Income taxes

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

The effective tax rate including discrete items for the three months ended March 31, 2024 was 25.09%, compared to 16.90% for the same period of 2023.

For the three months ended March 31, 2024, the effective tax rate was 25.00%, excluding the discrete items of amortization of business acquisition fair value adjustments of $84 million, acquisition-related costs incurred by CPKC of $26 million, and adjustments to provisions for Mexican taxes of $10 million recognized in "Compensation and benefits".

For the three months ended March 31, 2023, the effective tax rate was 24.50%, excluding the discrete items of the equity earnings of KCS of $204 million, acquisition-related costs incurred by CPKC of $15 million, and an outside basis deferred tax recovery of $23 million arising from the difference between the carrying amount of CPKC's investment in KCS for financial reporting and the underlying tax basis of this investment.

Mexican Tax Audits

There are certain Mexican subsidiaries with ongoing audits for the years 2016-2018 and 2021. As at March 31, 2024, the Company believes that it has recorded sufficient income tax reserves with respect to these income tax examinations.

2014 Tax Assessment

The Kansas City Southern de México, S.A. de C.V. (also known as Canadian Pacific Kansas City Mexico) ("CPKCM") 2014 Tax Assessment, which is currently in litigation, is expected to be resolved by the Administrative Court in 2024 (see Note 14).