Income Taxes

12 Months Ended

Dec. 31, 2023

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 notices and 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 in January 2022 and became effective in March 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 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.

In December 2021, the Organization for Economic Co-operation and Development ("OECD") issued final Model Rules for Pillars One and Two of its Base Erosion and Profit Shifting ("BEPS") project. In general, Pillar One addresses nexus concerns and the allocation of profits among companies in which a multinational enterprise ("MNE") conducts its business. Pillar Two aims to ensure that all MNEs pay an effective tax rate of no less than 15% on their adjusted net income in each of the jurisdictions in which they have operations. Pillar Two is more impactful to the Company as it allows for assessment even if the individual countries do not enact its minimum tax provisions. In effect, Pillar Two allows any country within which an MNE operates to levy tax upon that MNE to the extent it determines that the MNE is paying less than a 15% effective tax rate on its adjusted net income. The taxes levied may then be allocated among the jurisdictions that conform to the OECD rules. In December 2022, the member states of the European Union ("EU") unanimously voted to adopt the OECD's minimum tax which was agreed to by consensus of the BEPS 2.0 (Pillars One and Two) signatory jurisdictions. Under the EU's minimum tax directive, member states are to adopt domestic legislation implementing the minimum tax rules effective for periods beginning on or after December 31, 2023, with Pillar Two's "under-taxed profit rule" to take effect for periods beginning on or after December 31, 2024. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. Legislatures in multiple countries outside of the EU have also drafted legislation to implement the OECD's minimum tax proposals.

On July 17, 2023, the OECD published Administrative Guidance proposing certain safe harbor provisions, including an effective rate test and a routine profits test, which if satisfied effectively delay effective dates of Pillar Two to January 1, 2027. The EU and a significant number of other countries are expected to implement the safe harbor in local legislation. Based on these safe harbor provisions, the Company currently expects that several material jurisdictions, including the U.S., Netherlands, Switzerland, Germany, China, Singapore and Canada, will qualify for the safe harbor effectively extending the application of the global minimum tax until January 1, 2027.

The Company will continue to monitor the developments and implementation of the OECD BEPS projects. Currently the Company does not meet the requirements for the application of Pillar One. After an initial assessment of the application of the safe harbor provisions, the Company is currently not expecting a material impact from the local adoption of the OECD Pillar Two proposals in 2024, but is continuing to model the effect of these provisions on its future effective tax rate and cash taxes.

Income Tax Provision

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

	Year Ended December 31,
	2023	2022	2021
	(In $ millions)
U.S.	(163)	(292)	202
International	1,346	1,713	2,046
Total	1,183	1,421	2,248

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

	Year Ended December 31,
	2023	2022	2021
	(In $ millions)
Current
U.S.	8	54	—
International	162	306	323
Total	170	360	323
Deferred
U.S.	(178)	(261)	(16)
International	(782)	(588)	23
Total	(960)	(849)	7
Total	(790)	(489)	330

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,
	2023		2022		2021
	(In $ millions, except percentages)
Income tax provision computed at U.S. federal statutory tax rate	248		298		472
Change in valuation allowance	(150)		(15)		(50)
Equity income and dividends	(27)		(47)		(29)
(Income) expense not resulting in tax impact, net	(9)		2		(53)
U.S. tax effect of foreign earnings and dividends	384		162		332
Foreign tax credits	(73)		(120)		(328)
Other foreign tax rate differentials	(108)		(43)		(66)
Legislative changes	(44)		—		(8)
State income taxes, net of federal benefit	(8)		(2)		6
Recognition of basis differences in investments in affiliates	—		6		—
Asset transfers between wholly owned foreign affiliates	(839)		(816)		—
Other, net	(164)		86		54
Income tax provision (benefit)	(790)		(489)		330
Effective income tax rate	(67)	%	(34)	%	15	%

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. The contractual provisions for these asset transfers provided for adjustments to the purchase price for business events occurring within the succeeding twelve months, and as a result, the Company recorded an additional deferred tax benefit of approximately $190 million in 2023.

