Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes:

Earnings before income taxes and provision for income taxes consisted of the following for the years ended December 31, 2021, 2020 and 2019:

(in millions)	2021		2020		2019
Earnings before income taxes	$	12,232	$	10,953	$	9,872
Provision for income taxes:
United States federal and state:
Current	$	73	$	(80)	$	17
Deferred	27		53		24
Total United States	100		(27)		41
Outside United States:
Current	2,616		2,600		2,417
Deferred	(45)		(196)		(165)
Total outside United States	2,571		2,404		2,252
Total provision for income taxes	$	2,671	$	2,377	$	2,293

On March 11, 2021, the American Rescue Plan Act of 2021 ("the Act") was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. As of December 31, 2021, PMI has determined that the Act had no significant impact on PMI's effective tax rate.

On July 20, 2020, the U.S. Department of the Treasury and the Internal Revenue Service released final and proposed regulations under the Global Intangible Low-Taxed Income (“GILTI”) and other provisions of the Internal Revenue Code. PMI has analyzed these elective regulations and recorded the impact in its consolidated financial statements, as described below.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act and, on December 27, 2020, the Consolidated Appropriations Act, 2021 (“U.S. COVID-19 Acts”) were signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. PMI has determined that neither the U.S. COVID-19 Acts nor changes to income tax laws or regulations in other jurisdictions had a significant impact on PMI’s effective tax rate, with the exception of the 2020 corporate income tax rate reduction in Indonesia.

At December 31, 2017, PMI recorded a one-time transition tax liability on its accumulated foreign earnings, which is payable over an eight-year period beginning in 2018. At December 31, 2021 and December 31, 2020, $0.9 billion and $1.1 billion of PMI's remaining long-term portion of transition tax liability, respectively, was recorded in "income taxes and other liabilities" on PMI's consolidated balance sheets.

At December 31, 2021 and 2020, U.S. federal and foreign deferred income taxes have been provided on all accumulated earnings of PMI's foreign subsidiaries.

PMI is regularly examined by tax authorities around the world and is currently under examination in a number of jurisdictions. The U.S. federal statute of limitations remains open for the years 2017 and onward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2015 onward), Indonesia (2014 onward), Russia (2019 onward) and Switzerland (2017 onward).

In October 2021, a subsidiary of PMI in Indonesia, PT Hanjaya Mandala Sampoerna Tbk ("HMS"), received a tax assessment in the amount of 3.8 trillion Indonesian rupiah (approximately $260 million) primarily relating to corporate income taxes on domestic and other intercompany transactions for the years 2017 to 2019. HMS paid the assessment in the fourth quarter of 2021 in order to avoid potential penalties and filed an objection letter with the tax office in January 2022. The amount paid was included in other assets in PMI’s consolidated balance sheets at December 31, 2021 and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits, along with related interest and penalties. An estimate of any possible change cannot be made at this time.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

(in millions)	2021		2020		2019
Balance at January 1,	$	72	$	63	$	56
Additions based on tax positions related to the current year	12		11		10
Additions for tax positions of previous years	15		1		1
Reductions for tax positions of prior years	(1)		(4)		(2)
Reductions due to lapse of statute of limitations	(3)		(1)		(1)
Settlements	—		—		—
Other	(6)		2		(1)
Balance at December 31,	$	89	$	72	$	63

Unrecognized tax benefits and PMI’s liability for contingent income taxes, interest and penalties were as follows:

(in millions)	December 31, 2021		December 31, 2020		December 31, 2019
Unrecognized tax benefits	$	89	$	72	$	63
Accrued interest and penalties	18		17		16
Tax credits and other indirect benefits	(7)		(9)		(12)
Liability for tax contingencies	$	100	$	80	$	67

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $82 million at December 31, 2021. The remainder, if recognized, would principally affect deferred taxes.

For the years ended December 31, 2021, 2020 and 2019, PMI recognized income (expense) in its consolidated statements of earnings of $(3) million, $(1) million and $(4) million, respectively, related to interest and penalties associated with uncertain tax positions.

The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons for the years ended December 31, 2021, 2020 and 2019:

	2021		2020		2019
U.S. federal statutory rate	21.0	%	21.0	%	21.0	%
Increase (decrease) resulting from:
Foreign rate differences	(0.3)		0.6		1.8
Dividend repatriation cost	0.6		0.4		(0.5)
Global intangible low-taxed income	0.8		0.1		1.4
U.S. state taxes	0.2		0.2		0.7
Foreign derived intangible income	(0.7)		(0.6)		(1.2)
Other	0.2		—		—
Effective tax rate	21.8	%	21.7	%	23.2	%

The 2021 effective tax rate increased 0.1 percentage point to 21.8%. The change in the effective tax rate for 2021, as compared to 2020, was unfavorably impacted by repatriation cost differences and foreign tax credit limitations related to GILTI, partially offset by the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021) and changes in earnings mix by taxing jurisdiction.

The 2020 effective tax rate decreased 1.5 percentage points to 21.7%. The change in the effective tax rate for 2020, as compared to 2019, was favorably impacted by changes in earnings mix by taxing jurisdiction, a reduction of U.S. state tax expense, a reduction of estimated U.S. income tax liabilities for years 2018 and 2019 due to the GILTI regulations mentioned above ($93 million) and the

corporate income tax rate reduction in Indonesia, partially offset by a decrease in deductions related to foreign-derived intangible income for the years 2018 and 2019 and repatriation cost differences.

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following:

	At December 31,
(in millions)	2021		2020
Deferred income tax assets:
Accrued postretirement and postemployment benefits	$	234	$	225
Accrued pension costs	392		720
Inventory(1)	177		232
Accrued liabilities	168		182
Net operating loss carryforwards and tax credits	408		351
Foreign exchange	—		27
Other	112		124
Total deferred income tax assets	1,491		1,861
Less: valuation allowance	(239)		(250)
Deferred income tax assets, net of valuation allowance	1,252		1,611
Deferred income tax liabilities:
Trade names	(591)		(374)
Property, plant and equipment	(140)		(200)
Unremitted earnings	(206)		(311)
Foreign exchange	(146)		—
Total deferred income tax liabilities	(1,083)		(885)
Net deferred income tax assets	$	169	$	726

(1)Includes deferred tax charges of $153 million and $209 million in 2021 and 2020, respectively, related to intercompany transactions.

At December 31, 2021, PMI recorded deferred tax assets for net operating loss carryforwards and tax credits of $408 million, with varying dates of expiration, primarily after 2026, including $183 million with an unlimited carryforward period. At December 31, 2021, PMI has recorded a valuation allowance of $239 million against deferred tax assets that do not meet the more-likely-than not recognition threshold.

At December 31, 2020, PMI recorded deferred tax assets for net operating loss carryforwards of $351 million, with varying dates of expiration, primarily after 2025, including $79 million with an unlimited carryforward period. At December 31, 2020, PMI has recorded a valuation allowance of $250 million against deferred tax assets that do not meet the more-likely-than-not recognition threshold.