Income Tax

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Tax

19. Income Tax

The provision for income tax from continuing operations was as follows:

	Years Ended December 31,
	2019			2018			2017
	(In millions)
Current:
U.S. federal	$	(189	)	$	(207	)	$	(246	)
U.S. state and local	4			11			5
Non-U.S.	850			932			891
Subtotal	665			736			650
Deferred:
U.S. federal	(235		)	342			(2,373		)
Non-U.S.	456			101			253
Subtotal	221			443			(2,120		)
Provision for income tax expense (benefit)	$	886		$	1,179		$	(1,470	)

The Company’s income (loss) from continuing operations before income tax expense (benefit) was as follows:

	Years Ended December 31,
	2019		2018			2017
	(In millions)
Income (loss) from continuing operations:
U.S.	$	2,094	$	(803	)	$	684
Non-U.S.	4,701		7,110			2,852
Total	$	6,795	$	6,307		$	3,536

The reconciliation of the income tax provision at the U.S. statutory rate (21% in 2019 and 2018; 35% in 2017) to the provision for income tax as reported for continuing operations was as follows:

	Years Ended December 31,
	2019			2018			2017
	(In millions)
Tax provision at U.S. statutory rate	$	1,427		$	1,325		$	1,238
Tax effect of:
Dividend received deduction	(37		)	(35		)	(67		)
Tax-exempt income	(64		)	(29		)	(97		)
Prior year tax (1)	(179		)	(197		)	(27		)
Low income housing tax credits	(254		)	(284		)	(278		)
Other tax credits	(52		)	(79		)	(102		)
Foreign tax rate differential (2), (3), (4)	395			335			(95		)
Change in valuation allowance	(22		)	(2		)	(8		)
Separation tax benefits	—			—			(540		)
U.S. Tax Reform impact (5), (6), (7)	(326		)	78			(1,519		)
Other, net (8)	(2		)	67			25
Provision for income tax expense (benefit)	$	886		$	1,179		$	(1,470	)

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(1) As discussed further below, prior year tax includes a non-cash benefit related to an uncertain tax position of $158 million and $168 million for the years ended December 31, 2019 and 2018, respectively.

(2) For the year ended December 31, 2019, foreign tax rate differential includes tax charges of $61 million from the definitive agreement to sell MetLife Hong Kong and $12 million related to the U.S. tax on Global Intangible Low-Taxed Income (“GILTI”), of which $35 million is a current year charge offset by a $23 million tax benefit revising the 2018 estimate.

(3) For the year ended December 31, 2018, foreign tax rate differential includes tax charges of $45 million related to GILTI, $17 million related to a tax adjustment in Chile and $13 million from changes in the valuation of the peso in Argentina.

(4) For the year ended December 31, 2017, foreign tax rate differential includes a net tax charge of $180 million as a result of repatriation. Included in the net tax charge of $180 million is a $444 million tax charge related to the repatriation of approximately $3.0 billion of pre-2017 earnings following the post-Separation review of the Company’s capital needs. This charge was partially offset by a $264 million tax benefit associated with dividends from other non-U.S. operations. This charge was recorded prior to U.S. Tax Reform.

(5) For the year ended December 31, 2019, U.S. Tax Reform impact includes a $317 million tax benefit related to the deemed repatriation transition tax and $9 million related to the effect of sequestration on the alternative minimum tax credit.

(6) For the year ended December 31, 2018, U.S. Tax Reform impact includes a $468 million tax charge related to the deemed repatriation transition tax, offset by a $390 million tax benefit related to the adjustment of deferred taxes due to the U.S. tax rate change. This excludes $12 million of tax provision at the U.S. statutory rate for a total tax reform charge of $66 million.

(7) For the year ended December 31, 2017, U.S. Tax Reform impact of ($1.5) billion excludes ($101) million of tax provision at the U.S. statutory rate for a total tax reform benefit of ($1.6) billion.

(8) For the year ended December 31, 2018, other includes tax charges of $69 million related to the non-deductible loss incurred on the mark-to-market and exchange of FVO Brighthouse Common Stock and $18 million related to a non-deductible Patient Protection and Affordable Care Act excise tax, offset by a tax benefit of $36 million related to a non-cash transfer of assets from a wholly-owned U.K. subsidiary to its U.S. parent.

