Income taxes

12 Months Ended

Dec. 31, 2023

Income taxes

Income taxes

Note 12 – Income taxes:

	Years ended December 31,
	2021		2022		2023
	(In millions)
Pre-tax income (loss):
U.S.	$	25.5	$	44.1	$	(1.5)
Non-U.S.		127.9		89.8		(71.4)
Total	$	153.4	$	133.9	$	(72.9)
Expected tax expense (benefit), at U.S. federal statutory    income tax rate of 21%	$	32.2	$	28.1	$	(15.3)
Non-U.S. tax rates		4.6		2.1		(6.3)
Incremental net tax benefit on earnings and losses of U.S.    and non-U.S. companies		(3.9)		(.5)		(4.7)
Valuation allowance, net		3.1		(3.6)		2.6
Global intangible low-tax income, net		2.8		2.1		(.3)
Adjustment to the reserve for uncertain tax positions, net		-		(.4)		(.5)
Nondeductible expenses		1.0		.9		1.0
U.S. state income taxes and other, net		.7		.7		(.3)
Income tax expense (benefit)	$	40.5	$	29.4	$	(23.8)
Components of income tax expense (benefit):
Current payable:
U.S. federal and state	$	4.6	$	10.7	$	2.0
Non-U.S.		21.6		20.1		13.5
		26.2		30.8		15.5
Deferred income taxes (benefit):
U.S. federal and state		3.3		(3.0)		(3.7)
Non-U.S.		11.0		1.6		(35.6)
		14.3		(1.4)		(39.3)
Income tax expense (benefit)	$	40.5	$	29.4	$	(23.8)
Comprehensive provision for income taxes (benefit) allocable to:
Net income (loss)	$	40.5	$	29.4	$	(23.8)
Other comprehensive income (loss):
Pension plans		24.0		49.3		(6.7)
OPEB plans		-		.4		(.2)
Total	$	64.5	$	79.1	$	(30.7)

The amount shown in the preceding table of our income tax rate reconciliation for non-U.S. tax rates represents the result determined by multiplying the pre-tax earnings or losses of each of our non-U.S. subsidiaries by the difference between the applicable statutory income tax rate for each non-U.S. jurisdiction and the U.S. federal statutory tax rate. The amount shown on such table for incremental net tax benefit on earnings and losses of U.S. and non-U.S. companies includes, as applicable, (i) deferred income taxes (or deferred income tax benefits) associated with the current-year earnings of all of our non-U.S. subsidiaries and (ii) current U.S. income taxes (or current income tax benefit), including U.S. personal holding company tax, as applicable, attributable to current-year income (losses) of one of our non-U.S. subsidiaries, which subsidiary is treated as a dual resident for U.S. income tax purposes, to the extent the current-year income (losses) of such subsidiary is subject to U.S. income tax under the U.S. dual-resident provisions of the Internal Revenue Code.

The components of our net deferred income taxes at December 31, 2022 and 2023 are summarized in the following table.

	December 31,
	2022				2023
	Assets		Liabilities		Assets		Liabilities
	(In millions)
Tax effect of temporary differences related to:
Inventories	$	-	$	(5.5)	$	1.1	$	-
Property and equipment		-		(59.1)		-		(59.3)
Lease assets (liabilities)		5.3		(5.4)		5.7		(5.7)
Accrued OPEB costs		1.7		-		1.8		-
Accrued pension costs		21.6		-		26.8		-
Other accrued liabilities and deductible differences		15.3		-		16.9		-
Other taxable differences		-		(3.9)		-		(3.5)
Tax on unremitted earnings of non-U.S. subsidiaries		-		(11.3)		-		(10.8)
Tax loss and tax credit carryforwards		70.7		-		107.7		-
Valuation allowance		(3.8)		-		(6.4)		-
Adjusted gross deferred tax assets (liabilities)		110.8		(85.2)		153.6		(79.3)
Netting by tax jurisdiction		(58.8)		58.8		(70.3)		70.3
Net noncurrent deferred tax asset (liability)	$	52.0	$	(26.4)	$	83.3	$	(9.0)

