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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income before income taxes and equity income for U.S. and non-U.S. operations are as follows:
Year Ended December 31,
 202220212020
 (in millions)
U.S. income (loss)$24 $(2)$(65)
Non-U.S. income966 912 2,019 
Income before income taxes and equity loss$990 $910 $1,954 
The provision (benefit) for income taxes is comprised of:
Year Ended December 31,
202220212020
 (in millions)
Current income tax expense (benefit):
U.S. federal$45 $1 $(53)
Non-U.S.205 156 154 
U.S. state and local15 4 — 
Total current265 161 101 
Deferred income tax expense (benefit), net:
U.S. federal(43)(17)(14)
Non-U.S.(90)(43)(37)
U.S. state and local(11)— (1)
Total deferred(144)(60)(52)
Total income tax provision$121 $101 $49 
Cash paid or withheld for income taxes was $194 million, $172 million and $106 million for the years ended December 31, 2022, 2021 and 2020, respectively.
For purposes of comparability and consistency, the Company uses the notional U.S. federal income tax rate when presenting the Company’s reconciliation of the income tax provision. The Company is an Irish resident taxpayer. A reconciliation of the provision for income taxes compared with the amounts at the notional U.S. federal statutory rate was:
 Year Ended December 31,
 202220212020
 (in millions)
Notional U.S. federal income taxes at statutory rate$208 $191 $410 
Income taxed at other rates(61)(81)(339)
Change in valuation allowance(63)(17)10 
Other change in tax reserves10 19 30 
Intragroup reorganizations— (7)(49)
Withholding taxes38 37 26 
Tax credits(19)(23)(16)
Change in tax law— (7)(2)
Other adjustments8 (11)(21)
Total income tax expense$121 $101 $49 
Effective tax rate12 %11 %3 %
The Company’s tax rate is affected by the tax rates in Ireland and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. Included in the non-U.S. income taxed at other rates are tax incentives obtained in various non-U.S. countries, primarily the High and New Technology Enterprise (“HNTE”) status in China and a Free Trade Zone exemption in Honduras which totaled $12 million in 2022, $10 million in 2021 and $5 million in 2020, as well as tax benefit for income earned, and no tax benefit for losses incurred, in jurisdictions where a valuation allowance has been recorded. The Company currently benefits from tax holidays in various non-U.S. jurisdictions with expiration dates from 2023 through 2041. The income tax benefits attributable to these tax holidays are approximately $3 million ($0.01 per share) in 2022, $1 million (less than $0.01 per share) in 2021 and $1 million (less than $0.01 per share) in 2020.
The effective tax rate in the year ended December 31, 2022 was impacted by favorable changes in valuation allowances offset by changes in reserves and provision to return adjustments. The effective tax rate was also impacted by impairments and charges related to our planned exit from our majority owned Russian subsidiary and other charges in Ukraine for which no tax benefit was recognized.
The effective tax rate in the year ended December 31, 2021 was impacted by favorable provision to return adjustments as well as releases of valuation allowances as a result of the Company’s determination that it was more likely than not that certain deferred tax assets would be realized. The Company also accrued $19 million of reserve adjustments for uncertain tax positions.
The effective tax rate in the year ended December 31, 2020 was impacted by changes in reserves, provision to return adjustments, changes in valuation allowances and the tax impact of certain intragroup reorganizations meant to streamline and simplify the Company’s operating and legal structure, which resulted in the recognition of losses for tax purposes. The effective tax rate was also impacted by the beneficial impact from the gain on the formation of the Motional autonomous driving joint venture. The tax expense associated with the gain was insignificant as Aptiv’s aggregate autonomous driving assets were exempt from capital gains tax in the jurisdiction from which they were sold. The aggregate autonomous driving assets had been acquired, purchased or developed in taxable transactions in prior periods and reflect changes made to the corporate entity operating structure for intellectual property following the separation of its former Powertrain Systems segment.
On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the U.S. Among other provisions, the IRA includes a 15% corporate minimum tax rate applied to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. The IRA is not expected to have a significant impact on Aptiv’s consolidated financial statements.
The Tax Cuts and Jobs Act, which was enacted in the U.S. in 2017, created a provision known as Global Intangible Low-Taxed Income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries. U.S. GAAP allows companies to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred. We have elected to account for GILTI in the year the tax is incurred.
As described above, certain of the Company’s Chinese subsidiaries benefit from a reduced corporate income tax rate as a result of their HNTE status. Aptiv regularly submits applications to reapply for HNTE status as they expire. The Company believes each of the applicable entities will continue to renew HNTE status going forward and has reflected this in calculating total income tax expense.
