Provision for income taxes. The components of (Loss) income before income taxes were as follows:

Provision for income taxes consisted of the following:


	2023			2022			2021
Current:
Federal	$	—		$	—		$	8
Foreign		211			445			473
State and local		—			—			1
	$	211		$	445		$	482
Deferred:
Federal		—			(3	)		6
Foreign		(22	)		222			141
State and local		—			—			—
	$	(22	)	$	219		$	147
Total	$	189		$	664		$	629

Federal includes U.S. income taxes related to foreign income.

A reconciliation of the U.S. federal statutory rate to Alcoa’s effective tax rate was as follows:


	2023			2022			2021
U.S. federal statutory rate		21.0	%		21.0	%		21.0	%
Taxes on foreign operations—rate differential		7.1			9.9			10.8
Tax credits		1.4			(0.2	)		—
Adjustment of prior year income taxes		0.3			—			—
Noncontrolling interest		0.2			0.8			0.5
Internal legal entity reorganizations		0.2			(9.0	)		—
Tax holidays		0.1			(5.2	)		(2.8	)
Impacts of the U.S. Tax Cuts and Jobs Act of 2017		—			—			2.0
Uncertain tax positions		(0.1	)		0.4			—
Equity loss		(5.3	)		(2.0	)		(2.5	)
Tax on foreign operations—other		(6.1	)		1.3			1.7
Changes in valuation allowances		(50.8	)		76.7			23.4
Other		(0.4	)		0.9			(1.6	)
Effective tax rate		(32.4	%)		94.6	%		52.5	%

Certain income earned by AWAB is eligible for a tax holiday, which decreases the tax rate on this income from 34% to 15.25%, which will result in future cash tax savings. The holiday related to production at the Alumar refinery was originally expected to end on December 31, 2027. During 2023, it was extended to December 31, 2032. The holiday related to the operation of the Juruti (Brazil) bauxite mine will end on December 31, 2026.

In 2021, it was determined that the deferred taxes associated with income subject to the tax holiday would be fully exhausted within the holiday period and the amounts were therefore maintained on the balance sheet at the holiday tax rate. In 2022, the Company’s projection of the reversal of deferred tax assets during the holiday tax period was lowered, and as a result, the remainder was revalued at the statutory rate of 34%, resulting in a discrete income tax benefit of $33, which is included in Tax holidays, above. In 2023, the Company determined that it was no longer more likely than not that the deferred tax asset at AWAB would be realized and recorded a full valuation allowance against the deferred tax asset (see below). As a result, the amount reflected in Tax holidays, above, is zero with respect to AWAB as of December 31, 2023.

In October 2022, Alcoa completed the liquidation of Alcoa Saudi Rolling Inversiones S.L. (ASRI), a wholly owned subsidiary that previously held the Company’s investment in MRC. This liquidation resulted in a deductible loss in the Netherlands and a tax benefit of $94 was recognized in 2022, however, this tax benefit was substantially offset by a valuation allowance.

In December 2022, Alcoa commenced an internal reorganization to reduce its number of legal entities in Norway from four to one to simplify accounting and treasury functions and reduce external costs. As a result of the simplification, the Company recorded a deferred tax expense of $30 in 2022.

Deferred income taxes. The components of deferred tax assets and liabilities based on the underlying attributes without regard to jurisdiction were as follows:


	2023					2022
December 31,	Deferred tax assets			Deferred tax liabilities		Deferred tax assets			Deferred tax liabilities
Tax loss carryforwards	$	2,042		$	—	$	1,781		$	—
Employee benefits		312			—		297			—
Derivatives and hedging activities		312			10		283			24
Loss provisions		161			—		174			—
Interest		142			6		127			2
Depreciation		94			318		128			336
Investment basis differences		78			—		75			—
Lease assets and liabilities		34			33		24			23
Tax credit carryforwards		24			—		23			—
Deferred income/expense		16			131		10			153
Other		25			—		36			—
	$	3,240		$	498	$	2,958		$	538
Valuation allowance		(2,595	)		—		(2,333	)		—
Total	$	645		$	498	$	625		$	538

The following table details the expiration periods of the deferred tax assets presented above:


December 31, 2023	Expires within 10 years			Expires within 11-20 years			No expiration			Other			Total
Tax loss carryforwards	$	203		$	333		$	1,471		$	35		$	2,042
Tax credit carryforwards		24			—			—			—			24
Other		(1	)		—			154			1,021			1,174
Valuation allowance		(226	)		(333	)		(1,613	)		(423	)		(2,595	)
Total	$	—		$	—		$	12		$	633		$	645

Deferred tax assets with no expiration may still have annual limitations on utilization. Other represents deferred tax assets whose expiration is dependent upon the reversal of the underlying temporary difference.

