Prior to the Split-Off, the Company’s operating results were included in Danaher’s various consolidated U.S. federal and certain state income tax returns, as well as certain non-U.S. returns. For periods prior to the Split-Off, the Company’s Consolidated and Combined Financial Statements reflect income tax expense and deferred tax balances as if the Company had filed tax returns on a standalone basis separate from Danaher. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise for periods prior to the Split-Off.


	2020		2019		2018
Current:
Federal U.S.	$	8.2	$	20.0	$	34.9
Non-U.S.	20.1		41.3		26.0
State and local	(0.3)		5.5		7.8
Deferred:
Federal U.S.	(13.6)		0.2		4.9
Non-U.S.	(73.5)		(9.2)		(4.3)
State and local	(4.3)		0.1		1.1
Income tax provision	$	(63.4)	$	57.9	$	70.4

Deferred tax assets and deferred tax liabilities are classified as long-term and are included in other long-term assets and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets. Significant components of deferred tax assets and liabilities as of December 31 were as follows ($ in millions):


	2020		2019
Deferred tax assets:
Inventories	$	17.5	$	17.9
Pension benefits	13.3		19.2
Other accruals and prepayments	51.0		41.5
Lease liabilities	45.4		51.1
Stock-based compensation expense	6.0		3.0
Unrealized gains and losses	30.9		4.5
Tax credit and loss carryforwards	159.5		152.0
Valuation allowances	(126.0)		(119.1)
Total deferred tax asset	197.6		170.1
Deferred tax liabilities:
Property, plant and equipment	(14.5)		(8.3)
Interest expense	(2.3)		—
Right-of-use assets	(40.6)		(48.2)
Goodwill and other intangible assets	(278.0)		(339.0)
Total deferred tax liability	(335.4)		(395.5)
Net deferred tax liability	$	(137.8)	$	(225.4)

Deferred taxes associated with U.S. entities consist of net deferred tax liabilities of $122.5 million and $147.8 million as of December 31, 2020 and 2019, respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax liabilities of $15.3 million and $77.4 million as of December 31, 2020 and 2019, respectively.

The Company’s intent is to permanently reinvest substantially all funds outside of the United States and current plans do not demonstrate a need to repatriate the cash to fund U.S. operations. However, if these funds were repatriated, they would likely not be subject to United States federal income tax under the previously taxed income or the dividend exemption rules. The Company would likely be required to accrue and pay United States state and local taxes and withholding taxes payable to various countries. It is not practicable to estimate the tax impact of the reversal of the outside basis difference, or the repatriation of cash due to the complexity of its hypothetical calculation.

The 2020 decrease in the deferred tax liability for goodwill and other intangible assets included a one-time income tax benefit of approximately $59.1 million related primarily to the recognition of a deferred tax asset associated with the estimated value of a tax basis step-up of the Company’s Switzerland assets. The benefit was offset by a related increase of $7.4 million in valuation allowance against the Company’s Swiss net operating losses that will be displaced by amortization of the step-up deferred tax asset.

The TCJA enacted on December 22, 2017 introduced significant changes to U.S. income tax law. Effective 2018, the TCJA reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and certain related-party payments.

Due to the timing of the enactment and the complexity involved in applying the provisions of the TCJA, the Company made reasonable estimates of the effects and recorded provisional amounts in its Consolidated and Combined Financial Statements as of December 31, 2017. As the Company collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company made adjustments, over the course of 2018, to the provisional amounts including refinements to deferred taxes. The accounting for the tax effects of the TCJA was completed as of December 31, 2018.

The TCJA required the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. The Company recorded a provisional amount for its transitional tax liability and income tax expense of $36.0 million as of December 31, 2017. Subsequent adjustments in 2018 and 2019 were not material.

The TCJA imposes tax on U.S. stockholders for global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company is required to make an accounting policy election of either: (1) treating taxes due on future amounts included in the U.S. taxable income related to GILTI as a current period tax expense when incurred (“the period cost method”); or (2) factoring such amounts into the Company’s measurement of its deferred tax its deferred tax expense (the “deferred method”). In 2018, the Company elected the period cost method for its accounting for GILTI.


	Percentage of Pretax Income
	2020		2019		2018
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
Increase (decrease) in tax rate resulting from:
State income taxes (net of federal income tax benefit)	11.3		1.4		2.5
Impact of foreign operations	61.1		(0.1)		1.7
Foreign-Derived Intangible Income (“FDII”)	—		(1.1)		(0.9)
Subpart F and GILTI, net of foreign tax credits	(48.3)		2.0		0.1
Change in uncertain tax positions	2.3		0.6		(0.9)
Research and experimentation credits and other	(5.1)		(0.5)		1.0
Excess tax benefit from stock-based compensation	7.7		(2.3)		(1.1)
Impact of step-up of Swiss assets	160.6		—		—
Effective income tax rate	210.6	%	21.0	%	23.4	%

The Company’s effective tax rate for each of 2020 and 2018 differs from the U.S. federal statutory rate of 21.0% primarily due to its earnings outside of the United States that are indefinitely reinvested and taxed at rates different than the U.S. federal statutory rate. In addition:

•The effective tax rate of 210.6% in 2020 includes 1,606 basis points of net tax benefits primarily related to the Swiss step-up impact on deferred taxes, the excess tax benefit associated with the exercise of employee stock options and vesting of RSUs, as well as the release of reserves upon the expiration of statutes of limitation, partially offset by increases for changes in estimates associated with prior period uncertain tax positions and a valuation allowance on losses attributable to certain foreign jurisdictions.

