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Income Taxes
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Current and deferred provision for income taxes
Earnings before income taxes for the years ended December 31 were taxed within the following jurisdictions:
In millions
2019
 
2018
 
2017
United States (1)
$
960.6

 
$
971.6

 
$
(17.6
)
Non-U.S.
781.0

 
688.7

 
1,435.5

Total
$
1,741.6

 
$
1,660.3

 
$
1,417.9


(1) Amount reported in 2017 includes the impact of a premium paid of approximately $520 million related to the early retirement of certain intercompany debt obligations
The components of the Provision for income taxes for the years ended December 31 were as follows:
In millions
 
2019
 
2018
 
2017
Current tax expense (benefit):
 
 
 
 
 
 
United States
 
$
203.4

 
$
231.9

 
$
102.2

Non-U.S.
 
133.5

 
193.2

 
95.4

Total:
 
336.9

 
425.1

 
197.6

Deferred tax expense (benefit):
 
 
 
 
 
 
United States
 
35.7

 
(83.2
)
 
(234.7
)
Non-U.S.
 
(18.9
)
 
(60.6
)
 
117.3

Total:
 
16.8

 
(143.8
)
 
(117.4
)
Total tax expense (benefit):
 
 
 
 
 
 
United States
 
239.1

 
148.7

 
(132.5
)
Non-U.S.
 
114.6

 
132.6

 
212.7

Total
 
$
353.7

 
$
281.3

 
$
80.2


The Provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. statutory income tax rate to pretax income, as a result of the following differences:
 
 
Percent of pretax income
 
 
2019
 
2018
 
2017
Statutory U.S. rate
 
21.0
 %
 
21.0
 %
 
35.0
 %
Increase (decrease) in rates resulting from:
 
 
 
 
 
 
Non-U.S. tax rate differential (a)
 
(1.9
)
 
(1.8
)
 
(28.8
)
Tax on U.S. subsidiaries on non-U.S. earnings (b)
 
1.1

 
0.7

 
0.8

State and local income taxes (c)
 
3.1

 
0.1

 
1.2

Valuation allowances (d)
 
(2.4
)
 
0.7

 
2.8

Change in permanent reinvestment assertion (b), (e)
 
—

 
(2.3
)
 
8.4

Transition tax (e)
 
—

 
1.5

 
11.3

Remeasurement of deferred tax balances (e)
 
—

 
0.3

 
(21.2
)
Stock based compensation
 
(1.5
)
 
(0.9
)
 
(1.7
)
Foreign derived intangible income
 
(0.7
)
 
(1.1
)
 
—

Reserves for uncertain tax positions
 
(0.3
)
 
(0.8
)
 
(0.9
)
Provision to return and other true-up adjustments
 
0.1

 
(0.7
)
 
(1.7
)
Other adjustments
 
1.8

 
0.2

 
0.5

Effective tax rate
 
20.3
 %
 
16.9
 %
 
5.7
 %
(a)
Amount reported in 2017 includes the impact of a premium paid of approximately $520 million related to the early retirement of certain intercompany debt obligations
(b)
Net of foreign tax credits
(c)
Net of changes in state valuation allowances
(d)
Primarily federal and non-U.S., excludes state valuation allowances
(e)
Provisional amounts reported under SAB 118 were finalized in 2018
Tax incentives, in the form of tax holidays, have been granted to the Company in certain jurisdictions to encourage industrial development. The expiration of these tax holidays varies by country. The tax holidays are conditional on the Company meeting certain employment and investment thresholds. The most significant tax holidays relate to the Company’s qualifying locations in China, Puerto Rico, Panama and Singapore. The benefit for the tax holidays for the years ended December 31, 2019, 2018 and 2017 was $33.1 million, $25.4 million and $19.7 million, respectively.

