Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

For interim tax reporting, the Company estimates its annual effective tax rate and applies it to year-to-date ordinary income. Jurisdictions where no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The effect of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur. The Company considers both positive and negative evidence and evaluates its deferred tax assets 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, reversals of existing taxable temporary differences, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.

For the three months ended September 30, 2021, the Company recorded an income tax expense of $34 million on income from continuing operations before income taxes of $59 million. This compares to an income tax expense of $648 million on income from continuing operations before income taxes of $168 million in the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the Company recorded an income tax expense of $122 million on income from continuing operations before income taxes of $251 million. This compares to an income tax expense of $453 million on loss from continuing operations before income taxes of $1,193 million in the nine months ended September 30, 2020.

Income tax expense for the three and nine months ended September 30, 2021 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefits, partially offset by a non-cash tax benefit of $12 million relating to the reversal of valuation allowances.

Income tax expense for the three months ended September 30, 2020 differs from the U.S. statutory rate due primarily to (i) a $369 million and $11 million non-cash charge relating to the establishment of valuation allowances on deferred tax assets recognized in prior years for the U.S. and France; (ii) a non-cash tax benefit of $2 million relating to the reversal of a valuation allowance in China; and (iii) a $145 million non-cash charge to adjust the estimated annual tax rate for the tax benefit that can no longer be recognized due to the change in positions for these respective entities during the three months ended September 30, 2020.

Income tax benefit for the nine months ended September 30, 2020 differs from the U.S. statutory rate due primarily to the $39 million of tax benefit recognized related to the asset impairment charges of $883 million, the discrete items noted above, pre-tax income taxed at rates higher than the U.S. statutory rate, and pre-tax losses with no tax benefits.

The Company received notification in the first quarter of 2021 that its U.S. tax refund claim is approved and the tax years through 2016 are now effectively settled. The Company believes it is reasonably possible up to $42 million in unrecognized tax benefits related to the expiration of statute of limitations and the conclusion of income tax examinations may be recognized within the next twelve months. The Company released $54 million of unrecognized tax benefits with a corresponding adjustment of $54 million to the Company’s valuation allowance as a result of the conclusion of income tax examinations in the first quarter of 2021.