Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of Income before income taxes are as follows for the years ended December 31:

	2020		2019		2018
United States	$	1,317	$	1,050	$	1,175
International	2,330		2,251		2,289
Total Income before income taxes	$	3,647	$	3,301	$	3,464

The Provision for income taxes consists of the following for the years ended December 31:

	2020		2019		2018
United States	$	259	$	180	$	213
International	528		594		693
Total Provision for income taxes	$	787	$	774	$	906

Temporary differences between accounting for financial statement purposes and accounting for tax purposes result in the current provision for taxes being higher (lower) than the total provision for income taxes as follows:

	2020		2019		2018
Goodwill and intangible assets	$	1	$	34	$	2
Property, plant and equipment	12		12		(15)
Pension and other retiree benefits	10		(13)		(7)
Stock-based compensation	(7)		(1)		9
Right-of-use assets/lease liabilities	(1)		—		—
Tax credits and tax loss carryforwards	(1)		3		(4)
Deferred withholding tax	111		(21)		(100)
Other, net	18		(33)		62
Total deferred tax benefit (provision)	$	143	$	(19)	$	(53)

The difference between the statutory U.S. federal income tax rate and the Company’s global effective tax rate as reflected in the Consolidated Statements of Income is as follows:

Percentage of Income before income taxes	2020		2019		2018
Tax at United States statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.0		0.6		1.0
Earnings taxed at other than United States statutory rate	3.3		4.6		5.6
Charge for U.S. tax reform(1)	—		—		2.3
Foreign tax credit carryback(2)	—		—		(1.7)
Benefit for foreign tax matters(3)	(2.0)		(0.9)		(0.4)
Foreign-derived intangible income benefit	(1.6)		(1.3)		(1.1)
Other, net	(0.1)		(0.6)		(0.5)
Effective tax rate	21.6	%	23.4	%	26.2	%

_________

(1)On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, the TCJA also requires a minimum tax on certain earnings generated by foreign subsidiaries while providing for tax-free repatriation of such earnings through a 100% dividends-received deduction. The Company’s effective income tax rate in 2017 included a provisional charge of $275, recorded in the fourth quarter of 2017, based on its initial analysis of the TCJA using information and estimates available as of February 15, 2018, the date on which the Company filed its Annual Report on Form 10-K for the year ended December 31, 2017. During 2018, the Company finalized its assessment of the impact of the TCJA and recognized an additional tax expense of $80 reflecting the impact of transition tax guidance issued by the U.S. Treasury and the update of certain estimates and calculations based on information available through the end of 2018. Any further guidance issued after December 31, 2018 may have an impact to the Company’s Provision for income tax in the period such guidance is effective.

(2)In 2018, the Company generated excess foreign taxes associated with its foreign branch operations which are being carried back to 2017. This item is not expected to be recurring.

(3)In 2020, the provision for income taxes includes $71 of income tax benefits recorded on a discrete period basis, of which $45 relates to previously recorded foreign withholding taxes and $26 relates to a previously recorded valuation allowance against a deferred tax asset. As part of the previously recorded charge for the TCJA, the Company has provided for foreign withholding taxes expected to be paid on the remittance of earnings from certain overseas subsidiaries no longer deemed indefinitely reinvested. As a result of a recent reorganization of the ownership structure of certain foreign subsidiaries, the Company determined that no withholding taxes will be due on the remittance by certain subsidiaries of earnings previously deemed reinvested and, accordingly, reversed $45 of previously recorded foreign withholding taxes. Also as part of the previously recorded charge for the TCJA, the Company provided a valuation allowance against a deferred tax asset related to the foreign tax credit carryforwards that the Company did not expect to be able to use due to changes made by the TCJA. As a result of a new operating structure being implemented within one of the Company's divisions, the Company believes the use of these foreign tax credit carryforwards will not be limited in the future and, accordingly, reversed the previously recorded valuation allowance of $26. In 2019, the provision for income taxes includes a net benefit of $29 related to changes enacted by the Swiss government to its corporate tax regime, which included, among other items, the repeal of certain preferential tax regimes and an increase to the cantonal tax rate for future periods. Additionally, the government provided transition rules which allowed companies to record goodwill for tax purposes, partially offsetting the impact on cash taxes of the higher cantonal rate over the next ten years. In 2018, the provision for income taxes includes a benefit of $15 related to several Supreme Court and Administrative Court rulings in a foreign jurisdiction allowing certain tax deductions which had the effect of reversing prior decisions.