On December 22, 2017, President Trump signed into law U.S. Tax Reform. U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018. U.S. Tax Reform moves the United States from a worldwide tax system to a participation exemption system by providing corporations a 100% dividends received deduction for dividends distributed by a controlled foreign corporation. To transition to that new system, U.S. Tax Reform imposed a one-time deemed repatriation tax on unremitted earnings and profits at a rate of 8.0% for illiquid assets and 15.5% for cash and cash equivalents.

The Company recorded estimates of the impacts of U.S. Tax Reform in the period of enactment, the fourth quarter of 2017. In 2018, these estimates were updated in accordance with SAB 118. However, the impact of certain provisions of U.S. Tax Reform remains uncertain. For instance, many regulations under the new law have not been finalized or have only recently been finalized, including certain rules on international taxation. As a result, the Company continued to report additional revisions resulting from U.S. Tax Reform in 2019.

The incremental financial statement impact related to U.S. Tax Reform was as follows:

	Years Ended December 31,
	2019			2018			2017
	(In millions)
Income (loss) from continuing operations before provision for income tax	$	—		$	(58	)	$	(289	)
Provision for income tax expense (benefit):
Deemed repatriation	(317		)	468			170
Deferred tax revaluation	(9		)	(402		)	(1,790		)
Total provision for income tax expense (benefit)	(326		)	66			(1,620		)
Income (loss) from continuing operations, net of income tax	326			(124		)	1,331
Income tax (expense) benefit related to items of other comprehensive income (loss)	—			—			144
Increase to net equity from U.S. Tax Reform	$	326		$	(124	)	$	1,475

In accordance with SAB 118 issued by the SEC in December 2017, the Company recorded provisional amounts for certain items for which the income tax accounting was not complete. For these items, the Company recorded a reasonable estimate of the tax effects of U.S. Tax Reform. The estimates were reported as provisional amounts during the measurement period, which did not exceed one year from the date of enactment of U.S. Tax Reform. In 2018, the Company reflected adjustments to its provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts. While the SAB 118 provisional measurement period ended December 31, 2018, the Company continued to revise certain U.S. Tax Reform amounts in 2019.

As of December 31, 2017, the following items were considered provisional estimates due to complexities and ambiguities in U.S. Tax Reform which resulted in incomplete accounting for the tax effects of these provisions. Further guidance, either legislative or interpretive, and analysis were completed and updates were made to complete the accounting for these items during the measurement period as of December 31, 2018 and subsequent to the measurement period as of December 31, 2019:

• Deemed Repatriation Transition Tax - The Company recorded a $170 million charge for this item for the year ended December 31, 2017. This charge was in addition to the $180 million charge recorded in the third quarter of 2017 resulting from the post-Separation review of the Company’s capital needs. The total transition tax liability recorded for the year ended December 31, 2017 was $350 million. In 2018, the IRS issued proposed regulations related to the transition tax. As a result, for the year ended December 31, 2018, the Company recorded a $468 million charge. In 2019, as a result of executing a binding agreement with the IRS, the Company recorded a tax benefit of $317 million to settle this matter. This agreement resolved uncertainty regarding the taxation of certain dividends from certain foreign subsidiaries paid prior to U.S. Tax Reform.

• GILTI - U.S. Tax Reform imposes a minimum tax on GILTI, which is generally the excess income of foreign subsidiaries over a 10% rate of routine return on tangible business assets. For the year ended December 31, 2017, the Company did not record a tax charge for this item. In 2018, the Company established an accounting policy in which it treats taxes due on GILTI as a current-period expense when incurred. Accordingly, the Company recorded tax charges of $12 million and $45 million related to this income for the periods ended December 31, 2019 and 2018, respectively.

• Compensation and Fringe Benefits - U.S. Tax Reform limits certain employer deductions for fringe benefit and related expenses and also repeals the exception allowing the deduction of certain performance-based compensation paid to certain senior executives. The Company recorded an $8 million tax charge, included within the deferred tax revaluation as of December 31, 2017. The Company determined that no additional adjustment was required for the years ended December 31, 2019 and 2018.

