Income Taxes

12 Months Ended

Dec. 31, 2020

The domestic and foreign components of the Company's earnings (loss) before income taxes and noncontrolling interests are as follows:


	Year Ended December 31
	2020		2019		2018
U.S. earnings (loss) before income taxes	$	(884)	$	(599)	$	(138)
Foreign earnings (loss) before income taxes	(117)		398		312
Earnings (loss) before income taxes and noncontrolling interests	$	(1,001)	$	(201)	$	174

The following table is a comparative analysis of the components of income tax expense (benefit):


	Year Ended December 31
	2020		2019		2018
Current —
U.S. federal	$	(11)	$	8	$	8
State and local	1		1		1
Foreign	168		161		119
	158		170		128
Deferred —
U.S. federal	336		(101)		(35)
State and local	35		(13)		(5)
Foreign	(70)		(37)		(25)
	301		(151)		(65)
Income tax expense (benefit)	$	459	$	19	$	63

The following table is a reconciliation of income taxes computed at the statutory U.S. federal income tax rate (21% for 2020, 2019 and 2018) to the income tax expense (benefit) reflected in the consolidated statements of income (loss):


	Year Ended December 31
	2020		2019		2018
Income tax expense (benefit) computed at the statutory U.S. federal income tax rate	$	(210)	$	(42)	$	37
Increases (reductions) in income tax expense resulting from:
Foreign income taxed at different rates	2		8		19
Transition tax under Tax Cuts and Jobs Act ("TCJA")	—		—		11

State and local taxes on income, net of U.S. federal income tax benefit	(26)		(14)		(6)
Changes in valuation allowance for tax loss carryforwards and credits	605		36		—

Investment and R&D tax credits	(15)		(19)		(12)
Foreign earnings subject to U.S. federal income tax	18		12		13
Non-deductible expenses	15		16		3

Goodwill impairment and other non-deductible impairment	65		22		—

Tax contingencies	2		(7)		1
Gains on transfers of subsidiaries	—		21		—
Nonconsolidated affiliates	(10)		(8)		(4)
Other	13		(6)		1
Income tax expense (benefit)	$	459	$	19	$	63

The Company reported income tax expense of $459 million, $19 million, and $63 million for the years ended December 31, 2020, 2019, and 2018. The tax expense recorded for the year ended December 31, 2020 included a $507 million tax expense relating to the full valuation allowance established for the U.S. deferred tax assets. The remaining $98 million of tax expense for changes in valuation allowances for deferred taxes relates to non-U.S. jurisdictions for which a reserve had been established in a previous year. During the first quarter of 2020, the Company concluded it was more likely than not that the fair values of certain of its indefinite-lived intangible assets had declined to below their carrying values as a result of the effects of the COVID-19 global pandemic and completed a goodwill impairment analysis. As a result, the Company recorded $65 million of tax effect relating to goodwill and indefinite-lived intangible impairment. The tax expense recorded for the year ended December 31, 2019 included tax benefits of $33 million relating to a valuation allowance release for an entity in Spain, $22 million of tax expense relating to a goodwill impairment and $21 million of tax expense relating to gains on transfers of subsidiaries for entities in China and Luxembourg. The tax expense recorded for the year ended December 31, 2018 included tax benefits of $10 million primarily relating to a valuation allowance release for entities in Australia and $11 million of tax expense for changes in the toll tax.

The components of the Company's net deferred tax assets were as follows:


	December 31
	2020		2019

Deferred tax assets —
Tax loss carryforwards:
State	$	34	$	18
Foreign	630		559
Tax credits	276		179
Postretirement benefits other than pensions	19		20
Pensions	148		158
Payroll accruals	31		23
Book over tax depreciation	244		91
Research expense capitalized for tax	102		72
Other accruals	216		225
Valuation allowance	(1,428)		(762)
Total deferred tax assets	272		583
Deferred tax liabilities —
Amortization of intangibles	11		24
Other liabilities	65		58
Total deferred tax liabilities	76		82
Net deferred tax assets	$	196	$	501

State tax loss carryforwards have been presented net of uncertain tax positions that, if realized, would reduce tax loss carryforwards in 2020 and 2019 by $3 million and $2 million. Additionally, foreign tax loss carryforwards, have been presented net of uncertain tax positions that, if realized, would reduce tax loss carryforwards in 2020 and 2019 by $43 million and $30 million.

