Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

A. Taxes on Income

Our effective tax rate was 16.9% and 20.8% for the three months ended September 30, 2023 and 2022, respectively. The lower effective tax rate for the three months ended September 30, 2023, compared with the three months ended September 30, 2022, was primarily attributable to a benefit from the tax loss on the divestiture of Performance Livestock Analytics, a more favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs) and a higher benefit in the U.S. related to foreign-derived income, partially offset by lower net discrete tax benefits. Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible items and non-taxable items.

Our effective tax rate was 20.5% and 20.0% for the nine months ended September 30, 2023 and 2022, respectively. The higher effective tax rate for the nine months ended September 30, 2023, compared with the nine months ended September 30, 2022, was primarily attributable to a higher net discrete tax expense mainly related to changes to prior years’ tax positions and a less favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs), partially offset by a higher benefit in the U.S. related to foreign-derived intangible income and a benefit from the tax loss on the divestiture of Performance Livestock Analytics. Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible items and non-taxable items.

In 2022, the company implemented an initiative to maximize its cash position in the U.S. This initiative resulted in a tax benefit in the U.S. in connection with a prepayment from a related foreign entity in Belgium which qualifies as foreign-derived intangible income; however, this income tax benefit was deferred to 2023 and 2024. A portion of this benefit was recognized during the three and nine months ended September 30, 2023.

B. Deferred Taxes

As of September 30, 2023, the total net deferred income tax asset of $30 million is included in Noncurrent deferred tax assets ($190 million) and Noncurrent deferred tax liabilities ($160 million).

As of December 31, 2022, the total net deferred income tax asset of $31 million is included in Noncurrent deferred tax assets ($173 million) and Noncurrent deferred tax liabilities ($142 million).

C. Tax Contingencies

As of September 30, 2023, the net tax liabilities associated with uncertain tax positions of $202 million (exclusive of interest and penalties related to uncertain tax positions of $27 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($200 million).

As of December 31, 2022, the net tax liabilities associated with uncertain tax positions of $194 million (exclusive of interest and penalties related to uncertain tax positions of $19 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($192 million).

Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly decrease as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.