INCOME TAXES

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

An income tax provision of $37 million and $84 million was recorded for the three and nine months ended September 30, 2024, and the reported effective income tax rate was 28% and 28% respectively. An income tax provision of $33 million and $98 million was recorded for the three and nine months ended September 30, 2023, and the reported effective income tax rate was 36% and 33%, respectively.

The Brazilian Federal Revenue Service has challenged the deductibility of goodwill amortization generated in a 2007 acquisition by International Paper do Brasil Ltda., now named Sylvamo do Brasil Ltda. (“Sylvamo Brasil”), a wholly-owned subsidiary of the Company (the “Brazil Tax Dispute”). Sylvamo Brasil received assessments for the tax years 2007-2015 totaling approximately $107 million in tax, and $261 million in interest, penalties and fees as of September 30, 2024 (adjusted for variation in currency exchange rates and a law change pursuant to which the Brazil tax authority agreed to cancel a portion of the interest, penalties, and fees). International Paper challenged and is managing the litigation of this matter pursuant to the Tax Matters Agreement between us and International Paper. After a previous favorable ruling challenging the basis for these assessments, there were subsequent unfavorable decisions from the Brazilian Administrative Council of Tax Appeals. On behalf of Sylvamo Brasil, International Paper has appealed and at present, has advised us that it intends to further appeal these and any future unfavorable administrative judgments to the Brazilian federal courts. On October 11, 2024, the Brazilian federal regional court issued a favorable ruling to Sylvamo Brasil in the first stage of judicial review. This ruling, however, is subject to appeal by the Brazilian Federal Revenue Service. This tax litigation matter may take many years to resolve. We believe the transaction underlying these assessments was appropriately evaluated, and that Sylvamo Brasil's tax position should be sustained, based on Brazilian tax law.

Pursuant to the terms of the Tax Matters Agreement, International Paper will pay 60%, and Sylvamo will pay 40% on up to $300 million of any assessment related to this matter, and International Paper will pay all amounts of the assessment over $300 million. Also in connection with this agreement, all decisions concerning the conduct of the litigation related to this matter, including settlement strategy, pursuit and abandonment, will continue to be made by International Paper, which is vigorously defending Sylvamo Brasil’s historic tax position against the current assessments and any similar assessments that may be issued for tax years subsequent to 2015.