Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

In December 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted and was effective January 1, 2018. The U.S. Treasury has issued various final and proposed regulatory packages supplementing the TCJA provisions since 2018. On December 28, 2021, the U.S. Treasury issued final foreign tax credit regulations clarifying certain items in the TCJA and prior guidance related to disallowance of foreign income taxes related to income exempt from U.S. tax, treatment of debt between foreign affiliates for expense apportionment purposes, allocation and apportionment of foreign income taxes, and the definition of creditable foreign income taxes. The regulations were published in the Federal Register on January 4, 2022, and will be effective in the first quarter of 2022. The Company does not currently expect the final regulations to have a material impact to current or future income tax expense.

Income Tax Provision

Earnings (loss) from continuing operations before tax by jurisdiction are as follows:

	Year Ended December 31,
	2021	2020	2019
	(In $ millions)
U.S.	202	1,530	252
International	2,046	721	736
Total	2,248	2,251	988

The income tax provision (benefit) consists of the following:

	Year Ended December 31,
	2021	2020	2019
	(In $ millions)
Current
U.S.	—	13	(8)
International	323	126	149
Total	323	139	141
Deferred
U.S.	(16)	308	1
International	23	(200)	(18)
Total	7	108	(17)
Total	330	247	124

A reconciliation of the significant differences between the U.S. federal statutory tax rate of 21% and the effective income tax rate on income from continuing operations is as follows:

	Year Ended December 31,
	2021		2020		2019
	(In $ millions, except percentages)
Income tax provision computed at U.S. federal statutory tax rate	472		473		208
Change in valuation allowance	(50)		(1)		(47)
Equity income and dividends	(29)		(54)		(38)
(Income) expense not resulting in tax impact, net	(53)		(46)		(9)
U.S. tax effect of foreign earnings and dividends	332		65		85
Foreign tax credits	(328)		(51)		(76)
Other foreign tax rate differentials	(66)		7		4
Legislative changes	(8)		1		(3)
State income taxes, net of federal benefit	6		4		6
Recognition of basis differences in investments in affiliates	—		(14)		—
Asset transfers between wholly owned foreign affiliates	—		(170)		—
Other, net	54		33		(6)
Income tax provision (benefit)	330		247		124
Effective income tax rate	15	%	11	%	13	%

In October 2020, the Company completed the sale of its 45% joint venture equity interest in Polyplastics (see Note 7). The tax gain on this disposal was less than the related gain for financial reporting purposes due to basis differences. In November 2020, the Company relocated certain tangible and intangible assets in response to various geopolitical risks in certain regions in which it operates. The transfer of these assets between wholly owned foreign affiliates in this reorganization generated a deferred tax benefit of approximately $170 million. Included in the Other, net line in the effective income tax rate reconciliation above are charges of approximately $65 million and $40 million related to changes in uncertain tax positions for the years ended December 31, 2021 and 2020, respectively, and impacts of amended tax return filings.

Deferred Income Taxes

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. Significant components of the consolidated deferred tax assets and liabilities are as follows:

	As of December 31,
	2021	2020
	(In $ millions)
Deferred Tax Assets
Pension and postretirement obligations	96	132
Accrued expenses	31	32
Inventory	7	12
Net operating loss carryforwards	526	535
Tax credit carryforwards	207	247
Other	226	322
Subtotal	1,093	1,280
Valuation allowance(1)	(642)	(748)
Total	451	532
Deferred Tax Liabilities
Depreciation and amortization	312	256
Investments in affiliates	382	402
Other	64	124
Total	758	782
Net deferred tax assets (liabilities)	(307)	(250)

______________________________

(1)Includes deferred tax asset valuation allowances for the Company's deferred tax assets in the U.S., Luxembourg, Singapore, Spain, China, the United Kingdom, Mexico, Canada and France. These valuation allowances relate primarily to net operating loss carryforward benefits and other net deferred tax assets, all of which may not be realizable.

As a result of the TCJA, U.S. federal and state income taxes have been recorded on undistributed foreign earnings accumulated from 1986 through 2017. The Company's previously taxed income for its foreign subsidiaries significantly exceeds its offshore cash balances. The Company has not recorded a deferred tax liability for foreign withholding or other foreign local tax that would be due when cash is actually repatriated to the U.S. because those foreign earnings are considered permanently reinvested in the business or may be remitted substantially free of any additional local taxes. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.

