Tax Matters (Tables)

12 Months Ended

Dec. 31, 2023

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)	2023		2022		2021
United States	$	1,636	$	1,645	$	1,308
International	1,300		1,011		1,180
Income before provision for taxes on income	$	2,936	$	2,656	$	2,488

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)	2023		2022		2021
United States:
Current income taxes:
Federal	$	341	$	514	$	311
State and local	35		81		35
Deferred income taxes:
Federal	(40)		(198)		(84)
State and local	25		(49)		(10)
Total U.S. tax provision	361		348		252
International:
Current income taxes	281		235		188
Deferred income taxes	(46)		(38)		14
Total international tax provision	235		197		202
Provision for taxes on income	$	596	$	545	$	454

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,
	2023		2022		2021
U.S. statutory income tax rate	21	%	21	%	21	%
State and local taxes, net of federal benefits	1.6		0.9		0.8
Unrecognized tax benefits and tax settlements and resolution of certain tax positions(a)	0.9		0.1		0.1
Foreign Derived Intangible Income	(0.7)		(0.2)		(1.1)
U.S. Research and Development Tax Credit	(0.7)		(0.7)		(0.6)
Share-based payments	(0.3)		(0.6)		(0.9)
Non-deductible / non-taxable items	0.2		0.1		0.3
Taxation of non-U.S. operations	(0.8)		(0.4)		(1.3)
All other—net	(0.9)		0.3		(0.1)
Effective tax rate	20.3	%	20.5	%	18.2	%

(a)    For a discussion about unrecognized tax benefits and tax settlements and resolution of certain tax positions, see D. Tax Contingencies.

Our effective income tax rate was 20.3%, 20.5% and 18.2% in 2023, 2022 and 2021, respectively.

The lower effective tax rate for 2023, compared with 2022, was primarily attributable to a higher benefit in the U.S. related to foreign-derived intangible income, a more favorable jurisdictional mix of earning (which includes the impact of the location of earnings and repatriation costs), partially offset by a higher net discrete tax expense in 2023, mainly related to changes to prior years’ tax positions. 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.

The higher effective tax rate for 2022, compared with 2021, was attributable to a less favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs), a lower benefit in the U.S. related to foreign-derived intangible income and lower net discrete tax benefits in 2022. Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible 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 2023. The remaining deferred benefit is included in Other current assets on our Consolidated Balance Sheets as of December 31, 2023 in the amount of $12 million.

Schedule of Deferred Tax Assets and Liabilities

The components of our deferred tax assets and liabilities follow:

	As of December 31,
	2023		2022
(MILLIONS OF DOLLARS)	Assets (Liabilities)
Prepaid/deferred items	$	72	$	192
Inventories	30		22
Capitalized R&D for tax	224		111
Identifiable intangible assets	(154)		(154)
Property, plant and equipment	(199)		(204)
Employee benefits	62		61
Restructuring and other charges	(1)		1
Legal and product liability reserves	12		14
Net operating loss/credit carryforwards	133		112
Unremitted earnings	(4)		(4)
All other	16		9
Subtotal	191		160
Valuation allowance	(131)		(129)
Net deferred tax asset/(liability)(a)(b)	$	60	$	31

(a)    The change in the total net deferred tax asset/(liability) from December 31, 2022 to December 31, 2023 is primarily attributable to an increase in deferred tax assets related to the capitalization and amortization of research & development costs for U.S. tax purposes and an increase in net operating loss/credit carryforwards, partially offset by a decrease in deferred tax assets related to prepaid/deferred items as a result of a prepayment from a related foreign entity in Belgium.

(b)    In 2023, included in Noncurrent deferred tax assets ($206 million) and Noncurrent deferred tax liabilities ($146 million). In 2022, included in Noncurrent deferred tax assets ($173 million) and Noncurrent deferred tax liabilities ($142 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)	2023		2022		2021
Balance, January 1	$	(194)	$	(189)	$	(188)
Increases based on tax positions taken during a prior period(a)	(27)		(20)		(1)
Decreases based on tax positions taken during a prior period(a)	20		9		7
Increases based on tax positions taken during the current period(a)	(13)		(4)		(9)
Settlements	—		7		—
Lapse in statute of limitations(a)	5		3		2
Balance, December 31(b)	$	(209)	$	(194)	$	(189)

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

(b)    In 2023, included in Other taxes payable ($209 million). In 2022, included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($192 million). In 2021, included in Noncurrent deferred tax assets and Other noncurrent assets ($1 million) and Other taxes payable ($188 million).