• Alternative Minimum Tax Credits - U.S. Tax Reform eliminates the corporate alternative minimum tax and allows for minimum tax credit carryforwards to be used to offset future regular tax or to be refunded 50% each tax year beginning in 2018, with any remaining balance fully refunded in 2021. However, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued for corporations claiming refundable prior year alternative minimum tax credits are subject to a sequestration rate of 6.2%. The application of this fee to refunds in future years is subject to further guidance. Additionally, the sequestration reduction rate in effect at the time is subject to uncertainty. For the year ended December 31, 2017, the Company recorded a $9 million tax charge, included within the deferred tax revaluation. For the year ended December 31, 2018, the Company determined that no additional adjustment was required. In early 2019, the IRS issued guidance indicating that for years beginning after December 31, 2017, refund payments and credit elect and refund offset transactions due to refundable alternative minimum tax credits will not be subject to the sequestration fee. Accordingly, to reflect this guidance the Company recorded a $9 million tax benefit in 2019.

• Tax Credit Partnerships - The reduction in the federal corporate income tax rate due to U.S. Tax Reform required adjustments for multiple investment portfolios, including tax credit partnerships and tax-advantaged leveraged leases. Certain tax credit partnership investments derive returns in part from income tax credits. The Company recognizes changes in tax attributes at the partnership level when reported by the investee in its financial information. The Company did not receive the necessary investee financial information to determine the impact of U.S. Tax Reform on the tax attributes of its tax credit partnership investments until the third quarter of 2018. Accordingly, prior to the third quarter of 2018, the Company applied prior law to these equity method investments in accordance with SAB 118. For the year ended December 31, 2018, after receiving additional investee information, a reduction in tax credit partnerships’ equity method income of $46 million, net of income tax, was included in net investment income. The tax-advantaged leveraged lease portfolio is valued on an after-tax yield basis. In 2018, the Company received third party data that was used to complete a comprehensive review of its portfolio to determine the full and complete impact of U.S. Tax Reform on these investments. As a result of this review, a tax benefit of $125 million was recorded for the year ended December 31, 2018. No additional adjustment was required for the year ended December 31, 2019.

U.S. Tax Reform required the Company to recognize a transition tax on all previously unremitted non-U.S. earnings at December 31, 2017. However, the Company has not provided for U.S. deferred taxes on the remaining excess of book bases over tax bases of certain investments in non-U.S. subsidiaries that are essentially permanent in duration. The amount of deferred tax liability related to the Company’s remaining basis difference in these non-U.S. subsidiaries is $193 million at December 31, 2019.

Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:

	December 31,
	2019			2018
	(In millions)
Deferred income tax assets:
Policyholder liabilities and receivables	$	3,635		$	3,558
Net operating loss carryforwards (1)	240			237
Employee benefits	692			705
Capital loss carryforwards	10			—
Tax credit carryforwards (2)	1,296			1,113
Litigation-related and government mandated	151			161
Other	127			365
Total gross deferred income tax assets	6,151			6,139
Less: Valuation allowance (1)	294			302
Total net deferred income tax assets	5,857			5,837
Deferred income tax liabilities:
Investments, including derivatives	4,170			3,854
Intangibles	1,181			1,256
Net unrealized investment gains	6,226			2,898
DAC	3,312			3,243
Total deferred income tax liabilities	14,889			11,251
Net deferred income tax asset (liability) (3)	$	(9,032	)	$	(5,414	)

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(1) The Company has recorded a deferred tax asset of $240 million related to U.S. state and non-U.S. net operating loss carryforwards and an offsetting valuation allowance for the year ended December 31, 2019. Certain net operating loss carryforwards will expire between 2020 and 2039, whereas others have an unlimited carryforward period. The valuation allowance reflects management’s assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain U.S. state and non-U.S. net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable.

(2) Tax credit carryforwards for the year ended December 31, 2019 primarily reflect general business credits expiring between 2036 and 2039 and are reduced by $113 million related to unrecognized tax benefits.

(3) On the consolidated balance sheet at December 31, 2019, $9,097 million is reported in Deferred income tax liability for jurisdictions in a net deferred income tax liability position and $65 million of a deferred income tax asset is reported in Other assets for jurisdictions in a net deferred income tax asset position.