In 2023, in furtherance of its integration strategy for the M&M Acquisition, the Company continued to relocate certain intangible assets to better align with the acquired M&M foreign operations. In addition, in late 2023, as part of its overall integration approach, the Company initiated a strategy to realign its European headquarters and principal operations to Switzerland to achieve operational efficiencies by leveraging an acquired site for future growth and improved alignment of ownership of intangible assets with future technology and innovation efforts to be conducted locally. These operational efficiencies are expected to include, (i) centralized regional manufacturing, sales and operational planning, procurement and business leadership and (ii) cost and facility savings.

The headquarters and principal operations realignment strategy, and the relocation of intangible assets to wholly owned foreign affiliates, generated a net deferred tax benefit of approximately $725 million. In addition, the relocation of these intangible assets resulted in the utilization of approximately $230 million of the Company's existing U.S. foreign tax credit carryforwards. These carryforwards had previously been offset by a full valuation allowance.

Included in the Other, net line in the effective income tax rate reconciliation above are the U.S. GAAP gain in excess of the tax gain related to the formation of the Nutrinova joint venture (see Note 4) of $102 million for the year ended December 31, 2023 and charges of approximately $20 million related to transaction costs for the M&M Acquisition for the year ended December 31, 2022. In addition, included in the Other, net line in the effective income tax rate reconciliation above are U.S. benefits of foreign derived intangible income of $72 million, $0 million, and $10 million; and changes in uncertain tax positions of $5 million, $63 million and $65 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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,
	2023	2022
	(In $ millions)
Deferred Tax Assets
Pension and postretirement obligations	61	61
Accrued expenses	56	80
Inventory	(13)	(11)
Net operating loss carryforwards	783	528
Tax credit carryforwards	135	359
Intangibles and other	737	400
Subtotal	1,759	1,417
Valuation allowance(1)	(656)	(781)
Total	1,103	636
Deferred Tax Liabilities
Depreciation and amortization	152	743
Investments in affiliates	188	171
Other	85	156
Total	425	1,070
Net deferred tax assets (liabilities)	678	(434)

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(1)Includes deferred tax asset valuation allowances for the Company's deferred tax assets in Luxembourg, the U.S., Spain, China, the United Kingdom, France, Mexico, 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, 2023, the Company had available U.S. federal net operating loss carryforwards of $20 million that are subject to limitation. These net operating loss carryforwards begin to expire in 2025. As of December 31, 2023, the Company also had available state net operating loss carryforwards, net of federal tax impact, of $42 million, $27 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, 2023 of $4.0 billion primarily for Malta, Luxembourg, Spain, the United Kingdom, Singapore, Switzerland, Hong Kong and China with various expiration dates. Net operating loss carryforwards of $17 million in China began to expire in 2023 and are scheduled to continue to expire through 2028. 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 $112 million of foreign tax credit carryforwards, which are fully offset by a valuation allowance 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,
	2023	2022	2021
	(In $ millions)
As of the beginning of the year	275	218	165
Increases in tax positions for the current year	10	8	33
Increases in tax positions for prior years	9	102	28
Decreases in tax positions for prior years	(35)	(45)	(11)
Increases (decreases) due to settlements	(35)	(8)	3
As of the end of the year	224	275	218
Total uncertain tax positions that if recognized would impact the effective tax rate	244	274	224
Total amount of interest expense (benefit) and penalties recognized in the consolidated statements of operations(1)	22	10	2
Total amount of interest expense and penalties recognized in the consolidated balance sheets	71	59	52

______________________________

(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, partially offset by releases due to completed examinations and statute closures.

The Company's tax returns have been under 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 fourth quarter of 2022, the Company concluded settlement discussions with the Dutch tax authorities. 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, 2023, 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 year 2018, and in Canada for the years 2016 through 2022. In August 2023, the Company negotiated a partial settlement with the Mexico tax authorities for its audit for the year 2018. The partial settlement did not have a material impact on income tax expense in the consolidated statements of operations for the year ended December 31, 2023. In September 2023, the Canadian tax authorities opened tax audits for the years 2019 through 2022, and the audits are in the preliminary stages. The Company is in ongoing discussions regarding the audit findings with the Canadian tax authorities for the years 2016 through 2018 and does not expect a material impact to income tax expense.