Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesIn 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. In December 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. taxation, treatment of debt between foreign affiliates for expense apportionment purpose, 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 became effective in the three months ended March 31, 2022. In November 2022, the U.S. Treasury released proposed foreign tax credit regulations addressing the eligibility of foreign taxes for credit by clarifying the cost recovery requirements, attribution requirements for withholding taxes on royalties and attribution definitions regarding allocation and apportionment of foreign taxes. The Company does not expect the final or the proposed regulations to have a material impact to current or future income tax expense.

In August 2022, the Inflation Reduction Act (the "IRA") was enacted and included a 1% excise tax on share repurchases in excess of $1 million, and a corporate minimum tax of 15% on adjusted book earnings. The corporate minimum tax paid is creditable in future years to the extent that regular tax liability exceeds the minimum tax in any given year. The Company does not expect these provisions will have a material impact to future income tax expense. The IRA also provides various beneficial credits for energy efficient related manufacturing, transportation and fuels, hydrogen/carbon recapture and renewable energy, which the Company is evaluating in regard to planned projects.

The Company will continue to monitor the expected impacts of any new guidance on the Company's filing positions and will record the impacts as discrete income tax expense adjustments in the period the guidance is finalized or becomes effective.

Income Tax Provision

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

	Year Ended December 31,
	2022	2021	2020
	(In $ millions)
U.S.	(292)	202	1,530
International	1,713	2,046	721
Total	1,421	2,248	2,251

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

	Year Ended December 31,
	2022	2021	2020
	(In $ millions)
Current
U.S.	54	—	13
International	306	323	126
Total	360	323	139
Deferred
U.S.	(261)	(16)	308
International	(588)	23	(200)
Total	(849)	7	108
Total	(489)	330	247

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,
	2022		2021		2020
	(In $ millions, except percentages)
Income tax provision computed at U.S. federal statutory tax rate	298		472		473
Change in valuation allowance	(15)		(50)		(1)
Equity income and dividends	(47)		(29)		(54)
(Income) expense not resulting in tax impact, net	2		(53)		(46)
U.S. tax effect of foreign earnings and dividends	162		332		65
Foreign tax credits	(120)		(328)		(51)
Other foreign tax rate differentials	(43)		(66)		7
Legislative changes	—		(8)		1
State income taxes, net of federal benefit	(2)		6		4
Recognition of basis differences in investments in affiliates	6		—		(14)
Asset transfers between wholly owned foreign affiliates	(816)		—		(170)
Other, net	86		54		33
Income tax provision (benefit)	(489)		330		247
Effective income tax rate	(34)	%	15	%	11	%

In December 2022, as part of its integration efforts for the M&M Acquisition (see Note 4) and to simplify future cash flows for purposes of acquisition debt repayment, the Company reorganized its foreign legal entity holding structure and relocated certain of its intangible assets to align with the acquired M&M foreign operations. The transfer of these assets between wholly owned foreign affiliates, generated a net deferred tax benefit of approximately $800 million.

Included in the Other, net line in the effective income tax rate reconciliation above are charges of approximately $20 million related to transaction costs for the M&M Acquisition for the year ended December 31, 2022, and $63 million, $65 million and $40 million related to changes in uncertain tax positions for the years ended December 31, 2022, 2021 and 2020, respectively, and impacts of amended tax return filings.

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.

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,
	2022	2021
	(In $ millions)
Deferred Tax Assets
Pension and postretirement obligations	61	96
Accrued expenses	80	31
Inventory	(11)	7
Net operating loss carryforwards	528	526
Tax credit carryforwards	359	207
Other	400	226
Subtotal	1,417	1,093
Valuation allowance(1)	(781)	(642)
Total	636	451
Deferred Tax Liabilities
Depreciation and amortization	743	312
Investments in affiliates	171	382
Other	156	64
Total	1,070	758
Net deferred tax assets (liabilities)	(434)	(307)

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(1)Includes deferred tax asset valuation allowances for the Company's deferred tax assets in the U.S., Spain, Luxembourg, the United Kingdom, Mexico, Hong Kong, France, China, Singapore, Canada and Germany. These valuation allowances relate primarily to net operating loss carryforward benefits, foreign tax credit carryforwards 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 and Capital Loss Carryforwards

As of December 31, 2022, the Company had available U.S. federal net operating loss carryforwards of $22 million that are subject to limitation. These net operating loss carryforwards begin to expire in 2025. As of December 31, 2022, the Company also had available state net operating loss carryforwards, net of federal tax impact, of $32 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, 2022 of $3.0 billion primarily for Malta, Luxembourg, Spain, the United Kingdom, Singapore, Switzerland, Hong Kong and China with various expiration dates. Net operating loss carryforwards of $34 million in China are scheduled to expire beginning in 2023 through 2027. Net operating losses in most other foreign jurisdictions do not have an expiration date. The Company acquired capital loss carryforwards of $173 million as part of the M&M Acquisition (Note 4) that are subject to annual limitation due to the ownership change. The Company fully offset these capital loss carryforwards with a valuation allowance due to uncertain recoverability.

•Tax Credit Carryforwards

The Company had available $337 million of foreign tax credit carryforwards, which are offset by a valuation allowance of $298 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 begin to expire 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,
	2022	2021	2020
	(In $ millions)
As of the beginning of the year	218	165	134
Increases in tax positions for the current year	8	33	18
Increases in tax positions for prior years	102	28	26
Decreases in tax positions for prior years	(45)	(11)	(13)
Increases (decreases) due to settlements	(8)	3	—
As of the end of the year	275	218	165
Total uncertain tax positions that if recognized would impact the effective tax rate	274	224	182
Total amount of interest expense (benefit) and penalties recognized in the consolidated statements of operations(1)	10	2	6
Total amount of interest expense and penalties recognized in the consolidated balance sheets	59	52	54

______________________________

(1)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, 2022 was primarily due to increases in foreign tax positions related to ongoing tax examinations.

The Company's tax returns have been under joint audit for the years 2013 through 2015 by the United States, Netherlands and Germany (the "Authorities"). In September 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 proposed to apply these adjustments to open tax years through 2019. The Company and the Authorities were unable to reach an agreement jointly and therefore the audits continued on a separate jurisdictional basis. In the last quarter of 2022, the Company concluded settlement discussions with the Dutch tax authorities. Based on these discussions, the Company recorded total tax reserves of $34 million related to the joint audit for years prior to 2022. The Company is engaged in continuing discussions with the other Authorities and is currently evaluating all additional potential remedies regarding the ongoing examinations.

As of December 31, 2022, the Company believes that an adequate provision for income taxes has been made for all open tax years related to the examinations by the Authorities. 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 income tax returns in Mexico are under audit for the years 2017 and 2018, and in Canada for the years 2016 through 2018. 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 analyzed the preliminary findings, engaged in preliminary discussions with the Mexico tax authorities and has recorded the appropriate tax reserves as of December 31, 2022. The Company will continue discussions with the Mexico authorities in 2023. Related to Canada, the Company is discussing preliminary findings with the Canadian authorities and does not expect a material impact to income tax expense.