Income Taxes

12 Months Ended

Dec. 31, 2019

Note 20. Income Taxes

Our income tax basis of presentation is summarized in "Note 1. Description Of Business, Recent Developments and Summary Of Significant Accounting Policies."

The components of income (loss) before income taxes were as follows:


	Year ended December 31,
	2019		2018		2017
U.K.	$	(1)	$	80	$	76
Non-U.K.	(19)		(245)		110
Total	$	(20)	$	(165)	$	186

A summary of the provisions for current and deferred income taxes is as follows:


	Year ended December 31,
	2019		2018		2017
Income tax expense (benefit):
U.K.
Current	$	—	$	2	$	—
Deferred	—		—		—
Non-U.K.
Current	7		9		30
Deferred	143		(19)		20
Total	$	150	$	(8)	$	50

The reconciliation of the differences between the U.K. income taxes at the U.K. statutory rate to Venator’s provision for income taxes is as follows:


	Year ended December 31,
	2019		2018		2017
(Loss) income from continuing operations before income taxes	$	(20)	$	(165)	$	186
Expected tax (benefit) expense at U.K. statutory rate of 19%, 19% and 20%, respectively	$	(4)	$	(31)	$	35
Change resulting from:
Non-U.K. tax rate differentials	(4)		(7)		(1)
Other non-U.K. tax effects, including nondeductible expenses, tax effect of rate changes and transfer pricing adjustments	—		(5)		—
Unrealized currency exchange gains and losses	—		—		7
Tax authority audits and dispute resolutions	—		—		1
Change in valuation allowance	158		39		3
Effects of U.S. tax reform	—		—		3
Other, net	—		(4)		2
Total income tax expense (benefit)	$	150	$	(8)	$	50

Venator operates in over 20 non-U.K. tax jurisdictions with no specific country earning a predominant amount of its off-shore earnings. Some of these countries have income tax rates that are approximately the same as the U.K. statutory rate, while other countries have rates that are higher or lower than the U.K. statutory rate. Losses earned in countries with higher average statutory rates than the U.K., resulted in higher tax benefit of $4 million and $7 million, respectively, for the years ended December 31, 2019 and 2018. Income earned in countries with lower average statutory rates than the U.K., resulted in lower tax expense of $1 million, for the year ended December 31, 2017, reflected in the reconciliation above.

Components of deferred income tax assets and liabilities at December 31, 2019 and December 31, 2018 were as follows:


	December 31,
	2019		2018
Deferred income tax assets:
Net operating loss carryforwards	$	519	$	313
Pension and other employee compensation	53		48
Property, plant and equipment	34		28
Other, net	77		49
Total	$	683	$	438
Total deferred income tax liabilities:
Property, plant and equipment	$	(35)	$	(32)
Pension and other employee compensation	(13)		(4)
Lease liability	(13)		—
Other, net	(4)		(4)
Total	$	(65)	$	(40)
Net deferred tax assets before valuation allowance	$	618	$	398
Valuation allowance	(585)		(220)
Net deferred tax assets	$	33	$	178
Non-current deferred tax assets	33		178
Non-current deferred tax liabilities	—		—
Net deferred tax assets	$	33	$	178

Venator has NOLs of $2,107 million in various jurisdictions, principally located in Finland, France, Germany, Italy, Luxembourg, Spain, South Africa, U.S. and the U.K., all of which have no expiration dates except for $226 million which expires on December 31, 2028 and is subject to a valuation allowance.

Included in the $2,107 million of gross NOLs is $864 million attributable to our Luxembourg entity. As of December 31, 2019, due to the uncertainty surrounding the realization of the benefits of these losses, there is a full valuation allowance of $197 million against these net tax effected NOLs.

Venator has total net deferred tax assets, before valuation allowance, of $618 million, including $519 million of tax-effected NOLs. After taking into account deferred tax liabilities, Venator has recognized valuation allowance on net deferred tax assets of $585 million, including valuation allowances in the following countries: Finland, France, Germany, Hong Kong, Italy, Luxembourg (as discussed above), South Africa, Spain and the U.K. Venator also has net deferred tax assets of $33 million, not subject to valuation allowances, primarily in Malaysia, and the U.S.

Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of businesses and cumulative income or losses during the applicable period. Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions and result in additional valuation allowances in future periods.

Based on management’s ongoing analysis of positive and negative evidence within our German business we have concluded at December 31, 2019 there is insufficient positive evidence to overcome a history of losses. As a result, we believe it is more likely than not that deferred tax assets will not be realized and we have recognized a full valuation allowance against net deferred tax assets of $162 million. In future periods we will continue to evaluate whether sufficient objective positive evidence of future taxable income exists, which would provide a basis for the recognition of deferred tax assets without a valuation allowance.

The following is a reconciliation of the unrecognized tax benefits:


	2019		2018		2017
Unrecognized tax benefits as of January 1,	$	17	$	23	$	20
Gross increases and decreases- tax positions taken during prior period	1		2		—
Gross increases and decreases—tax positions taken during the current period	—		—		1
Decreases related to settlements of amounts due to tax authorities	—		—		—
Reductions resulting from the lapse of statutes of limitation	(2)		(7)		—
Foreign currency movements	—		(1)		2
Unrecognized tax benefits as of December 31,	$	16	$	17	$	23

As of December 31, 2019, December 31, 2018 and December 31, 2017, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $1 million, $14 million and $13 million, respectively.

In accordance with Venator’s accounting policy, it recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense, which were insignificant for each of the years ended December 31, 2019, 2018 and 2017.

Venator conducts business globally and, as a result, files income tax returns in the U.S. federal, various U.S. state and various non-U.S. jurisdictions. The following table summarizes the tax years that remain subject to examination by major tax jurisdictions:


Tax Jurisdiction						Open Tax Years
France						2016 and later
Germany						2011 and later
Italy						2014 and later
Malaysia						2014 and later
Spain						2015 and later
United Kingdom						2015 and later
United States federal						2016 and later

Certain of Venator’s U.S. and non-U.S. income tax returns are currently under various stages of audit by applicable tax authorities and the amounts ultimately agreed upon in resolution of the issues raised may differ materially from the amounts accrued.

Venator estimates that it is reasonably possible that no change of its unrecognized tax benefits could occur within 12 months of the reporting date.

For U.S. federal income tax purposes Huntsman recognized a gain as a result of the IPO and the separation to the extent the fair market value of the assets associated with our U.S. businesses exceeded the basis of such assets for U.S. federal income tax purposes at the time of the separation. As a result of such gain recognized, the basis of the assets associated with our U.S. businesses was increased. This basis step-up gave rise to a deferred tax asset of $77 million that we recognized for the quarter ended September 30, 2017. Due to the 2017 Tax Act’s reduction of the U.S. federal corporate income tax rate from 35% to 21%, the deferred tax asset associated with the basis step-up was reduced to $36 million as of the date of enactment, reflected as part of the $3 million Effects of U.S. tax reform in the effective tax rate reconciliation above. Pursuant to the tax matters agreement entered into at the time of the separation, we are required to make a future payment to Huntsman for any actual U.S. federal income tax savings we recognize as a result of any such basis increase for tax years through December 31, 2028. For the quarter ended September 30, 2017 we estimated (based on a value of our U.S. businesses derived from the IPO price of our ordinary shares and current tax rates) that the aggregate future payments required by this provision were expected to be approximately $73 million. Due to the 2017 Tax Act’s reduction of the U.S. federal corporate income tax rate, we estimated that the aggregate future payments required by this provision were expected to be approximately $34 million and we recognized a noncurrent liability for this amount as of December 31, 2017 and 2018. During 2019 we reduced the liability to $30 million due to a decrease in the expectation of future payments. Any subsequent adjustment asserted by U.S. taxing authorities could increase the amount of gain recognized and the corresponding basis increase, and could result in a higher liability for us under the tax matters agreement.

In the first quarter of 2019 a non-U.K. subsidiary distributed $12 million to a U.K. subsidiary subject to 5% withholding tax. As of December 31, 2019, our non-U.K. subsidiaries have no plan to distribute earnings in a manner that would cause them to be subject to material U.K., U.S., or other local country taxation.