Prior to the Separation, our operating results were included in the Former Parent’s various consolidated and separate income tax returns. For periods prior to the Separation, the provision for income taxes and related balance sheet accounts of such entities have been prepared and presented in the consolidated financial statements based on a separate return basis. Therefore, cash tax payments and items of current and deferred taxes in prior periods may not be reflective of the actual tax balances of Delphi Technologies prior to or subsequent to the Separation.

The applicable tax rate to determine Delphi Technologies theoretical income tax expense for 2019 was 19%, as compared to 19% in 2018 and 19.25% in 2017. The Company applies the weighted average rate in the United Kingdom (“U.K.”), the tax jurisdiction where Delphi Technologies is resident. The following table contains a reconciliation of the provision for income taxes compared with the amounts at the theoretical rate:



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Theoretical income taxes at the U.K. weighted average rate	$	16		$	69		$	81
Income taxed at other rates	10			(42		)	(10		)
Losses not benefitted	30			9			28
Tax credits	(18		)	—			—
Other change in tax reserves	2			17			4
Change in valuation allowances	2			(78		)	(12		)
Withholding taxes	12			11			11
Change in tax law	—			2			7
Other adjustments	3			3			(3		)
Total income tax expense (benefit)	$	57		$	(9	)	$	106
Effective tax rate	66		%	(2		)%	25		%

The Company’s tax rate is affected by the fact that Delphi Technologies PLC, its parent entity, is a U.K. resident taxpayer, the tax rates in the other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. Included in the income taxed at other rates are tax incentives obtained in various countries, primarily the High and New Technology Enterprise (“HNTE”) status in China and the Special Economic Zone exemption in Turkey of $9 million in 2019, $9 million in 2018, and $7 million in 2017, as well as tax benefit for income earned in jurisdictions where a valuation allowance has been recorded. The Company currently benefits from tax holidays in various non-U.S. jurisdictions with expiration dates from 2016 through 2026. The income tax benefits attributable to these tax holidays are approximately $1 million in 2019, $1 million in 2018 and $1 million in 2017.

The effective tax rate in the year ended December 31, 2019 was impacted by unfavorable changes in geographic income mix in 2019 as compared to 2018 which increased the amount of losses in jurisdictions in which no tax benefit for those losses could be recognized.

The effective tax rate in the year ended December 31, 2018 was impacted by the release of valuation allowances in France and the recording of a valuation allowance in Luxembourg. The operations in France are no longer in a position of cumulative losses in recent years and are forecasting future profits. The Company concluded the deferred tax assets in France will more likely than not be realized, and the Company recorded a $100 million tax benefit for the removal of the valuation allowance during the three months ended December 31, 2018. The Luxembourg operations have a history of losses and the Company concluded it is not more likely than not that the deferred tax assets in Luxembourg will be realized. The Luxembourg operations were in a net deferred tax liability position at December 31, 2017. The Company recorded a valuation allowance of $22 million in Luxembourg during the three months ended December 31, 2018.

Additionally, the Company’s effective tax rate was impacted by the enactment of the Tax Cuts and Jobs Act (the “Act”) in the United States on December 22, 2017, which provided for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. During the year ended December 31, 2018, the accounting for the Act was finalized and the Company recorded $2 million to income tax expense as an adjustment to the provisional amounts recorded as of December 31, 2017. During the year ended December 31, 2017, the Company recorded income tax expense of $7 million related to the enactment of the Act. The Company considered the 2017 effective tax rate calculation, to the extent related to the effects of the Act, to be provisional pursuant to the guidance in SEC Staff Accounting Bulletin No. 118, primarily due to lack of clarity at the balance sheet date related to the state tax impacts of federal tax reform, which resulted in the use of estimates to compute the future blended tax rate, as well as to the lack of clarity regarding the tax treatment of certain intercompany transactions.

The Company’s effective tax rate in 2017 was also impacted by the release of valuation allowances in the United States and Hungary, primarily due to changes in the underlying operations of the business and the tax benefit recognized in the prior period due to the restructuring charges recorded in 2016. These benefits were partially offset by unfavorable geographic income mix and $4 million of reserve adjustments recorded for uncertain tax positions, which included reserves for ongoing audits in foreign jurisdictions, as well as for changes in estimates based on relevant new or additional evidence obtained related to certain of the Company’s tax positions.

The Company accounts for income taxes and the related accounts under the liability method. Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws. Significant components of the deferred tax assets and liabilities are as follows:



	December 31,
	2019			2018
	(in millions)
Deferred tax assets:
Pension	$	75		$	83
Employee benefits	5			4
Net operating loss carryforwards	245			236
Warranty and other liabilities	31			35
Intangible assets	7			10
Tax credits	20			—
Other	80			51
Total gross deferred tax assets	463			419
Less: valuation allowances	(181		)	(124		)
Total deferred tax assets (1)	$	282		$	295
Deferred tax liabilities:
Fixed assets	$	17		$	16
Tax on unremitted profits of certain foreign subsidiaries	11			13
Total gross deferred tax liabilities	28			29
Net deferred tax assets	$	254		$	266



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Balance at beginning of year	$	124		$	196		$	70
Provision charged to costs and expenses (1)	61			71			20
Deductions	(2		)	(144		)	(12		)
Other activity (2)	(2		)	1			118
Balance at end of year	$	181		$	124		$	196

As of December 31, 2019, the Company has gross deferred tax assets of approximately $245 million for net operating loss (“NOL”) carryforwards with recorded valuation allowances of $138 million. These NOL’s are available to offset future taxable income and realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The NOL’s primarily relate to France, Luxembourg, China and Spain. The NOL carryforwards have expiration dates ranging from one year to an indefinite period.

The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.



	Year Ended December 31,
	2019			2018		2017
	(in millions)
Balance at beginning of year	$	46		$	22	$	9
Additions related to current year	2			16		3
Additions related to prior years	—			1		2
Settlements	(2		)	—		—
Transfers to/from Former Parent	—			7		8
Balance at end of year	$	46		$	46	$	22

The Company’s unrecognized tax benefits would, if recognized, reduce its effective tax rate. As of December 31, 2019 and 2018, the amounts of unrecognized tax benefit that would reduce the Company’s effective tax rate were $51 million and $49 million, respectively. In addition, $0 million and $0 million for 2019 and 2018, respectively, would be offset by the write-off of a related deferred tax asset, if recognized.

The Company recognizes interest and penalties relating to unrecognized tax benefits as part of income tax expense. Total accrued liabilities for interest and penalties were $2 million and $3 million at December 31, 2019 and 2018, respectively. Total interest and penalties recognized as part of income tax (benefit) expense was $(1) million, $1 million and $1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. Taxing jurisdictions significant to Delphi Technologies include China, Romania, Turkey, South Korea, Mexico, the U.K. the U.S., Luxembourg, Brazil, France, Singapore and Poland. Pursuant to the Tax Matters Agreement, the Former Parent is generally liable for all pre-distribution U.S. federal income taxes, foreign income taxes and certain non-income taxes attributable to our business required to be reported on combined, consolidated, unitary or similar returns that include one or more members of the Former Parent group and one or more members of our group. Delphi Technologies will generally be liable for all other taxes attributable to our business. Open tax years related to these taxing jurisdictions remain subject to examination and could result in additional tax liabilities. In general, our affiliates are no longer subject to income tax examinations by foreign tax authorities for years before 2007. It is reasonably possible that audit settlements, the conclusion of current examinations or the expiration of the statute of limitations in several jurisdictions could impact Delphi Technologies’ unrecognized tax benefits.