The following table is a reconciliation of deferred taxes to the deferred taxes included in the consolidated balance sheets:


	At December 31
	2020		2019

Consolidated Balance Sheets:
Non-current portion — deferred tax asset	$	285	$	607
Non-current portion — deferred tax liability	(89)		(106)
Net deferred tax assets	$	196	$	501

The Company evaluates its deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. Due to the sudden and sharp decline in industry demand, and the temporary suspension of production at the Company's U.S. manufacturing facilities as a result of the COVID-19 global pandemic, it incurred a significant U.S. pre-tax loss. Based on the third quarter analysis, the results did not provide enough positive evidence of profitability of the U.S. operations, therefore, the realizability of the U.S. deferred tax assets was assessed. While the disruption to the Company's business is expected to be temporary, there is considerable uncertainty around the extent and duration of that disruption. Combined with restructuring, impairment and integration expenses incurred in the most recent three-years, the Company has a cumulative loss for the three-year period ended December 31, 2020. The Company concluded that it is more likely than not that it will not be able to utilize the U.S. deferred tax assets. Therefore, the Company established a full valuation allowance against the deferred tax assets in the U.S. during 2020. Under the current tax laws, the valuation allowance will not limit the Company’s ability to utilize U.S. deferred tax assets provided it can generate sufficient future taxable income in the U.S. The Company anticipates it will continue to record a valuation allowance against the losses until such time as they are able to determine it is “more-likely-than-not” the deferred tax asset will be realized. This position is dependent on whether there will be sufficient future taxable income to realize such deferred tax assets.

The Company believes that if operational declines continue in certain entities located in China and Mexico, there may be sufficient negative evidence for $19 million of valuation allowance to be recorded in the next twelve months.

As a result of the valuation allowances recorded for $1,428 million and $762 million at December 31, 2020 and 2019, the Company has potential tax assets that were not recognized on its consolidated balance sheets. These unrecognized tax assets resulted primarily from foreign tax loss carryforwards, foreign investment tax credits, foreign research and development credits, U.S. federal tax credit carryforwards and U.S. state net operating losses (“NOLs”) that are available to reduce future tax liabilities.

The Company's state NOLs expire in various tax years through 2041 or have unlimited carryforward potential. The Company's non-U.S. NOLs expire in various tax years through 2040 or have unlimited carryforward potential.

The Company does not provide for U.S. income taxes on unremitted earnings of foreign subsidiaries, except for the earnings of three of its China operations, two of its Korea operations, two of its India operations, and one of its Spain operations as its present intention is to reinvest the unremitted earnings in the Company's foreign operations. Unremitted earnings of foreign subsidiaries were approximately $2.3 billion at December 31, 2020 and the Company estimated the amount of U.S. and foreign income taxes that would be accrued or paid upon remittance of the assets that represent those unremitted earnings was $101 million.

A tax benefit from an uncertain tax position may be recognized when it is “more likely than not” that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

A reconciliation of the Company's uncertain tax positions is as follows:


	2020		2019		2018

Uncertain tax positions —
Balance at beginning of period	$	215	$	224	$	112
Gross increases in tax positions due to acquisition	—		—		110
Gross increases in tax positions in current period	4		12		8
Gross increases in tax positions in prior period	14		4		7
Gross decreases in tax positions in prior period	(7)		(5)		(1)
Gross decreases — settlements	—		(12)		(2)
Gross decreases — statute of limitations expired	(18)		(8)		(10)
Balance at end of period	$	208	$	215	$	224

Included in the balance of uncertain tax positions recognized were the following:


	Year Ended December 31
	2020		2019		2018
Tax benefits, that if recognized, would affect the effective tax rate	$	70	$	141	$	134

Income tax expense for accrued interest	$	2	$	1	$	2

The Company's liability for penalties and interest were as follows:


	At December 31
	2020		2019
Accrued liability for penalties on uncertain tax positions	$	4	$	4
Accrued liability for interest on uncertain tax positions	$	14	$	12

The Company's uncertain tax position at December 31, 2020 and 2019 included exposures relating to the disallowance of deductions, global transfer pricing, and various other issues. The Company believes it is reasonably possible that a decrease of up to $93 million in unrecognized tax benefits related to the expiration of U.S. and foreign statute of limitations and the conclusion of income tax examinations may occur within the next twelve months. Due to the valuation allowance position in the U.S., the Company estimates that only $39 million of the amounts above will affect the consolidated statements of income (loss).

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. As of December 31, 2020, the Company's tax years open to examination in primary jurisdictions are as follows:


			Open To Tax Year
United States			2003
Belgium			2018
Brazil			2014
China			2011
France			2015
Germany			2010
India			2001
Italy			2016
Mexico			2015
Poland			2013
Spain			2000
United Kingdom			2016

- 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.

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