The total deferred tax asset (net of valuation allowance) is supported by projections of future taxable income exclusive of reversing temporary differences and taxable temporary differences that reverse within the carryforward period. The composition of Alcoa’s net deferred tax asset by jurisdiction as of December 31, 2023 was as follows:


	Domestic			Foreign			Total
Deferred tax assets	$	1,050		$	2,190		$	3,240
Valuation allowance		(988	)		(1,607	)		(2,595	)
Deferred tax liabilities		(62	)		(436	)		(498	)
Total	$	—		$	147		$	147

The Company has several income tax filers in various foreign countries. Of the $147 net deferred tax asset included under the Foreign column in the table above, approximately 90% relates to six of Alcoa’s income tax filers (the Foreign Filers) as follows: a $135 net deferred tax asset for Alcoa Canada Company in Canada; a $90 net deferred tax asset for Alcoa-Lauralco Management Company in Canada; a $39 net deferred tax asset for Alcoa Wolinbec Company in Canada; a $19 net deferred tax asset for Alcoa Islandi and a $35 net deferred tax asset for Fjarðaál, both in Iceland; and a $185 net deferred tax liability for AofA in Australia.

The future realization of the net deferred tax asset for each of the Foreign Filers was based on projections of the respective future taxable income (defined as the sum of pretax income, other comprehensive income, and permanent tax differences), exclusive of reversing temporary differences and carryforwards. The realization of the net deferred tax assets of the Foreign Filers is not dependent on any future tax planning strategies.

Accordingly, management concluded that the net deferred tax assets of the Foreign Filers referenced above will more likely than not be realized in future periods, resulting in no need for a partial or full valuation allowance as of December 31, 2023.

In December 2023, Alcoa recorded a valuation allowance of $154 against the net deferred tax assets of AWAB, of which $106 related to the balance as of December 31, 2022. The 2023 full valuation allowance for AWAB was a result of AWAB’s three-year cumulative loss position for the period ended December 31, 2023. The majority of AWAB’s net deferred tax assets relate to prior net operating losses; the loss carryforwards are not subject to an expiration period. AWAB’s profitability in future periods could prompt the Company to evaluate the realizability of the deferred tax asset and assess the possibility of a reversal of the valuation allowance, which could have a significant impact on net income in the quarter the valuation allowance is reversed.

The Company’s subsidiaries in Iceland had a full valuation allowance recorded against deferred tax assets, which was established in 2015 and 2017, as the Company believed it was more likely than not that these tax benefits would not be realized. During 2023, after considering all positive and negative evidence, including the expectation that the jurisdiction will remain in a three-year cumulative income position, the Company determined that it is more likely than not that the net deferred tax assets will be realized. Based on this conclusion, the Company reversed the valuation allowance totaling $58 during 2023, generating a non-cash benefit from income taxes.

In December 2022, Alcoa recorded a valuation allowance of $217 against the net deferred tax assets of Alcoa Alumínio (Alumínio), of which $150 related to the balance as of December 31, 2021. The 2022 full valuation allowance for Alumínio was a result of Alumínio’s three-year cumulative loss position for the period ended December 31, 2022. Although the Company entered into aluminum contracts to manage exposures associated with the restart, these contracts were held by another legal entity, and the associated realized gains are not available to Alumínio to offset the restart losses. While management believes Alumínio will return to profitability in the future with the restart of the Alumar smelter, current volatility in the market does not provide a reliable basis for concluding that it is more likely than not that Alumínio’s net deferred tax assets, which consist primarily of tax loss carryforwards with indefinite life, will be realized. Alumar smelter profitability in future periods could prompt the Company to evaluate the realizability of the deferred tax asset and assess the possibility of a reversal of the valuation allowance, which could have a significant impact on net income in the quarter the valuation allowance is reversed.

In 2021, Alcoa recorded a valuation allowance of $103 against the net deferred tax assets of Alúmina Española, S.A. (Española). Management concluded that it was more likely than not that Española’s net deferred tax assets, which consisted primarily of tax loss carryforwards, would not be realized as the entity’s sole operating asset, the San Ciprián refinery, was in a three-year cumulative loss position for the period ended December 31, 2021. This cumulative loss position was the result of recent operating losses due to the high energy costs in Spain and the impact of the refinery workers’ strike on the fourth quarter of 2021. After weighing all available positive and negative evidence as of December 31, 2023, management’s position continues to be that it is more likely than not that Alcoa Corporation will not realize the benefit of these deferred tax assets and continues to have a full valuation allowance recorded against the deferred tax assets.

The following table details the changes in the valuation allowance:


December 31,	2023			2022			2021
Balance at beginning of year	$	(2,333	)	$	(2,062	)	$	(2,127	)
Establishment of new allowances(1)		(106	)		(150	)		(103	)
Net change to existing allowances(2)		(113	)		(151	)		139
Foreign currency translation		(43	)		30			29
Balance at end of year	$	(2,595	)	$	(2,333	)	$	(2,062	)

(1)

Reflects valuation allowances initially established as a result of a change in management’s judgment regarding the realizability of deferred tax assets.

