Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

INCOME BEFORE INCOME TAXES (Dollars in millions)	2021			2020			2019
U.S.	$	(38	)	$	(102	)	$	67
Non-U.S.		652			393			582
Total	$	614		$	291		$	648

PROVISION FOR INCOME TAXES (Dollars in millions)	2021			2020			2019
Current
U.S. federal	$	8		$	(41	)	$	19
Non-U.S.		191			169			178
U.S. state and local		(2	)		(2	)		5
Deferred
U.S. federal		(8	)		(6	)		(3	)
Non-U.S.		(10	)		(17	)		(13	)
U.S. state and local		(2	)		(2	)		(1	)
Total income tax expense	$	177		$	103		$	186

EFFECTIVE INCOME TAX RATE (%)	2021				2020				2019
U.S. federal income tax rate		21.0		%		21.0		%		21.0		%
Non-Deductible Expenses		(0.1	)			3.0				0.3
Foreign tax rate variances		3.1				8.4				4.1
Tax credits		(2.2	)			(3.2	)			(1.7	)
Current year losses with no benefit		0.1				7.1				0.2
Net operating loss carry-forwards		(0.2	)			—				(0.1	)
Changes in tax reserves		0.6				1.7				1.7
Provision to Return		(0.2	)			(8.8	)			(2.3	)
Earnings of equity investments		(0.1	)			(0.2	)			(0.1	)
Withholding taxes		4.5				8.5				2.4
State taxes, net of federal benefit		(0.5	)			(0.7	)			0.4
Tax Audits		0.6				0.0				0.0
U.S. FDII Deduction		—				—				(0.5	)
U.S. GILI Tax		1.1				—				1.8
Other, net		1.2				(1.5	)			1.4
Effective income tax rate		28.9		%		35.3		%		28.6		%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. On December 31, 2021, the Company had net operating loss carryforwards (NOL’s) of approximately $344 million, of which approximately $340 million have no expiration date. The remaining losses expire on various dates through 2025. The Company also has $25 million of U.S. Foreign Tax Credit carry forwards, which begin to expire in 2026.

Valuation allowances have been established which partially offset the related deferred assets. Such allowances are primarily provided against NOL’s of companies that have perennially incurred losses, as well as the NOL’s of companies that are start-up operations and have not established a pattern of profitability. The Company assesses all available evidence, both positive and negative, to determine the amount of any required valuation allowance.

The foreign tax rate variance reflects the fact that approximately two-thirds of the Company’s non-U.S. pre-tax income is generated by business operations located in tax jurisdictions where the tax rate is between 20-30%. The tax rate from quarter to quarter and from year to year is also impacted by the mix of earnings and tax rates in various jurisdictions compared to the same periods or prior years.

The Company has reserves for income taxes that may become payable in future periods as a result of tax audits. These reserves represent the Company’s best estimate of the potential liability for tax exposures. Inherent uncertainties exist in estimates of tax exposures due to changes in tax law, both legislated and concluded through the various jurisdictions’ court systems. The Company files income tax returns in the United States federal jurisdiction, and various states and non-U.S. jurisdictions.

At any given time, the Company is undergoing tax audits in several tax jurisdictions, covering multiple years. The Company is no longer subject to income tax examination by the U.S. Federal tax authorities for years prior to 2015. With few exceptions, the Company is no longer subject to income tax examination by U.S. state or local tax authorities or by non-U.S. tax authorities for years before 2010. The Company is undergoing tax audits in several non-U.S. jurisdictions and several U.S. state jurisdictions, covering multiple years. As of December 31, 2021, as a result of those tax examinations, the Company is not aware of any proposed income tax adjustments that would have a material impact on the Company’s financial statements, however, other audits could result in additional increases or decreases to the unrecognized tax benefits in some future period or periods.

The Company recognizes interest and potential penalties accrued related to unrecognized tax benefits in tax expense. As of December 31, 2020, the Company had recorded $46 million for unrecognized tax benefits related to prior years, including $10 million of accrued interest and penalties. During 2021, the Company recorded a net decrease of $2 million to income tax reserves for unrecognized tax benefits related to tax positions taken in prior years. Also during 2021, the Company recorded a net increase of $5 million to income tax reserves for unrecognized tax benefits based on tax positions taken in the current year.

The Company had $11 million accrued for the payment of interest and penalties as of December 31, 2021. Of the total unrecognized tax benefits of $49 million recorded at December 31, 2021, $15 million is classified as current income tax payable, and $34 million is classified as non-current tax payable included in Other Non-Current Liabilities on the Consolidated Balance Sheets. Substantially all of these reserves would impact the effective tax rate if released into income. The following table summarizes the activity related to the Company’s unrecognized tax benefits (dollars in millions):

UNRECOGNIZED TAX BENEFITS	2021			2020			2019
Unrecognized tax benefits at beginning of year	$	63		$	59		$	50
Increases as a result of tax positions taken during a prior    period		3			1			4
Increases as a result of tax positions taken during the current    period		5			4			6
Decreases as a result of tax positions taken during the    current period		0			0			0
Decreases relating to settlements with taxing authorities		(4	)		0			0
Decreases resulting from the lapse of the applicable statute    of limitations		(1	)		(1	)		(1	)
Translation Difference		(1	)		(0	)		0
Total unrecognized tax benefits at end of year	$	65		$	63		$	59

The tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities were as follows (dollars in millions).

DEFERRED TAXES	December 31,
	2021			2020			2019
Assets
Provisions	$	136		$	141		$	105
Costs capitalized for tax		29			21			26
Property, plant and equipment		0			5			10
Retirement Plans		46			59			61
Tax receivables, principally NOL’s		109			110			94
Deferred tax assets before allowances		320			336			295
Valuation allowances		(59	)		(68	)		(61	)
Total	$	261		$	268		$	234
Liabilities
Acquired intangibles	$	0		$	(2	)	$	(4	)
Statutory tax allowances		(6	)		(0	)		(0	)
Distribution taxes		(6	)		(15	)		(15	)
Other		(3	)		(4	)		(7	)
Total		(15	)		(21	)		(26	)
Net deferred tax asset	$	246		$	247		$	208

The following table summarizes the activity related to the Company’s valuation allowances (dollars in millions):

VALUATION ALLOWANCES AGAINST DEFERRED TAX ASSETS	December 31,
	2021			2020			2019
Allowances at beginning of year	$	68		$	61		$	71
Benefits reserved current year		5			14			4
Benefits recognized current year		(9	)		(1	)		(11	)
Translation difference		(5	)		(6	)		(4	)
Allowances at end of year	$	59		$	68		$	61