Tax Carryforwards

•Net Operating Loss Carryforwards

As of December 31, 2021, the Company had available U.S. federal net operating loss carryforwards of $25 million that are subject to limitation. These net operating loss carryforwards begin to expire in 2025. As of December 31, 2021, the Company also had available state net operating loss carryforwards, net of federal tax impact, of $28 million, $24 million of which are offset by a valuation allowance due to uncertain recoverability. The Company also has foreign net operating loss carryforwards available as of December 31, 2021 of $2.4 billion primarily for Canada, China, Luxembourg, Malta, Mexico, Singapore, Spain, and the United Kingdom, with various expiration dates. Net operating loss carryforwards of $125 million in China are scheduled to expire beginning in 2022 through 2025. Net operating losses in most other foreign jurisdictions do not have an expiration date.

•Tax Credit Carryforwards

The Company had available $184 million of foreign tax credit carryforwards, which are offset by a valuation allowance of $171 million due to uncertain recoverability and $18 million of alternative minimum tax credit carryforwards in the U.S. The foreign tax credit carryforwards are subject to a ten-year carryforward period and expire beginning in 2027. The alternative minimum tax credits are subject to annual limitation due to prior ownership changes but have an unlimited carryforward period and can be used to offset federal tax liability in future years.

The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is necessary. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in the applicable carryback or carryforward periods. Changes in the Company's estimates of future taxable income and prudent and feasible tax planning strategies will affect the estimate of the realization of the tax benefits of these foreign tax credit carryforwards. As such, the Company is currently evaluating tax planning strategies to enable use of the foreign tax credit carryforwards that may decrease the Company's effective tax rate in future periods as the valuation allowance is reversed.

Uncertain Tax Positions

Activity related to uncertain tax positions is as follows:

	Year Ended December 31,
	2021	2020	2019
	(In $ millions)
As of the beginning of the year	165	134	162
Increases in tax positions for the current year	33	18	1
Increases in tax positions for prior years(1)	28	26	37
Decreases in tax positions for prior years	(11)	(13)	(41)
Increases (decreases) due to settlements	3	—	(25)
As of the end of the year	218	165	134
Total uncertain tax positions that if recognized would impact the effective tax rate	224	182	132
Total amount of interest expense (benefit) and penalties recognized in the consolidated statements of operations(2)	2	6	5
Total amount of interest expense and penalties recognized in the consolidated balance sheets	52	54	45

______________________________

(1)Includes the impact on uncertain tax positions for the year ended December 31, 2019 due to the closure of federal income tax audits for the years 2009 through 2012.

(2)This amount reflects interest on uncertain tax positions and release of tax positions due to changes in assessment, statute lapses, or audit closures that were reflected in the consolidated statements of operations.

The increase in uncertain tax positions for the year ended December 31, 2021 was primarily due to increases in foreign tax positions.

The Company primarily operates in the U.S., Germany, Belgium, Canada, China, Italy, Mexico, the Netherlands, the United Kingdom, Switzerland and Singapore. Examinations are ongoing in a number of these jurisdictions. The Company's tax returns are under audit for the years 2013 through 2015 by the U.S., the Netherlands and Germany (the "Authorities"). On September 30, 2021, the Company received a draft joint audit report proposing adjustments to transfer pricing and the reallocation of income between the related jurisdictions. The Authorities also propose to apply these adjustments to open tax years through 2019. The Company is engaged in discussions with the Authorities to evaluate the proposals and is currently evaluating all potential remedies.

The Company believes that an adequate provision for income taxes has been made for all open tax years related to the examination. However, the outcome of tax audits cannot be predicted with certainty. If any issues raised by the Authorities are resolved in a manner inconsistent with the Company's expectations or the Company is unsuccessful in defending its position,

the Company could be required to adjust its provision for income taxes in the period such resolution occurs. If required, any such adjustments could be material to the statements of operations and cash flows in the period(s) recorded.

In addition, the Company's Mexico tax returns are under audit for the years 2018 and 2019. On January 14, 2022, the Mexico tax authorities issued preliminary findings for disallowance of operating expenses on several of the applicable tax returns. The Company has determined that the preliminary findings are unfounded and will take the necessary steps to provide the requested documentation to mitigate any potential liability through the next phase of the audit.