Deferred tax assets and liabilities
A summary of the deferred tax accounts at December 31 are as follows:
In millions
 
2019
 
2018
Deferred tax assets:
 
 
 
 
Inventory and accounts receivable
 
$
17.7

 
$
20.3

Fixed assets and intangibles
 
35.3

 
39.2

Operating lease liabilities
 
140.2

 
—

Postemployment and other benefit liabilities
 
392.5

 
386.1

Product liability
 
70.0

 
95.1

Other reserves and accruals
 
157.1

 
147.6

Net operating losses and credit carryforwards
 
659.2

 
589.9

Other
 
40.6

 
34.9

Gross deferred tax assets
 
1,512.6

 
1,313.1

Less: deferred tax valuation allowances
 
(373.7
)
 
(332.2
)
Deferred tax assets net of valuation allowances
 
$
1,138.9

 
$
980.9

Deferred tax liabilities:
 
 
 
 
Inventory and accounts receivable
 
$
(20.0
)
 
$
(18.6
)
Fixed assets and intangibles
 
(1,358.3
)
 
(1,220.9
)
Operating lease right-of-use assets
 
(140.2
)
 
—

Postemployment and other benefit liabilities
 
(11.0
)
 
(9.7
)
Other reserves and accruals
 
(12.5
)
 
(11.8
)
Product liability
 
—

 
(1.2
)
Undistributed earnings of foreign subsidiaries
 
(39.3
)
 
(39.5
)
Other
 
(22.2
)
 
(10.6
)
Gross deferred tax liabilities
 
(1,603.5
)
 
(1,312.3
)
Net deferred tax assets (liabilities)
 
$
(464.6
)
 
$
(331.4
)

At December 31, 2019, no deferred taxes have been provided for earnings of certain of the Company’s subsidiaries, since these earnings have been, and under current plans will continue to be permanently reinvested in these subsidiaries. These earnings amount to approximately $4.4 billion which if distributed would result in additional taxes, which may be payable upon distribution, of approximately $400.0 million.
At December 31, 2019, the Company had the following operating loss, capital loss and tax credit carryforwards available to offset taxable income in prior and future years:
In millions
 
Amount
 
Expiration
Period
U.S. Federal net operating loss carryforwards
 
$
766.2

 
2020-2038
U.S. Federal credit carryforwards
 
140.6

 
2022-2028
U.S. Capital loss carryforwards
 
36.3

 
Unlimited
U.S. State net operating loss carryforwards
 
3,119.7

 
2020-Unlimited
U.S. State credit carryforwards
 
35.2

 
2020-Unlimited
Non-U.S. net operating loss carryforwards
 
865.8

 
2020-Unlimited
Non-U.S. credit carryforwards
 
7.7

 
Unlimited

The U.S. state net operating loss carryforwards were incurred in various jurisdictions. The non-U.S. net operating loss carryforwards were incurred in various jurisdictions, predominantly in Belgium, Brazil, China, India, Luxembourg, Spain, and the United Kingdom.
Activity associated with the Company’s valuation allowance is as follows:
In millions
 
2019
 
2018
 
2017
Beginning balance
 
$
332.2

 
$
344.6

 
$
184.5

Increase to valuation allowance
 
46.0

 
54.9

 
176.5

Decrease to valuation allowance
 
(56.8
)
 
(55.1
)
 
(19.1
)
Write off against valuation allowance
 
—

 
(4.6
)
 
—

Acquisition and purchase accounting
 
53.3

 
—

 
—

Accumulated other comprehensive income (loss)
 
(1.0
)
 
(7.6
)
 
2.7

Ending balance
 
$
373.7

 
$
332.2

 
$
344.6


During 2019, the Company recorded a $50.5 million reduction in valuation allowance on deferred tax assets primarily related to non-U.S. net operating losses. In addition, the Company recorded a $19.3 million increase in a valuation allowance for certain state net deferred tax assets as a result of revised projections of future state taxable income during the carryforward period. In addition, the Company recorded a $53.3 million valuation allowance in acquisition accounting related to deferred tax assets acquired in the PFS acquisition, primarily related to foreign tax credits, capital loss carryforwards and non-U.S. net operating loss carryforwards.
During 2018, the Company recorded a net addition to the valuation allowance related to excess foreign tax credits in the amount of $17.3 million. In addition, the Company recorded a $35 million reduction in a valuation allowance for certain state net deferred tax assets primarily the result of revised projections of future state taxable income during the carryforward period.
During 2017, the Company recorded a valuation allowance of approximately $30 million on certain net deferred tax assets in Brazil that were no longer expected to be realized. In addition, the Company recorded a valuation allowance of approximately $100 million related to excess foreign tax credits generated as a result of the Tax Cuts and Jobs Act (the Act).
Unrecognized tax benefits
The Company has total unrecognized tax benefits of $78.2 million and $83.0 million as of December 31, 2019, and December 31, 2018, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the continuing operations effective tax rate are $54.1 million as of December 31, 2019. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
In millions
 
