecognized tax benefits at December 31, 2020, $140 million, if recognized, would impact the effective tax rate. All other unrecognized tax benefits, if recognized, would not affect the effective tax rate as these would be offset by compensating adjustments in the Company’s deferred tax assets that would be subject to valuation allowance based on conditions existing at the reporting date. The Company classifies interest related to an underpayment of income taxes as financial expense and penalties as income tax expense. The total related interest and penalties recorded during the year 2020 amounted to a $4 million expense (2019: $3 million benefit; 2018: $3 million benefit). As of December 31, 2020 the Company has recognized a liability for related interest and penalties of $13 million (2019: $11 million; 2018: $14 million). It is reasonably possible that the total amount of unrecognized tax benefits may significantly increase/decrease within the next 12 months of the reporting date due to, for example, completion of tax examinations. It is estimated that this reasonably possible change will not be significant. The Company files income tax returns in the Netherlands, the U.S.A. and in various other foreign jurisdictions. Tax filings of our subsidiaries are routinely audited in the normal course of business by tax authorities around the world. Tax years that remain subject to examination by major tax jurisdictions: the Netherlands (2017-2019), Germany (2017-2019), USA (2005-2019), China (2010-2019), Taiwan (2015-2019), Thailand (2015-2019), Malaysia (2011-2019) and India (2004, 2005, 2007-2019).

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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/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
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