Certain deferred income tax amounts at December 31, 2018 have been reclassified to conform to the 2019 presentation. The reclassification did not result in a change to the prior year net deferred income tax asset (liability) balance. The significant impacts related to deferred income tax assets were a $671 million increase to Policyholder liabilities and receivables and a

$173 million increase to Other. The significant impacts related to deferred income tax liabilities were a $1.4 billion increase to Investments, including derivatives, and a $495 million decrease to Other. Additionally, the deferred income tax asset for Net operating loss carryforwards and offsetting Valuation allowance both increased by $133 million. The reclassifications resulted from a comprehensive review in 2019 of the tax effects between the book and tax bases of assets and liabilities, primarily with respect to the Company’s U.S. businesses.

The Company files income tax returns with the U.S. federal government and various U.S. state and local jurisdictions, as well as non-U.S. jurisdictions. The Company is under continuous examination by the IRS and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to U.S. federal, state, or local income tax examinations for years prior to 2007, except for refund claims filed in 2017 with the IRS for 2000 through 2002 to recover tax and interest predominantly related to the disallowance of certain foreign tax credits for which the Company received a statutory notice of deficiency in 2015 and paid the tax thereon. The disallowed foreign tax credits relate to certain non-U.S. investments held by MLIC in support of its life insurance business through a United Kingdom investment subsidiary that was structured as a joint venture until early 2009.

For tax years 2000 through 2002 and tax years 2007 through 2009, the Company entered into binding agreements with the IRS in 2019 under which all remaining issues regarding the foreign tax credit matter noted above were resolved. Accordingly, in 2019, the Company recorded a non-cash benefit to net income of $226 million, net of tax, comprised of a $158 million tax benefit recorded in provision for income tax expense (benefit) and a $86 million interest benefit ($68 million, net of tax) included in other expenses. For tax years 2003 through 2006, the Company entered into binding agreements with the IRS in 2018 under which all remaining issues, including the foreign tax credit matter noted above, were resolved. Accordingly, in 2018, the Company recorded a non-cash benefit to net income of $349 million, net of tax, comprised of a $168 million tax benefit recorded in provision for income tax expense (benefit) and a $229 million interest benefit ($181 million, net of tax) included in other expenses. For tax years 2007 through 2009 (which are the subject of the current IRS examination), the Company has established adequate reserves for tax liabilities. In material non-U.S. jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2013.

The Company’s overall liability for unrecognized tax benefits may increase or decrease in the next 12 months. For example, U.S. federal tax legislation and regulation could impact unrecognized tax benefits. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

	Years Ended December 31,
	2019			2018			2017
	(In millions)
Balance at January 1,	$	1,111		$	1,102		$	1,146
Additions for tax positions of prior years (1)	6			269			70
Reductions for tax positions of prior years (2)	(493		)	(195		)	(101		)
Additions for tax positions of current year (1)	13			226			33
Reductions for tax positions of current year	—			(3		)	(3		)
Settlements with tax authorities (3)	(381		)	(288		)	(43		)
Balance at December 31,	$	256		$	1,111		$	1,102
Unrecognized tax benefits that, if recognized, would impact the effective rate	$	194		$	1,046		$	1,073

__________________

(1) The increase in 2018 is primarily related to the deemed repatriation transition tax and related IRS regulations.

(2) The decreases are primarily related to non-cash benefits from tax audit settlements.

(3) The decreases in 2019 and 2018 are primarily related to the tax audit settlement, of which $377 million and $284 million, respectively, was reclassified to the current income tax payable account.

The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses.

Interest was as follows:

	Years Ended December 31,
	2019			2018			2017
	(In millions)
Interest expense (benefit) recognized on the consolidated statements of operations (1)	$	(179	)	$	(441	)	$	37
				December 31,
				2019			2018
				(In millions)
Interest included in other liabilities on the consolidated balance sheets				$	39		$	218

__________________

(1)

The decreases in 2019 and 2018 are primarily related to the tax audit settlement, of which $60 million and $168 million, respectively, was recorded in other expenses and $119 million and $273 million, respectively, was reclassified to the current income tax payable account.