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Income Taxes
 12 Months Ended
Dec. 31, 2024
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. There have been no material proposed or final regulatory packages during the year ended December 31, 2024.
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 or any newly issued administrative guidance to 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 enacted or drafted legislation to implement the OECD's minimum tax proposals.
In July 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 have or 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 on a global basis, the Company determined that there was not 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,
202420232022
(In $ millions)
U.S.(2,269)(163)(292)
International1,273 1,346 1,713 
Total(996)1,183 1,421 
The income tax provision (benefit) consists of the following:
Year Ended December 31,
202420232022
(In $ millions)
Current
U.S.79 8 54 
International239 162 306 
Total318 170 360 
Deferred
U.S.(87)(178)(261)
International279 (782)(588)
Total192 (960)(849)
Total510 (790)(489)
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,
202420232022
(In $ millions, except percentages)
Income tax provision computed at U.S. federal statutory tax rate(209)248 298 
Change in valuation allowance370 (150)(15)
Equity income and dividends(41)(27)(47)
(Income) expense not resulting in tax impact, net327 (9)2 
U.S. tax effect of foreign earnings and dividends184 384 162 
Foreign tax credits(137)(73)(120)
Other foreign tax rate differentials(66)(108)(43)
Legislative changes(6)(44)— 
State income taxes, net of federal benefit12 (8)(2)
Recognition of basis differences in investments in affiliates— — 6 
Asset transfers between wholly owned foreign affiliates87 (839)(816)
Other, net(11)(164)86 
Income tax provision (benefit)510 (790)(489)
Effective income tax rate
(51) %(67) %(34) %
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.
In the second quarter of 2024, the Company completed an internal integration-related restructuring of its acquired China operations in order to align with existing operations and to optimize the Company's internal treasury operations. This restructuring of the Chinese operations consisted of a sale within the Company that resulted in a China capital gains tax of approximately $87 million.
During the three months ended December 31, 2024, the Company recorded a non-cash goodwill impairment loss of $1.5 billion in the Engineered Materials segment. As of December 31, 2024, the Engineered Materials segment had goodwill of $5.0 billion (see Note 9). The impairment of goodwill is not deductible for tax purposes and the tax effect of this non-deductible expense in the amount of $319 million is included in the (Income) expense not resulting in tax impact, net line above. In addition, due to the changes in forecasted profits for the engineered materials reporting unit included in the impairment analysis, the Company also recorded a valuation allowance against certain local country, non-U.S. tax credit carryforwards in the amount of $338 million.
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 $0 million, $72 million, and $0 million; and changes in uncertain tax positions of $(2) million, $5 million and $63 million for the years ended December 31, 2024, 2023 and 2022, 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,
20242023
(In $ millions)
Deferred Tax Assets
Pension and postretirement obligations58 61 
Accrued expenses59 56 
Inventory18 (13)
Net operating loss carryforwards752 783 
Tax credit carryforwards222 135 
Intangibles and other
757 737 
Subtotal1,866 1,759 
Valuation allowance(1)
(1,106)(656)
Total760 1,103 
Deferred Tax Liabilities
Depreciation and amortization152 152 
Investments in affiliates163 188 
Other127 85 
Total442 425 
Net deferred tax assets (liabilities)318 678 
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(1)Includes deferred tax asset valuation allowances for the Company's deferred tax assets in Switzerland, Luxembourg, the U.S., Spain, the Netherlands, the United Kingdom, Malta, Mexico, Germany, China, Singapore and France. 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, 2024, the Company had available U.S. federal net operating loss carryforwards of $15 million that are subject to limitation. These net operating loss carryforwards begin to expire in 2036. As of December 31, 2024, the Company also had available state net operating loss carryforwards, net of federal tax impact, of $35 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, 2024 of $3.5 billion primarily for Switzerland, Luxembourg, Spain, the United Kingdom, Singapore, China and Hong Kong with various expiration dates. Net operating loss carryforwards of $69 million in China are scheduled to continue to expire through 2029. Net operating loss carryforwards of $1.7 billion in Switzerland are partially offset by a valuation allowance of $230 million due to uncertain recoverability and are scheduled to continue to expire through 2030. 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 $200 million of U.S. foreign tax credit carryforwards, which are offset by a valuation allowance of $165 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,
202420232022
(In $ millions)
As of the beginning of the year224 275 218 
Increases (decreases) in tax positions for the current year(3)10 8 
Increases in tax positions for prior years6 9 102 
Decreases in tax positions for prior years(6)(35)(45)
Increases (decreases) due to settlements(8)(35)(8)
As of the end of the year213 224 275 
Total uncertain tax positions that if recognized would impact the effective tax rate236 244 274 
Total amount of interest expense (benefit) and penalties recognized in the consolidated statements of operations(1)
7 22 10 
Total amount of interest expense and penalties recognized in the consolidated balance sheets77 71 59 
______________________________
(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 authority. In the third quarter of 2024, the Company concluded settlement discussions with the German tax authority related to the German transfer pricing audit. The Company is engaged in continuing discussions with the U.S. tax authority on joint audit matters, as well as other separate matters, and is currently evaluating all additional potential remedies regarding the ongoing examinations.
As of December 31, 2024, 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 2018 and 2019, in Canada for the years 2016 through 2022, and in the U.S. for the years 2016 through 2020. 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. The Company is in discussions with the Mexican tax authorities regarding the preliminary findings in the 2019 audit. 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 authority for the years 2016 through 2018 and does not expect a material impact to income tax expense resulting from the audit. The audit in the U.S. for the years 2016 through 2020 is in the data gathering phase. The Company's tax returns in Germany are also under audit for certain entities for years after 2007.