Income Taxes

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

O. Income Taxes – Alcoa Corporation’s estimated annualized effective tax rate (AETR) for 2023 as of June 30, 2023 differs from the U.S. federal statutory rate of 21% primarily due to foreign jurisdictions with higher statutory tax rates in addition to losses in certain jurisdictions with full valuation allowances resulting in no tax benefit.

	Six months ended June 30,
	2023				2022
(Loss) income before income taxes	$	(279	)		$	1,671
Estimated annualized effective tax rate		(29.3	)	%		26.4	%
Income tax expense	$	82			$	440
(Favorable) unfavorable tax impact related to losses in jurisdictions with no tax benefit		(11	)			2
Discrete tax expense		3				2
Provision for income taxes	$	74			$	444

The Company’s subsidiaries in Iceland have a full valuation allowance recorded against deferred tax assets, which was established in 2015 and 2017, as the Company believes it is more likely than not that these tax benefits will not be realized. If the subsidiaries in Iceland continue to demonstrate sustained profitability, management may conclude that Iceland’s deferred tax assets may be realized, resulting in a future reversal of the valuation allowance, generating a non-cash benefit in the period recorded. Iceland’s net deferred tax assets, excluding the valuation allowance, were $92 as of June 30, 2023.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (IRA), which includes a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases after December 31, 2022, and several tax incentives to promote clean energy. As a result of the provisions of the IRA, we will incur an excise tax of 1% for certain common stock repurchases made subsequent to December 31, 2022, which will be reflected in the cost of purchasing the underlying shares. The minimum corporate tax will not have an impact on the Company for 2023.

The IRA contains a number of tax credits and other incentives for investments in renewable energy production, carbon capture, and other climate-related actions, as well as the production of critical minerals. These provisions may result in an incremental benefit to the Company. However, given the complexity and uncertainty around the applicability of the incentives to our specific facts and circumstances, we continue to analyze the IRA provisions and seek clarity from relevant government entities to identify and quantify potential opportunities and applicable benefits included in the legislation. At this time the applicability of those provisions to the Company’s specific facts and circumstances are uncertain, and an estimate of those benefits has not been recorded.