Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

21 – Income Taxes

We provide for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes. The relationship between our pre-tax income or loss and our income tax provision or benefit varies from period to period as a result of various factors which include changes in total pre-tax income or loss, the jurisdictions in which our income is earned, the tax laws in those jurisdictions and in our operating structure. On September 26, 2019, our parent company ceased to be a Swiss tax resident and became an Irish tax resident subject to tax under the Irish tax regime.

Our income tax provision from continuing operations consisted of the following:

			Successor				Predecessor
					Period From		Period From
					12/14/2019		1/1/2019
	Year Ended		Year Ended		through		through
(Dollars in millions)	12/31/2021		12/31/2020		12/31/2019		12/13/2019
Total Current Provision	$	(96)	$	(90)	$	(9)	$	(110)
Total Deferred (Provision) Benefit	10		5		—		(25)
Provision for Income Taxes	$	(86)	$	(85)	$	(9)	$	(135)

The difference between the income tax provision at the Irish and/or Swiss income tax rate and the income tax (provision) benefit attributable to “Loss Before Income Taxes” for the 2021 and 2020 Successor years and the 2019 Successor and Predecessor Periods are analyzed below:

	Successor						Predecessor
					Period From		Period From
					12/14/2019		1/1/2019
	Year Ended		Year Ended		through		through
(Dollars in millions)	12/31/2021		12/31/2020		12/31/2019		12/13/2019
Irish or Swiss Income Tax at a rate of 25.0% and 7.83%, respectively	$	86	$	454	$	2	$	(299)
Tax on Operating Earnings/Losses Subject to Rates Different than the Irish or Swiss Federal Income Tax Rate	(166)		(182)		(65)		197
Change in Valuation Allowance	29		(330)		56		17
Change in Uncertain Tax Positions	(35)		(27)		(2)		(18)
Estimated Tax on Settlement of Liabilities Subject to Compromise and Fresh Start Accounting	—		—		—		(495)
Change in Valuation Allowance Attributed to Estimated Tax on Settlement of Liabilities Subject to Compromise and Fresh Start Accounting	—		—		—		463
Provision for Income Taxes	$	(86)	$	(85)	$	(9)	$	(135)

Our income tax provisions generally do not correlate to our consolidated income (loss) before tax. Our income taxes provisions are primarily driven by profits in certain jurisdictions, deemed profit countries and withholding taxes on intercompany and third-party transactions that do not directly correlate to ordinary income or loss. Impairments and other charges recognized do not result in significant tax benefit as a result of our inability to forecast realization of the tax benefit of such losses.

Our results for the 2019 Predecessor period include $32 million of tax expense related to the Fresh Start Accounting impacts and $14 million of tax benefit primarily related to goodwill and other asset impairments and write downs. We also recognized $4.3 billion gain on Settlement of Liabilities Subject to Compromise as a result of the bankruptcy (See “Note 2 –

Emergence from Chapter 11 Bankruptcy Proceedings”) with no tax impact due to it being attributed to Bermuda, which has no income tax regime, and the U.S., which resulted in the reduction of our U.S. unbenefited net operating losses carryforward under the operative tax statute and applicable regulations offset by the release of the valuation allowance. Prepetition charges (charges prior to Petition Date) and reorganization items (charges after Petition Date) had no significant tax impact.

Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the Consolidated Financial Statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which we have operations.

The components of the net deferred tax asset (liability) were as follows: 

	December 31,		December 31,
(Dollars in millions)	2021		2020
Deferred Tax Assets:
Net Operating Losses Carryforwards	$	828	$	881
Unused Recognized Built in Losses	50		39
Accrued Liabilities and Reserves	186		175
Tax Credit Carryforwards	9		11
Employee Benefits	30		30
Property, Plant and Equipment	118		129
Inventory	52		52
U.S. Interest Deferral	13		55
State Deferred	50		84
Other Differences between Financial and Tax Basis	139		92
Valuation Allowance	(1,426)		(1,499)
Total Deferred Tax Assets	49		49
Deferred Tax Liabilities:
Intangible Assets	(35)		(45)
Other Differences between Financial and Tax Basis	(3)		(4)
Total Deferred Tax Liabilities	(38)		(49)
Net Deferred Tax Asset (Liability)	$	11	$	—

We record deferred tax assets for net operating losses and temporary differences between the book and tax basis of assets and liabilities that are expected to produce tax deductions in future periods. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those deferred tax assets would be deductible. The Company assesses the realizability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers all available evidence (both positive and negative) when determining whether a valuation allowance is required, with emphasis on our past operating results, the existence of cumulative losses in the most recent years and our forecast of near- term taxable income. The Company evaluates possible sources of taxable income that may be available to realize the benefit of deferred tax assets, including projected future taxable income, the reversal of existing temporary differences, taxable income in carryback years and available tax planning strategies, and the impact of fresh start accounting in making this assessment. The realizability of the deferred tax assets is dependent upon judgments and assumptions inherent in the determination of future taxable income, including factors such as future operation conditions (particularly as related to prevailing oil prices and market demand for our products and services).

