Income Taxes

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

A. Taxes on Income

Our effective tax rate was 19.8% and 20.9% for the three months ended March 31, 2024 and 2023, respectively. The lower effective tax rate for the three months ended March 31, 2024, compared with the three months ended March 31, 2023, was primarily attributable to a higher benefit in the U.S. related to foreign-derived intangible income and a more favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs). 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 months ended March 31, 2024 and 2023.

The global minimum tax provisions (Pillar Two) resulting from the Organisation for Economic Co-operation and Development (OECD) Based Erosion and Profit Shifting project are effective beginning in 2024 and the impact of these provisions is included in our effective tax rate for the three months ended March 31, 2024.

B. Deferred Taxes

As of March 31, 2024, the total net deferred income tax asset of $96 million is included in Noncurrent deferred tax assets ($232 million) and Noncurrent deferred tax liabilities ($136 million).

As of December 31, 2023, the total net deferred income tax asset of $60 million is included in Noncurrent deferred tax assets ($206 million) and Noncurrent deferred tax liabilities ($146 million).

C. Tax Contingencies

As of March 31, 2024, the net tax liabilities associated with uncertain tax positions of $212 million (exclusive of interest and penalties related to uncertain tax positions of $29 million) are included in Other taxes payable.

As of December 31, 2023, the net tax liabilities associated with uncertain tax positions of $209 million (exclusive of interest and penalties related to uncertain tax positions of $27 million) are included in Other taxes payable.

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.