Tax Matters (Tables)

12 Months Ended

Dec. 31, 2020

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)	2020		2019		2018
United States	$	1,109	$	965	$	937
International	887		836		753
Income before provision for taxes on income	$	1,996	$	1,801	$	1,690

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)	2020		2019		2018
United States:
Current income taxes:
Federal	$	232	$	192	$	199
State and local	36		28		32
Deferred income taxes:
Federal	(29)		(5)		(107)
State and local	(14)		(15)		3
Total U.S. tax provision	225		200		127
International:
Current income taxes	154		161		148
Deferred income taxes	(19)		(60)		(9)
Total international tax provision	135		101		139
Provision for taxes on income(a)(b)(c)	$	360	$	301	$	266

(a)     In 2020, 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 and non-taxable items, and the extent and location of other income and expense items, such as gains and losses on asset divestitures;

•U.S. tax benefit related to U.S. Research and Development Tax Credit;

•tax expense related to changes in uncertain tax positions (see D. Tax Contingencies);

•a $29 million discrete tax benefit recorded in 2020 related to the excess tax benefits for share-based payments;

•a $19 million net discrete tax benefit recorded in 2020 related to changes in various other tax items;

•a $7 million discrete tax benefit recorded in 2020 related to the remeasurement of deferred taxes resulting from the integration of acquired businesses;

•a $5 million discrete tax expense related to the changes in valuation allowances;

•a $4 million discrete tax benefit recorded in 2020 related to a remeasurement of deferred tax assets and liabilities as a result of changes in statutory tax rates; and

•a $4 million net discrete tax benefit recorded in 2020 related to the effective settlement of certain issues with tax authorities.

(b)     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 and non-taxable items, and the extent and location of other income and expense items, such as gains and losses on asset divestitures;

•U.S. tax benefit related to U.S. Research and Development Tax Credit;

•tax expense related to changes in uncertain tax positions (see D. Tax Contingencies);

•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 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;

•a $10 million net discrete tax benefit recorded in 2019 related to the effective settlement of certain issues with tax authorities; and

•an $8 million discrete tax benefit recorded in 2019 related to a remeasurement of deferred tax assets and liabilities as a result of changes in statutory tax rates.

◦(c)     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 and non-taxable items, and the extent and location of other income and expense items, such as gains and losses on asset divestitures;

•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;

•tax expense related to changes in uncertain tax positions (see D. Tax Contingencies):

•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 payments; and

•a $5 million discrete tax benefit recorded in 2018 related to a remeasurement of deferred tax assets and liabilities as a result of changes in statutory tax rates.

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,
	2020		2019		2018
U.S. statutory income tax rate	21	%	21	%	21	%
State and local taxes, net of federal benefits	0.9		0.6		1.8
Unrecognized tax benefits and tax settlements and resolution of certain tax positions(a)	0.1		0.5		1.2
Impact of the Tax Act(b)	—		—		(3.9)
Impact of Tax Accounting Method Changes	—		—		(1.3)
U.S. Research and Development Tax Credit and U.S. Domestic Production Activities deduction	(0.7)		(0.7)		(0.5)
Share-based payments	(1.3)		(1.0)		(0.8)
Non-deductible / non-taxable items	0.4		(0.2)		(1.6)
Taxation of non-U.S. operations(c)(d)	(1.6)		(3.1)		(0.3)
All other—net	(0.8)		(0.4)		0.1
Effective tax rate	18.0	%	16.7	%	15.7	%

(a)    For a discussion about unrecognized tax benefits and tax settlements and resolution of certain tax positions, see above in this section 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.    

(c)     In all years, the rate impact of taxation of non-U.S. operations was a decrease to our effective tax rate due to the jurisdictional mix of earnings.

(d)     In 2020, the rate impact of non-U.S. operations also includes (i) a $5 million discrete tax expense related to the charges in valuation allowances, and (ii) an $8 million net discrete tax benefit related to changes in various other tax items. 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 due to a change in tax basis related to purchase accounting, and (iii) a $10 million discrete tax benefit 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,
	2020		2019
(MILLIONS OF DOLLARS)	Assets (Liabilities)
Prepaid/deferred items	$	64	$	42
Inventories	15		(1)
Intangibles	(237)		(296)
Property, plant and equipment	(168)		(149)
Employee benefits	59		61
Restructuring and other charges	3		4
Legal and product liability reserves	15		14
Net operating loss/credit carryforwards	127		122
Unremitted earnings	(6)		(6)
All other	1		(1)
Subtotal	(127)		(210)
Valuation allowance	(157)		(136)
Net deferred tax liability(a)(b)	$	(284)	$	(346)

(a)    The decrease in the total net deferred tax liability from December 31, 2019 to December 31, 2020 is primarily attributable to a decrease in deferred tax liabilities related to intangibles, partially offset by an increase in valuation allowances representing the amounts determined to be unrecoverable, and 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, inventory, net operation loss/credit carry forwards, partially offset by a decrease in employee benefits.

(b)    In 2020, included in Noncurrent deferred tax assets ($94 million) and Noncurrent deferred tax liabilities ($378 million). In 2019, included in Noncurrent deferred tax assets ($88 million) and Noncurrent deferred tax liabilities ($434 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)	2020		2019		2018
Balance, January 1	$	(182)	$	(185)	$	(164)
Increases based on tax positions taken during a prior period(a)(b)	(6)		(3)		(24)
Decreases based on tax positions taken during a prior period(a)(c)	6		12		6
Increases based on tax positions taken during the current period(a)(d)	(9)		(8)		(11)
Settlements(e)	—		—		6
Lapse in statute of limitations	3		2		2
Balance, December 31(f)	$	(188)	$	(182)	$	(185)

(a)    Primarily included in Provision for taxes on income.

(b)    In 2020 and 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.

(c)    In 2020, the decreases are primarily related to effective settlement of certain issues with tax authorities. In 2019, the decreases are primarily related to movements on prior year positions and effective settlement of certain issues with 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 tax authorities, including movements in foreign translation adjustments on prior year positions.

(d)    In 2020, 2019 and 2018, the increases are primarily related to movements on current year positions.

(e)    In 2018, the decreases are due to settlements with tax authorities. See A. Taxes on Income.

(f)     In 2020, included in Noncurrent deferred tax assets and Other noncurrent assets ($1 million) and Other taxes payable ($187 million). 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).