The decrease in the valuation allowance in 2021 is primarily attributable to the utilization of net operating losses previously not expected to be realized.

Deferred income taxes generally have not been recognized on the cumulative undistributed earnings of our non-Irish subsidiaries because they are considered to be indefinitely reinvested. Distribution of these earnings in the form of dividends or otherwise may result in a combination of income and withholding taxes payable in various countries. As of December 31, 2021, the pool of positive undistributed earnings of our non-Irish subsidiaries that are considered indefinitely reinvested and may be subject to tax if distributed amounts to approximately $1.4 billion. Due to complexities in the tax laws and the manner of repatriation, it is not practicable to estimate the unrecognized amount of deferred income taxes and the related dividend withholding taxes associated with these undistributed earnings.

At December 31, 2021, we had approximately $5.4 billion of net operating losses (“NOLs”) in various jurisdictions, $2.0 billion of which were generated by certain U.S. subsidiaries. We estimate that the maximum U.S. NOLs available for utilization in the future is $713 million as a result of the tax consequences of our emergence from bankruptcy as described below.

As a result of our emergence on December 13, 2019, in the U.S. approximately $480 million of cancellation of indebtedness (COD) income was realized for tax purposes. Under exceptions applying to COD income resulting from a bankruptcy reorganization, the U.S. subsidiaries were not required to recognize this COD income currently as taxable income. Instead, the company’s US net operating losses were reduced under the operative tax statute and applicable regulations, affecting the balance of deferred taxes. The Company also realized COD income attributable to Bermuda, which does not have an income tax regime. As a result, there was no impact from the COD income.

Additionally, upon emergence our U.S. subsidiaries experienced an ownership change as the Company’s emergence was considered an “ownership change” for purposes of Internal Revenue Code section 382. The Internal Revenue Code sections 382 and 383 impose limitations on the ability of a company to utilize tax attributes after experiencing an “ownership change.” As a result, we have estimated our annual limitation is approximately $23 million against the utilization of our U.S. loss carryforwards and other tax attributes, including unused recognized built-in losses and U.S. interest deferral. The annual limitation will result in approximately $1.2 billion of our U.S. loss carryforwards expiring unused. Upon emergence, we decreased our NOL deferred tax asset and also decreased our valuation allowance each by $273 million to remove these lost NOLs.

Our non-indefinite loss carryforwards, if not utilized, will mostly expire for U.S. subsidiaries from 2030 through 2037 and at various dates from 2021 through 2040 for non-U.S. subsidiaries. At December 31, 2021, we had $9 million of tax credit carryovers, all of which are related to our non-U.S. subsidiaries.

A tabular reconciliation of the total amounts of uncertain tax positions at the beginning and end of the period is as follows:

	Successor						Predecessor
					Period From		Period From
					12/14/2019		1/1/2019
	Year Ended		Year Ended		through		through
(Dollars in millions)	12/31/2021		12/31/2020		12/31/2019		12/13/2019
Balance at Beginning of Year	$	222	$	214	$	213	$	195
Additions as a Result of Tax Positions Taken During a Prior Period	23		9		—		34
Reductions as a Result of Tax Positions Taken During a Prior Period	(8)		(4)		—		(1)
Additions as a Result of Tax Positions Taken During the Current Period	12		21		2		17
Reductions Relating to Settlements with Taxing Authorities	(5)		(2)		(1)		(20)
Reductions as a Result of a Lapse of the Applicable Statute of Limitations	(2)		(7)		—		(5)
Foreign Exchange Effects	(7)		(9)		—		(7)
Balance at End of Year	$	235	$	222	$	214	$	213

Substantially all of the uncertain tax positions, if released in future periods, would impact our effective tax rate. Within the total balance is $76 million and $77 million as of December 31, 2021 and 2020, respectively, that would be offset by net

operating losses and other tax attributes if settled. Our income tax provision includes penalties and interest on uncertain tax positions of $17 million, $11 million, $1 million, and $15 million for Successor years ended December 31, 2021 and 2020, and the 2019 Successor and Predecessor Periods, respectively. The amounts in the table above exclude cumulative accrued interest and penalties of $104 million and $89 million at December 31, 2021 and 2020 respectively, which are included in other non-current liabilities.

We are subject to income tax in many of the approximately 75 countries where we operate. As of December 31, 2021, the following table summarizes the tax years that remain subject to examination for the major jurisdictions in which we operate: 

Tax Jurisdiction	Tax Years under Examination
Canada	2013 - 2021
Mexico	2010 - 2021
Russia	2018 - 2021
Switzerland	2013 - 2021
United States (Federal)	2018 - 2021

We are continuously under tax examination in various jurisdictions. We cannot predict the timing or outcome regarding resolution of these tax examinations or if they will have a material impact on our financial statements. As of December 31, 2021, we anticipate that it is reasonably possible that the amount of uncertain tax positions may decrease by up to $1 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.