Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The U.S. and non-U.S. components of the Company’s earnings (loss) before income taxes and noncontrolling interests are as follows:

	Year Ended December 31
	2021		2020		2019
U.S. earnings (loss)	$	(395)	$	(884)	$	(599)
Non-U.S. earnings (loss)	677		(117)		398
Earnings (loss) before income taxes and noncontrolling interests	$	282	$	(1,001)	$	(201)

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

	Year Ended December 31
	2021		2020		2019
Current —
U.S. federal	$	(4)	$	(11)	$	8
U.S. state and local	1		1		1
Non-U.S.	173		168		161
	170		158		170
Deferred —
U.S. federal	(1)		336		(101)
U.S. state and local	—		35		(13)
Non-U.S.	13		(70)		(37)
	12		301		(151)
Income tax expense (benefit)	$	182	$	459	$	19

The following table is a reconciliation of income taxes computed at the statutory U.S. federal income tax rate (21% for 2021, 2020 and 2019) to the income tax expense (benefit) reflected in the consolidated statements of income (loss):

	Year Ended December 31
	2021		2020		2019
Income tax expense (benefit) computed at the statutory U.S. federal income tax rate	$	59	$	(210)	$	(42)
Increases (reductions) in income tax expense resulting from:
Non-U.S. income taxed at different rates	17		2		8
U.S. state and local taxes on income, net of U.S. federal income tax benefit	(33)		(26)		(14)
Changes in valuation allowance for tax loss carryforwards and credits	175		605		36
Tax credits and R&D incentives	(21)		(15)		(19)
Non-U.S. earnings subject to U.S. federal income tax	69		18		12
Non-deductible expenses / non-taxable items	24		15		16
Goodwill impairment and other non-deductible impairment	—		65		22
Tax contingencies	(72)		2		(7)
Gains on transfers of subsidiaries	—		—		21
Nonconsolidated affiliates	(11)		(10)		(8)
Other	(25)		13		(6)
Income tax expense (benefit)	$	182	$	459	$	19

The tax expense recorded for the year ended December 31, 2021 includes valuation allowances in U.S. federal and state, as well as certain non-U.S. jurisdictions resulting in the Company’s inability to realize an income tax benefit for losses incurred. The Company has 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.

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

	December 31
	2021		2020
Deferred tax assets —
Tax loss carryforwards:
U.S. federal	$	11	$	—
U.S. state	45		34
Non-U.S.	736		630
Tax credits	305		276
Postretirement benefits other than pensions	19		19
Pensions	80		148
Payroll accruals	33		31
Property, plant and equipment	205		244
Research expense capitalized for tax	121		102
Interest expense carryforward	56		—
Intangibles	25		—
Other accruals	205		216
Total deferred tax assets before valuation allowance	1,841		1,700
Less: Valuation allowance	(1,589)		(1,428)
Total deferred tax assets	252		272
Deferred tax liabilities —
Intangibles	—		11
Other liabilities	91		65
Total deferred tax liabilities	91		76
Net deferred tax assets	$	161	$	196

U.S. state tax loss carryforwards have been presented net of uncertain tax positions that, if realized, would reduce tax loss carryforwards in 2021 and 2020 by $1 million and $3 million. Additionally, non-U.S. tax loss carryforwards, have been presented net of uncertain tax positions that, if realized, would reduce tax loss carryforwards in 2021 and 2020 by $29 million and $43 million.

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 for the year ended December 31, 2020. 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. Combined with restructuring, impairment, and integration expenses, the Company had a cumulative loss for the three-year period ended December 31, 2020. The Company concluded that it was “more-likely-than-not” that it would 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.

The Company’s U.S. operations remain in a cumulative loss for the three-year period ended December 31, 2021. Under the current tax laws, the valuation allowance will not limit the Company’s ability to utilize the 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.

As a result of the valuation allowances recorded for $1,589 million and $1,428 million at December 31, 2021 and 2020, the Company has potential tax assets that were not recognized on its consolidated balance sheets. These unrecognized tax assets resulted primarily from non-U.S. tax loss carryforwards, U.S. federal and non-U.S. tax credit carryforwards, U.S. interest expense carryforward, and U.S. federal and state net operating losses (“NOLs”) that are available to reduce future tax liabilities.

The Company’s state NOLs expire at various tax years from 2022 through 2041 or have unlimited carryforward potential. The Company’s non-U.S. NOLs expire at various tax years from 2022 through 2050 or have unlimited carryforward potential. The Company’s U.S. federal NOL has an unlimited carryforward potential.

The Company has tax credit carryforwards in various U.S. and non-U.S. jurisdictions, these tax credit carryforwards expire at various times from 2022 through 2051 or have unlimited carryforward potential.

The Company does not provide for U.S. income taxes on unremitted earnings of non-U.S. subsidiaries, except for the earnings of certain operations in China, Korea, India and Spain, as its present intention is to reinvest the unremitted earnings in the Company’s non-U.S. operations. Unremitted earnings of non-U.S. subsidiaries were approximately $2.6 billion at December 31, 2021 and the Company estimated the amount of U.S. and non-U.S. income taxes that would be accrued or paid upon remittance of the assets that represent those unremitted earnings was $129 million.

Tax benefits from uncertain tax positions 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. The Company recognizes interest and penalties relating to uncertain tax positions as part of income tax expense (benefit).

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

	2021		2020		2019
Uncertain tax positions —
Balance at beginning of period	$	208	$	215	$	224
Gross increases in tax positions in current period	6		4		12
Gross increases in tax positions in prior period	2		14		4
Gross decreases in tax positions in prior period	(67)		(7)		(5)
Gross decreases — settlements	—		—		(12)
Gross decreases — statute of limitations expired	(21)		(18)		(8)
Balance at end of period	$	128	$	208	$	215

At December 31, 2021 and 2020, there were $44 million and $70 million of unrecognized tax benefits that if recognized would favorably affect our effective tax rate in the future.

Total interests and penalties related to uncertain tax positions recognized as part of income tax benefit was $1 million for the year ended December 31, 2021 and income tax expense was $2 million and $1 million for the years ended December 31, 2020 and 2019. At December 31, 2021 and 2020, the Company had accrued liabilities for interest and penalties of $17 million and $18 million related uncertain tax positions.

The Company’s uncertain tax position at December 31, 2021 and 2020 included exposures relating to the disallowance of deductions, global transfer pricing, and various other issues. 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. The Company believes it is reasonably possible that a decrease of up to $41 million in unrecognized tax benefits related to the expiration of U.S. and non-U.S. statute of limitations and the conclusion of income tax examinations may occur within the next twelve months.

The Company is subject to taxation in the U.S. and various state and non-U.S. jurisdictions. At December 31, 2021, the Company’s tax years open to examination in primary jurisdictions are as follows:

	Open To  Tax Year
United States	2012
Belgium	2018
Brazil	2017
China	2012
France	2014
Germany	2012
India	2008
Italy	2016
Mexico	2014
Poland	2016
Spain	2017
United Kingdom	2016