We periodically review our deferred tax assets (DTA) to determine if a valuation allowance is required.  At December 31, 2023, we have German corporate and trade net operating loss (NOL) carryforwards of $478.7 million (DTA of $75.8 million) and $54.5 million (DTA of $5.9 million), respectively; Belgian corporate NOL carryforwards of $47.0 million (DTA of $11.8 million) and Canadian corporate and provincial NOL carryforwards of $31.5 million (DTA of $4.7 million) and $34.9 million (DTA of $4.0 million), respectively. We have concluded that no deferred income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally because (i) such carryforwards have lengthy carryforward periods (the German and Belgian carryforwards may be carried forward indefinitely and the Canadian carryforwards may be carried forward 20 years), (ii) we have utilized a portion of such carryforwards during the most recent three-year period and (iii) we currently expect to utilize the remainder of such carryforwards over the long term. However, prior to the complete utilization of such carryforwards, if we were to generate additional losses in our German, Belgian or Canadian operations for an extended period of time, or if applicable laws were to change such that the carryforward periods were more limited, it is possible that we might conclude the benefit of such carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point we would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.

The 2017 Tax Act limited our business interest expense to the sum of our business interest income and 30% of our adjusted taxable income as defined in the Tax Act. Any business interest expense disallowed as a deduction as a result of the limitation may be carried forward indefinitely. At December 31, 2022 and December 31, 2023, we have recorded deferred tax assets of $.9 million and $3.5 million, respectively, for the carryforwards associated with the nondeductible portion of our interest expense and have concluded we are required to recognize a valuation allowance for such deferred tax asset under the more-likely-than-not recognition criteria.  During 2023 we recognized a non-cash deferred income tax expense of $2.6 million with respect to the valuation allowance recorded on additional interest expense carryforwards.

Prior to the enactment of the 2017 Tax Act, the undistributed earnings of our European subsidiaries were deemed to be permanently reinvested (we had not made a similar determination with respect to the undistributed earnings of our Canadian subsidiary). Pursuant to the one-time repatriation tax (Transition Tax) provisions of the 2017 Tax Act which imposed a one-time repatriation tax on post-1986 undistributed earnings, we recognized current income tax expense of $74.5 million and elected to pay such tax in annual installments over an eight-year period beginning in 2018. At December 31, 2023, the balance of our unpaid Transition Tax is $33.5 million, with two remaining payments of $14.9 million due in 2024 and $18.6 million due in 2025. The payments are recorded as a current and noncurrent payable to affiliate (income taxes payable to Valhi) on our Consolidated Balance Sheet at December 31, 2023.

Tax authorities are examining certain of our U.S. and non-U.S. tax returns and may propose tax deficiencies, including penalties and interest. Because of the inherent uncertainties involved in settlement initiatives and court and tax proceedings, we cannot guarantee that these tax matters, if any, will be resolved in our favor, and therefore our potential exposure, if any, is also uncertain. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes. The amount of interest and penalties we accrued during 2021, 2022 and 2023 was not material.

The following table shows the changes in the amount of our uncertain tax positions (exclusive of the effect of interest and penalties discussed above) during 2021, 2022 and 2023:

	Years ended December 31,
	2021		2022		2023
	(In millions)
Changes in unrecognized tax benefits:
Unrecognized tax benefits at beginning of year	$	4.1	$	3.8	$	3.2
Tax positions taken in current period		.6		.7		.5
Lapse due to applicable statute of limitations		(.7)		(1.1)		(1.0)
Change in currency exchange rates		(.2)		(.2)		.1
Unrecognized tax benefits at end of year	$	3.8	$	3.2	$	2.8

At December 31, 2023, all of our uncertain tax benefits are classified as a component of our noncurrent deferred tax asset. If our uncertain tax position at December 31, 2023 was recognized, a benefit of $2.8 million would affect our effective income tax rate. We currently estimate that our unrecognized tax benefits will not change materially during the next twelve months.

We and Contran file income tax returns in U.S. federal and various state and local jurisdictions. We also file income tax returns in various non-U.S. jurisdictions, principally in Germany, Canada, Belgium and Norway. Our U.S. income tax returns prior to 2020 are generally considered closed to examination by applicable tax authorities. Our non-U.S. income tax returns are generally considered closed to examination for years prior to 2019 for Germany, 2020 for Belgium, 2018 for Canada and 2018 for Norway.