Income Taxes

9 Months Ended

Sep. 27, 2020

Benefit/provision for income taxes:


	For the three months ended						For the nine months ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Tax expense (benefit)	(57)		28		(88)		40
Effective tax rate	77.0	%	18.9	%	27.1	%	21.4	%

Our effective tax rate reflects the impact of tax incentives, non-deductible expenses, change in valuation allowance, a portion of our earnings being taxed in foreign jurisdictions at rates different than the Netherlands statutory tax rate and the mix of income and losses in various jurisdictions. Our effective tax rate for the first nine months of 2020 was a benefit of 27.1% on a pre-tax loss compared with an expense of 21.4% on a pre-tax income for the first nine months of 2019. The movements in our effective tax rate, apart from being in an expense position in 2019 and a benefit in 2020, relate mainly to the net effect of the decrease in the valuation allowance when compared to the same period in 2019 as there were less Netherlands related interest expense that was impacted by the interest limitation rules ($20 million) due to less qualifying interest expenses and higher qualifying income linked to the divestiture of the VAS business, which also had an offset effect due to the increase in non deductible goodwill ($10 million), an increase of tax incentives in the U.S. ($23 million) mainly due to the early adoption of the US regulations issued in Q3 2020 which is offset by the decrease of other tax incentives ($20 million) mainly driven by a lower qualifying income in 2020, as well as an increase in tax expense related to differences in tax rates ($14 million).

The Company benefits from income tax incentives in certain jurisdictions which provide that we pay reduced income taxes in those jurisdictions for a fixed period of time that varies depending on the jurisdiction. The predominant income tax holiday is expected to expire at the end of 2026. The impact of this tax holiday decreased for the third quarter of 2020 by $2 million and decreased by $4 million for the third quarter 2019 (YTD 2020: a decrease of $7 million and YTD 2019: a decrease of $8 million). The benefit of this tax holiday on net income per share (diluted) was $0.01 for the third quarter of 2020 (YTD 2020: $0.03) and $0.01 for the third quarter of 2019 (YTD 2019: $0.03).