The components of deferred tax assets (liabilities) are as follows at December 31:

	2020		2019
Deferred tax liabilities:
Goodwill and intangible assets	$	(603)	$	(598)
Property, plant and equipment	(281)		(303)
Right-of-use assets	(131)		(135)
Deferred withholding tax	(95)		(207)
Other	(52)		(46)
Total deferred tax liabilities	(1,162)		(1,289)
Deferred tax assets:
Pension and other retiree benefits	404		381
Tax credits and tax loss carryforwards	42		93
Lease liabilities	144		152
Accrued liabilities	250		221
Stock-based compensation	73		88
Other	125		83
Total deferred tax assets	1,038		1,018
Valuation Allowance	$	(11)	$	(59)
Net deferred tax assets	$	1,027	$	959
Net deferred income taxes	$	(135)	$	(330)

	2020		2019
Deferred taxes included within:
Assets:
Deferred income taxes	$	291	$	177
Liabilities:
Deferred income taxes	(426)		(507)
Net deferred income taxes	$	(135)	$	(330)

Applicable U.S. income and foreign withholding taxes have been provided on substantially all of the Company’s accumulated earnings of foreign subsidiaries.

Net tax benefits of $101, $13 and $2 were recorded directly through equity in 2020, 2019 and 2018, respectively. The net tax benefits in 2020 and 2019 predominantly include current and future tax impacts related to benefit plans. The amount in 2018 includes current and future tax impacts related to employee equity compensation and benefit plans.

The Company uses a comprehensive model to recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on an income tax return.

Unrecognized tax benefits activity for the years ended December 31, 2020, 2019 and 2018 is summarized below:

	2020		2019		2018
Unrecognized tax benefits:
Balance, January 1	$	173	$	190	$	214
Increases as a result of tax positions taken during the current year	18		14		14
Decreases of tax positions taken during prior years	(5)		(21)		(37)
Increases of tax positions taken during prior years	57		20		9
Decreases as a result of settlements with taxing authorities and the expiration of statutes of limitations	(19)		(30)		(6)
Effect of foreign currency rate movements	3		—		(4)
Balance, December 31	$	227	$	173	$	190

If all of the unrecognized tax benefits for 2020 above were recognized, approximately $213 would impact the effective tax rate and would result in a cash outflow of approximately $223. Although it is possible that the amount of unrecognized benefits with respect to our uncertain tax positions will increase or decrease in the next twelve months, the Company does not expect material changes.

The Company recognized approximately $9 of interest expense, $0 of interest expense, $1 of interest benefit related to the above unrecognized tax benefits within income tax expense in 2020, 2019 and 2018, respectively. The Company had accrued interest of approximately $24, $23 and $27 as of December 31, 2020, 2019 and 2018, respectively.

The Company and its subsidiaries file U.S. federal income tax returns as well as income tax returns in many state and foreign jurisdictions. All U.S. federal income tax returns through December 31, 2013 have been audited by the IRS and there are limited matters which the Company plans to appeal for years 2010 through 2013, the settlement of which is not expected to have a material effect on the Company’s results of operations, cash flows or financial condition. With a few exceptions, the Company is no longer subject to U.S. state and local income tax examinations for income tax returns through December 31, 2015. In addition, the Company has subsidiaries in various foreign jurisdictions that have statutes of limitations for tax audits generally ranging from three to six years.

The Company has made an accounting policy election to treat Global Intangible Low-Taxed Income taxes as a current period expense rather than including these amounts in the measurement of deferred taxes.