Deferred Income Taxes
The Company accounts for income taxes and the related accounts under the liability method. Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Significant components of the deferred tax assets and liabilities are as follows:
 December 31,
 20222021
 (in millions)
Deferred tax assets:
Pension$56 $76 
Employee benefits26 30 
Net operating loss carryforwards735 699 
Warranty and other liabilities85 77 
Operating lease liabilities98 78 
Capitalized R&D111 — 
Other222 184 
Total gross deferred tax assets1,333 1,144 
Less: valuation allowances(756)(766)
Total deferred tax assets (1)$577 $378 
Deferred tax liabilities:
Fixed assets$45 $55 
Tax on unremitted profits of certain foreign subsidiaries69 65 
Intangibles588 174 
Operating lease right-of-use assets97 78 
Total gross deferred tax liabilities799 372 
Net deferred tax (liabilities) assets$(222)$6 
(1)Reflects gross amount before jurisdictional netting of deferred tax assets and liabilities.
Deferred tax assets and liabilities are classified as long-term in the consolidated balance sheets. Net deferred tax assets and liabilities are included in the consolidated balance sheets as follows:
 December 31,
 20222021
 (in millions)
Long-term assets$259 $159 
Long-term liabilities(481)(153)
Total deferred tax (liability) asset$(222)$6 
The net deferred tax liability of $222 million as of December 31, 2022 is primarily comprised of deferred tax liability amounts in the U.S., Italy, Korea and Singapore partially offset by deferred tax assets primarily in Luxembourg, Mexico and the U.K.
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2022, the Company has gross deferred tax assets of approximately $715 million for non-U.S. net operating loss (“NOL”) carryforwards with recorded valuation allowances of $596 million. These NOLs are available to offset future taxable income and realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The NOLs primarily relate to Luxembourg, Poland, Germany, the U.K., France and Ireland. The NOL carryforwards have expiration dates ranging from one year to an indefinite period.
Deferred tax assets include $68 million and $87 million of tax credit carryforwards with recorded valuation allowances of $61 million and $71 million at December 31, 2022 and 2021, respectively. These tax credit carryforwards expire at various times from 2023 through 2042.
Cumulative Undistributed Foreign Earnings
No income taxes have been provided on indefinitely reinvested earnings of certain foreign subsidiaries at December 31, 2022.
Withholding taxes of $69 million have been accrued on undistributed earnings that are not indefinitely reinvested and are primarily related to China, Honduras, Morocco and Germany. There are no other material liabilities for income taxes on the undistributed earnings of foreign subsidiaries, as the Company has concluded that such earnings are either indefinitely reinvested or should not give rise to additional income tax liabilities as a result of the distribution of such earnings.
Uncertain Tax Positions
The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
A reconciliation of the gross change in the unrecognized tax benefits balance, excluding interest and penalties is as follows:
Year Ended December 31,
202220212020
 (in millions)
Balance at beginning of year$224 $231 $217 
Additions related to current year12 12 35 
Additions related to prior years29 20 31 
Reductions related to prior years(33)(36)(20)
Reductions due to expirations of statute of limitations(7)(3)(28)
Settlements(1)— (4)
Balance at end of year$224 $224 $231 
A portion of the Company’s unrecognized tax benefits would, if recognized, reduce its effective tax rate. The remaining unrecognized tax benefits relate to tax positions that, if recognized, would result in an offsetting change in valuation allowance and for which only the timing of the benefit is uncertain. Recognition of these tax benefits would reduce the Company’s effective tax rate only through a reduction of accrued interest and penalties. As of December 31, 2022 and 2021, the amounts of unrecognized tax benefit that would reduce the Company’s effective tax rate were $214 million and $207 million, respectively. For 2022 and 2021, respectively, $83 million and $105 million of reserves for uncertain tax positions would be offset by the write-off of a related deferred tax asset, if recognized.
The Company recognizes interest and penalties relating to unrecognized tax benefits as part of income tax expense. Total accrued liabilities for interest and penalties were $25 million and $28 million at December 31, 2022 and 2021, respectively. Total interest and penalties recognized as part of income tax expense were a benefit of $2 million, and expenses of $4 million and $13 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The Company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. Taxing jurisdictions significant to Aptiv include Barbados, China, Germany, Ireland, Luxembourg, Mexico, South Korea, the U.K. and the U.S. Open tax years related to these taxing jurisdictions remain subject to examination and could result in additional tax liabilities. In general, the Company’s affiliates are no longer subject to income tax examinations by foreign tax authorities for years before 2002. It is reasonably possible that audit settlements, the conclusion of current examinations or the
expiration of the statute of limitations in several jurisdictions could impact the Company’s unrecognized tax benefits. A reversal of approximately $5 million is reasonably possible in the next 12 months, due to the running of statutes of limitations in various taxing jurisdictions.