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Tax Matters (Tables)
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Schedule of Income before Income Tax, Domestic and Foreign
The components of Income before provision for taxes on income follow:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
2017

United States
 
$
965

 
$
937

 
$
897

International
 
836

 
753

 
628

Income before provision for taxes on income
 
$
1,801

 
$
1,690

 
$
1,525
Schedule Of Components Of Provision For Income Taxes
The components of Provision for taxes on income based on the location of the taxing authorities follow:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
2017

United States:
 
 
 
 
 
 
Current income taxes:
 
 
 
 
 
 
Federal
 
$
192

 
$
199

 
$
384

State and local
 
28

 
32

 
25

Deferred income taxes:
 
 
 
 
 
 
Federal
 
(5
)
 
(107
)
 
113

State and local
 
(15
)
 
3

 
2

Total U.S. tax provision
 
200

 
127

 
524

International:
 
 
 
 
 
 
Current income taxes
 
161

 
148

 
126

Deferred income taxes
 
(60
)
 
(9
)
 
13

Total international tax provision
 
101

 
139

 
139

Provision for taxes on income(a)(b)(c)
 
$
301

 
$
266

 
$
663

(a)  
In 2019, the Provision for taxes on income reflects the following:
•
the change in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions, operating fluctuations in the normal course of business, the impact of non-deductible items, and the extent and location of other income and expense items, such as gains and losses on asset divestitures;
•
the impact of the GILTI tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;
•
a $20 million discrete tax benefit recorded in 2019 related to the excess tax benefits for share-based compensation payments;
•
an $18 million discrete tax benefit related to the changes in valuation allowances;
•
a $14 million net discrete tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting;
•
a $12 million net discrete tax benefit recorded in 2019, related to changes in various other tax items;
•
an $8 million discrete tax benefit recorded in 2019 related to a remeasurement of deferred tax assets and liabilities as a result of a change in U.S. and non-U.S. statutory tax rates;
•
U.S. tax benefit related to U.S. Research and Development Tax Credit; and
•
tax expense related to changes in uncertain tax positions (see D. Tax Contingencies).
(b)  
In 2018, the Provision for taxes on income reflects the following:
•
the change in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions, operating fluctuations in the normal course of business, the impact of non-deductible items, and the extent and location of other income and expense items, such as gains and losses on asset divestitures;
•
the reduction of the U.S. federal corporate income tax rate, from 35% to 21%, effective January 1, 2018, pursuant to the Tax Act;
•
a $45 million net tax benefit recorded in 2018, associated with a measurement-period adjustment to the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings pursuant to the Tax Act;
•
a $23 million discrete tax benefit recorded in 2018 related to the favorable impact of certain tax accounting method changes;
•
a $15 million discrete tax benefit recorded in 2018 related to the excess tax benefits for share-based compensation payments;
•
a $5 million discrete tax benefit recorded in 2018 related to a remeasurement of deferred tax assets and liabilities as a result of a change in non-U.S. statutory tax rates;
•
U.S. tax benefit related to U.S. Research and Development Tax Credit;
•
tax expense related to the changes in valuation allowances and the resolution of other tax items; and
•
tax expense related to changes in uncertain tax positions (see D. Tax Contingencies).
(c)
In 2017, the Provision for taxes on income reflects the following:
•
the change in the jurisdictional mix of earnings, which includes the impact of the location of earnings from (i) operations and (ii) restructuring charges related to the operational efficiency initiative and supply network strategy, as well as repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and as a result of operating fluctuations in the normal course of business, the impact of non-deductible items and the extent and location of other income and expense items, such as restructuring charges/(benefits), asset impairments and gains and losses on asset divestitures;
•
a $212 million net discrete provisional tax expense recorded in the fourth quarter of 2017, related to the impact of the Tax Act enacted on December 22, 2017, including a one-time mandatory deemed repatriation tax, partially offset by a net tax benefit related to the remeasurement of the deferred tax assets and liabilities, as of the date of enactment, due to the reduction in the U.S. federal corporate tax rate;
•
U.S. tax benefit related to U.S. Research and Development Tax Credit and the U.S. Domestic Production Activities deduction;
•
a $15 million discrete tax benefit recorded in the fourth quarter of 2017 related to the effective settlement of certain issues with U.S. and non-U.S. tax authorities;
•
a $9 million discrete tax benefit recorded in 2017 related to the excess tax benefits for share-based compensation payments;
•
a $3 million discrete tax benefit recorded in the first quarter of 2017 related to a remeasurement of the company’s deferred tax assets and liabilities using the tax rates expected to be in place going forward;
•
tax expense related to the changes in valuation allowances and the resolution of other tax items; and
•
tax expense related to changes in uncertain tax positions (see D. Tax Contingencies).
Schedule of Effective Income Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our effective tax rate follows:
 
 
Year Ended December 31,
 
 
2019

 
2018

 
2017

U.S. statutory income tax rate
 
21
 %
 
21
 %
 
35
 %
State and local taxes, net of federal benefits
 
0.6

 
1.8

 
0.7

Unrecognized tax benefits and tax settlements and resolution of certain tax positions(a)
 
0.5

 
1.2

 
6.0

Impact of the Tax Act(b)
 
—

 
(3.9
)
 
7.7

Impact of Tax Accounting Method Changes
 
—

 
(1.3
)
 
—

U.S. Research and Development Tax Credit and U.S. Domestic Production Activities deduction(c)
 
(0.7
)
 
(0.5
)
 
(1.3
)
Share-based compensation
 
(1.0
)
 