2019
 
2018
 
2017
Beginning balance
 
$
83.0

 
$
120.5

 
$
107.1

Additions based on tax positions related to the current year
 
4.1

 
3.4

 
6.2

Additions based on tax positions related to prior years
 
10.0

 
23.5

 
16.8

Reductions based on tax positions related to prior years
 
(14.0
)
 
(47.2
)
 
(8.6
)
Reductions related to settlements with tax authorities
 
(0.9
)
 
(14.2
)
 
(4.8
)
Reductions related to lapses of statute of limitations
 
(2.9
)
 
(0.9
)
 
(1.3
)
Translation (gain) loss
 
(1.1
)
 
(2.1
)
 
5.1

Ending balance
 
$
78.2

 
$
83.0

 
$
120.5


The Company records interest and penalties associated with the uncertain tax positions within its Provision for income taxes. The Company had reserves associated with interest and penalties, net of tax, of $16.9 million and $20.7 million at December 31, 2019 and December 31, 2018, respectively. For the year ended December 31, 2019 and December 31, 2018, the Company recognized a $1.0 million and a $13.4 million tax benefit, respectively, in interest and penalties, net of tax in continuing operations related to these uncertain tax positions.
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits, excluding interest and penalties, could potentially be reduced by up to approximately $4.4 million during the next 12 months.
The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities
periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Brazil, Canada, China, France, Germany, Ireland, Italy, Mexico, Spain, the Netherlands, the United Kingdom and the United States. These examinations on their own, or any subsequent litigation related to the examinations, may result in additional taxes or penalties against the Company. If the ultimate result of these audits differ from original or adjusted estimates, they could have a material impact on the Company’s tax provision. In general, the examination of the Company’s material tax returns are complete or effectively settled for the years prior to 2011, with certain matters prior to 2011 being resolved through appeals and litigation and also unilateral procedures as provided for under double tax treaties.
Tax Cuts and Job Act
In December 2017, the U.S. enacted the Act which made widespread changes to the Internal Revenue Code. The Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously not subject to U.S. tax and creates new income taxes on certain foreign sourced earnings. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118) which provided guidance on accounting for the tax effects of the Act and allowed for adjustments to provisional amounts during a measurement period of up to one year.  In accordance with SAB 118, we made reasonable estimates related to (1) the remeasurement of U.S. deferred tax balances for the reduction in the tax rate (2) the liability for the transition tax and (3) the taxes accrued relating to the change in permanent reinvestment assertion for unremitted earnings of certain foreign subsidiaries. As a result, we recognized a net provisional income tax benefit of $21.0 million associated with these items in the fourth quarter of 2017. We completed the accounting for the income tax effects of the Act during 2018 and recorded $9.0 million of net measurement period adjustments as a component of Provision for income taxes during the year to increase the net provisional income tax benefit recorded as of December 31, 2017.
A reconciliation of the provisional amounts reported to the final tax effect of the Act is as follows:
In millions
2017
Provisional Amounts Reported
 
2018
Measurement Period Adjustments
 
Final Tax
Effects of
the Act
Remeasurement of deferred tax balances
$
(300.6
)
 
$
4.8

 
$
(295.8
)
Transition tax
160.7

 
24.6

 
185.3

Change in permanent reinvestment assertion
118.9

 
(38.4
)
 
80.5

Income tax benefit, net
$
(21.0
)
 
$
(9.0
)
 
$
(30.0
)