(2)

Reflects movements in previously established valuation allowances, which increase or decrease as the related deferred tax assets increase or decrease. Such movements occur as a result of a change in management’s judgment regarding previously established valuation allowances, remeasurement due to a tax rate change and changes in the underlying attributes of the deferred tax assets, including expiration of the attribute and reversal of the temporary difference that gave rise to the deferred tax asset.

Undistributed net earnings. Certain earnings of Alcoa’s foreign subsidiaries are deemed to be permanently reinvested outside the United States. The cumulative amount of Alcoa’s foreign undistributed net earnings deemed to be permanently reinvested was approximately $2,676 as of December 31, 2023. Alcoa Corporation has several commitments and obligations related to the Company’s operations in various foreign jurisdictions; therefore, management has no plans to distribute such earnings in the foreseeable future. Alcoa Corporation continuously evaluates its local and global cash needs for future business operations and anticipated debt facilities, which may influence future repatriation decisions. If these earnings were distributed in the form of dividends or otherwise, Alcoa could be subject to foreign income or withholding taxes and state income taxes. Due to the uncertainty of the manner in which the undistributed earnings would be brought back to the United States and the tax laws in effect at that time, it is not practicable to estimate the tax liability that might be incurred if such earnings were remitted to the U.S.

Unrecognized tax benefits. Alcoa and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various foreign and U.S. state jurisdictions. With few exceptions, the Company is not subject to income tax examinations by tax authorities for years prior to 2014. The U.S. federal income tax filings of the Company’s U.S. consolidated tax group have been examined through the 2018 tax year. Foreign jurisdiction tax authorities are in the process of examining income tax returns of several of Alcoa’s subsidiaries for various tax years. Excluding the Australia tax matter discussed in Note S, the period under foreign examination includes the income tax years from 2014 through 2022. For U.S. state income tax purposes, the Company and its subsidiaries remain subject to income tax examinations for the 2017 tax year and forward.

In the third quarter of 2020, AofA paid approximately $74 (A$107) to the ATO related to the tax dispute described in Note S. Upon payment, AofA recorded a noncurrent prepaid tax asset, as the Company continues to believe it is more likely than not that AofA’s tax position will be sustained and therefore is not recognizing any tax expense in relation to this matter. In accordance with Australian tax laws, the initial interest assessment and additional interest are deductible against AofA’s taxable income. AofA applied this deduction beginning in the third quarter of 2020, reducing cash tax payments. Interest compounded in future years is also deductible against AofA’s income in future periods. If AofA is ultimately successful, the interest deduction would become taxable as income in the year the dispute is resolved. In addition, should the ATO decide in the interim to reduce any interest already assessed, the reduction would be taxable as income at that point in time. During 2023, AofA continued to record its tax provision and tax liability without effect of the ATO assessment, since it expects to prevail. The tax payable will remain on AofA’s balance sheet as a noncurrent liability, increased by the tax effect of subsequent periods’ interest deductions, until dispute resolution, which is expected to take several years. The noncurrent liability resulting from the cumulative interest deductions was approximately $199 (A$293) and $174 (A$260) at December 31, 2023 and 2022, respectively.

The reserve balance for unrecognized tax benefits is included in Noncurrent income taxes on the Consolidated Balance Sheet. A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) was as follows:


December 31,	2023		2022			2021
Balance at beginning of year	$	5	$	4		$	4
Additions for tax positions of prior years		—		2			—
Reductions for tax positions of prior years		—		—			—
Expiration of the statute of limitations		—		(1	)		—
Foreign currency translation		—		—			—
Balance at end of year	$	5	$	5		$	4

For all periods presented, a portion of the balance at end of year pertains to state tax liabilities, which are presented before any offset for federal tax benefits. The effect of unrecognized tax benefits, if recorded, that would impact the annual effective tax rate for 2023, 2022, and 2021 would be 1%, 1%, and 0%, respectively, of (Loss) income before income taxes. Alcoa does not anticipate that changes in its unrecognized tax benefits will have a material impact on the Statement of Consolidated Operations during 2024.

It is the Company’s policy to recognize interest and penalties related to income taxes as a component of the Provision for income taxes on the accompanying Statement of Consolidated Operations. In 2023, 2022, and 2021 Alcoa recognized $1, $1, and $0, in interest and penalties, respectively. Due to the expiration of the statute of limitations, settlements with tax authorities, and refunded overpayments, the Company also recognized interest income of $1, $1, and $0 in 2023, 2022, and 2021, respectively. As of December 31, 2023 and 2022, the amount accrued for the payment of interest and penalties was $4 and $3, respectively.

Other Matters. 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 did not have an impact on the Company for 2023 and will not have an impact on the Company for 2024.

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. In December 2023, the U.S. Treasury issued guidance on Section 45X of the Advanced Manufacturing Tax Credit. The Notice of Proposed Rulemaking (the Notice) clarifies that commercial grade aluminum can qualify for the credit, which was designed to incentivize domestic production of critical materials important for the transition to clean energy. In the fourth quarter of 2023, the Company recorded a benefit of $36 in Cost of goods sold and Other receivables related to its Massena West smelter (New York) and its Warrick smelter (Indiana).