(0.8
)
 
(0.5
)
Non-deductible / non-taxable items
 
(0.2
)
 
(1.6
)
 
0.5

Taxation of non-U.S. operations(d)(e)
 
(3.1
)
 
(0.3
)
 
(3.9
)
All other—net
 
(0.4
)
 
0.1

 
(0.7
)
Effective tax rate
 
16.7
 %
 
15.7
 %
 
43.5
 %
(a) 
For a discussion about unrecognized tax benefits and tax settlements and resolution of certain tax positions, see A. Taxes on Income and D. Tax Contingencies.
(b) 
In 2018, the rate impact related to the Tax Act was a decrease to our effective tax rate. This tax benefit represents the measurement-period adjustment related to the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings. In 2017, the rate impact related to the Tax Act was an increase to our effective tax rate. The provisional net tax charge represented the amount related to the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings, partially offset by a net tax benefit related to the remeasurement of the company’s deferred tax assets and liabilities due to the reduction in the U.S. federal corporate tax rate.    
(c) 
In all years, the benefit associated with the U.S. Research and Development Tax Credit was a decrease to our effective tax rate. Included in 2017, is also the benefit associated with the U.S. Domestic Production Activities deduction which was also a decrease to our effective tax rate.
(d)
The rate impact of taxation of non-U.S. operations was a decrease to our effective tax rate in 2017 through 2019 due to the jurisdictional mix of earnings.
(e)
In 2019, the rate impact of non-U.S. operations also includes (i) an $18 million discrete tax benefit related to the changes in valuation allowances, (ii) a $14 million net discrete tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting, and (iii) a $10 million discrete tax benefit recorded in 2019 related to the effective settlement of certain issues with non-U.S. tax authorities.

Schedule of Deferred Tax Assets and Liabilities
The components of our deferred tax assets and liabilities follow:
 
 
As of December 31,
 
 
2019

 
2018

(MILLIONS OF DOLLARS)
 
Assets (Liabilities)
Prepaid/deferred items
 
$
42

 
$
34

Inventories
 
(1
)
 
(2
)
Intangibles
 
(296
)
 
(370
)
Property, plant and equipment
 
(149
)
 
(114
)
Employee benefits
 
61

 
54

Restructuring and other charges
 
4

 
5

Legal and product liability reserves
 
14

 
12

Net operating loss/credit carryforwards
 
118

 
128

Unremitted earnings
 
(2
)
 
(5
)
All other
 
(1
)
 
—

Subtotal
 
(210
)
 
(258
)
Valuation allowance
 
(136
)
 
(155
)
Net deferred tax liability(a)(b)
 
$
(346
)
 
$
(413
)
(a) 
The decrease in the total net deferred tax liability from December 31, 2018 to December 31, 2019 is primarily attributable to a decrease in deferred tax liabilities related to intangibles and valuation allowances representing the amounts determined to be unrecoverable, partially offset by an increase in deferred tax liabilities related to property, plant and equipment. In addition, the decrease in the total net deferred tax liability was also attributable to an increase in deferred tax assets related to prepaid/deferred items, employee benefits, partially offset by a decrease in net operating loss/credit carryforwards.
(b) 
In 2019, included in Noncurrent deferred tax assets ($88 million) and Noncurrent deferred tax liabilities ($434 million). In 2018, included in Noncurrent deferred tax assets ($61 million) and Noncurrent deferred tax liabilities ($474 million).
Schedule of Unrecognized Tax Benefits Roll Forward
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
2017

Balance, January 1
 
$
(185
)
 
$
(164
)
 
$
(68
)
Increases based on tax positions taken during a prior period(a)(b)
 
(3
)
 
(24
)
 
(4
)
Decreases based on tax positions taken during a prior period(a)(c)
 
12

 
6

 
12

Increases based on tax positions taken during the current period(a)(d)
 
(8
)
 
(11
)
 
(107
)
Settlements(e)
 
—

 
6

 
—

Lapse in statute of limitations
 
2

 
2

 
3

Balance, December 31(f)
 
$
(182
)
 
$
(185
)
 
$
(164
)
(a) 
Primarily included in Provision for taxes on income.
(b) 
In 2019, the increases are primarily related to movements on prior year positions. In 2018, the increases are primarily related to the impact of the Tax Act and movements on prior year positions. In 2017, the increases are primarily related to movements on prior year positions, including movements in foreign translation adjustments on prior year positions. See A. Taxes on Income.
(c) 
In 2019, the decreases are primarily related to movements on prior year positions and effective settlement of certain issues with non-U.S. tax authorities, including movements in foreign translation adjustments on prior year positions. In 2018, the decreases are primarily related to movements on prior year positions and closure of audits with U.S. and non-U.S. tax authorities, including movements in foreign translation adjustments on prior year positions. In 2017, the decreases are primarily related to movements on prior year positions and effective settlement of certain issues with U.S. and non-U.S. tax authorities. See A. Taxes on Income.
(d) 
In 2019 and 2018, the increases are primarily related to movements on current year positions. In 2017, the increases are primarily related to the impact of the Tax Act. See A. Taxes on Income.
(e) 
In 2018, the decreases are due to settlements with U.S. and non-U.S. tax authorities. See A. Taxes on Income.
(f)
In 2019, included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($180 million). In 2018, included in Noncurrent deferred tax assets and Other noncurrent assets ($3 million) and Other taxes payable ($182 million). In 2017, included in Noncurrent deferred tax assets and Other noncurrent assets ($3 million) and Other taxes payable ($161 million).