•The effective tax rate of 21.0% in 2019 includes 240 basis points of net tax benefits primarily related to the excess tax benefit associated with the exercise of employee stock options and vesting of RSUs, as well as the release of reserves upon the expiration of statutes of limitation, partially offset by increases for changes in estimates associated with prior period uncertain tax positions and a valuation allowance on losses attributable to certain foreign jurisdictions.

•The effective tax rate of 23.4% in 2018 includes 60 basis points of net tax benefits primarily related to the excess tax benefit associated with the exercise of employee stock options and vesting of RSUs, as well as the release of reserves upon the expiration of statutes of limitation, partially offset by increases in net reserves from audit settlements.

The Company realized tax benefits of $4.4 million, $8.4 million, and $5.1 million in 2020, 2019 and 2018 respectively, for tax deductions attributable to stock-based compensation, of which, the excess tax benefit over the amount recorded for financial reporting purposes was $2.3 million, $6.2 million and $3.3 million in 2020, 2019 and 2018, respectively. As required by ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), the excess tax benefits for the years ended December 31, 2020, 2019 and 2018 have been included in the provision for income taxes and increased the effective tax rate for 2020 by 770 basis points and decreased the effective tax rates for 2019 and 2018 by 230 and 110 basis points, respectively.

The Company evaluates the future realizability of tax credits and loss carryforwards considering the anticipated future earnings of the Company’s subsidiaries as well as tax planning strategies in the associated jurisdictions. Included in deferred income taxes as of December 31, 2020 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $159.5 million ($117.5 million of which the Company does not expect to realize and has corresponding valuation allowances). Certain of the losses can be carried forward indefinitely and others can be carried forward to various dates from 2021 through 2040.

As of December 31, 2020, gross unrecognized tax benefits totaled $7.1 million ($9.0 million, including $1.9 million associated with potential interest and penalties). As of December 31, 2019, gross unrecognized tax benefits totaled $9.1 million ($10.9 million, including $1.8 million associated with potential interest and penalties). The Company recognized $0.0 million, $0.6 million and $0.5 million in potential interest and penalties associated with uncertain tax positions during 2020, 2019 and 2018, respectively. To the extent unrecognized tax benefits (including interest and penalties) are recognized with respect to uncertain tax positions, the tax expense in future periods would be reduced by $9.0 million based upon the tax positions as of December 31, 2020. The Company recognized interest and penalties related to unrecognized tax benefits within income taxes in the accompanying Consolidated and Combined Statements of Income. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other accrued expenses as detailed in Note 9.


	2020		2019		2018
Unrecognized tax benefits, beginning of year	$	9.1	$	27.2	$	37.4
Additions based on tax positions related to the current year	0.3		0.5		0.7
Additions for tax positions of prior years	0.3		3.1		1.7
Reductions for tax positions of prior years	(1.7)		(1.5)		—
Split-Off related adjustments a	—		(18.1)		—
Lapse of statute of limitations	(1.0)		(1.8)		(5.6)
Settlements	—		(0.4)		(5.9)
Effect of foreign currency translation	0.1		0.1		(1.1)
Unrecognized tax benefits, end of year	$	7.1	$	9.1	$	27.2
a Unrecognized tax benefits were reduced by $18.1 million in 2019 related to positions taken prior to the Split-Off for which Danaher, as the Company’s Former Parent, is the primary obligor and is responsible for settlement and payment of any resulting tax obligation.

The Company conducts business globally and files numerous income tax returns in U.S. federal, state and foreign jurisdictions. The non-U.S. countries in which the Company has a material presence include Canada, China, Finland, Germany and Switzerland. The Company believes that a change in the statutory tax rate of any individual foreign country would not have a material effect on the Consolidated and Combined Financial Statements given the geographic dispersion of the Company’s taxable income.

The Company is routinely examined by various domestic and international taxing authorities. In connection with the Separation, the Company entered into agreements with Danaher, including a tax matters agreement. The tax matters agreement distinguishes between the treatment of tax matters for “Joint” filings compared to “Separate” filings prior to the Separation. “Joint” filings involve legal entities, such as those in the United States, that include operations from both Danaher and the Company. By contrast, “Separate” filings involve certain entities (primarily outside of the United States), that exclusively include either Danaher’s or the Company’s operations, respectively. In accordance with the tax matters agreement, Danaher is liable for and has indemnified the Company against all income tax liabilities involving “Joint” filings for periods prior to the Separation. The Company remains liable for certain pre-Separation income tax liabilities including those related to the Company’s “Separate” filings.

Pursuant to U.S. tax law, the Company filed its initial U.S. federal income tax return for the 2019 short tax year with the IRS during 2020. Therefore, the IRS has not yet begun an examination of the Company’s initial U.S. federal income tax return. The Company’s operations in certain U.S. states and foreign jurisdictions remain subject to routine examination for tax years beginning with 2009.

The Company estimates that it is reasonably possible that the amount of unrecognized tax benefits may be reduced by approximately $2.8 million within twelve months as a result of resolution of worldwide tax matters, payments of tax audit settlements and/or statute of limitations expirations.

The Company operates in various non-U.S. tax jurisdictions where “tax holiday” income tax incentives have been granted for a specific period. These tax benefits are not material to the Company’s financial statements.