Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(In percentages)
Effective income tax rate	12	16	19	13

The lower effective income tax rate for the three months ended September 30, 2020 compared to the same period in 2019 was primarily due to an income tax benefit of $16 million, related to the recognition of a net deferred tax asset, representing the Company's excess tax basis in an equity affiliate. This was partially offset by an increase in the valuation allowance on US foreign tax credits due to revised forecasts of foreign sourced income and expenses during the carryforward period.

The higher effective income tax rate for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to adjustments related to the impacts of certain uncertain tax positions due to available tax attribute carryforwards, the impact of functional currency differences in offshore jurisdictions and increases in the valuation allowance on US foreign tax credit carryforwards due to revised forecasts of foreign sourced income and expenses during the carryforward period. This was partially offset by the income tax benefit recorded for an equity affiliate, discussed above.

Due to the Tax Cuts and Jobs Act ("TCJA") and uncertainty as to future foreign source income, the Company previously recorded a valuation allowance on a substantial portion of its foreign tax credits. The Company is currently evaluating tax planning strategies that would allow utilization of the Company's foreign tax credit carryforwards. Implementation of these strategies in future periods could reduce the level of valuation allowance that is needed, thereby decreasing the Company's effective tax rate.

The US Treasury issued additional final and proposed guidance supplementing the TCJA provisions in 2019, which the Company does not expect to have a material impact on current or future income tax expense. The Company will continue to monitor the expected impacts on the Company's filing positions and will record the impacts as discrete income tax expense adjustments in the period that the guidance is finalized or becomes effective.

In response to COVID-19, various global taxing authorities passed or are considering relief initiatives to aid tax payers from an effective tax rate or cash flow perspective. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in the US in response to the global pandemic. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of social security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property and the creation of certain refundable employee retention credits. The Company does not currently expect the CARES Act to have a material impact on its tax expense. In Germany, the Company was approved for a deferral of corporate income tax payments for 2020. The Company will continue to monitor global legislative and regulatory developments related to COVID-19 and will record the associated tax impacts as discrete events in the periods that guidance is finalized or the Company is able to estimate an impact.

The Company's 2013 through 2015 tax years are under joint examination by the US, German and Dutch taxing authorities. The examinations are in the preliminary data gathering phase.