INCOME TAXES

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Our effective income tax rate was 39.3% and 20.7% for the three months ended September 30, 2023 and 2022, respectively, and 31.4% and 23.0% for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate for 2023 is higher than the U.S. statutory rate primarily due to the cost of global activities, including the U.S. taxation on international operations, tax effect of foreign currency movement, withholding taxes, and state taxes. Benefit (provision) for income taxes for the three and nine months ended September 30, 2023 included $105 million of deferred tax provision associated with the Tax Matters Agreement (“TMA”) with GE including the effect of completing the 2022 GE U.S. federal tax return. In addition, Other (income) expense - net for the three and nine months ended September 30, 2023 included a $30 million benefit related to change in tax indemnities with GE also associated with the TMA and the effect of completing the 2022 GE U.S. federal tax return. For more information on the TMA, see Note 18, “Related Parties.”

The effective tax rate for the nine months ended September 30, 2022 is higher than the U.S. statutory rate primarily due to the cost of global activities, including the U.S. taxation on international operations and state taxes. The effective tax rate for the three months ended September 30, 2022 is lower than the U.S. statutory rate due to tax on foreign operations offset by the cost of global activities, including the U.S. taxation on international operations and state taxes.

The Company is currently being audited in a number of jurisdictions for tax years 2004-2022, including China, Egypt, France, Germany, Norway, the United Kingdom, and the U.S.

In the first quarter of 2023, the Company changed its accounting policy for presentation of interest expense on uncertain tax positions from within “Interest and other financial charges – net” to within “Benefit (provision) for income taxes.” See Note 1, “Organization and Basis of Presentation” for further information.

Post Spin-Off, the Company’s previously undistributed earnings of certain of our foreign subsidiaries are no longer indefinitely reinvested in non-U.S. businesses due to current U.S. funding needs. Therefore, in the first quarter of 2023, an incremental deferred tax liability of $30 million was recorded for withholding and other foreign taxes due upon future distribution of earnings. In addition, the Company is providing for withholding and other foreign taxes due upon future distribution of current period earnings.

Also, in connection with the Spin-Off, our net deferred income tax assets increased by $3,099 million primarily due to transfers from GE, including $964 million related to pension and postretirement benefits, with the remainder primarily attributable to tax attributes that were not part of the Company’s stand-alone operations, and changes to valuation on a GE HealthCare basis.