Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	2021		2020		2019
United States	$	1,256	$	1,317	$	1,050
International	1,831		2,330		2,251
Total Income before income taxes	$	3,087	$	3,647	$	3,301

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

	2021		2020		2019
United States	$	228	$	259	$	180
International	521		528		594
Total Provision for income taxes	$	749	$	787	$	774

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:

	2021		2020		2019
Goodwill and intangible assets	$	50	$	1	$	34
Property, plant and equipment	(19)		12		12
Pension and other retiree benefits	(4)		10		(13)
Stock-based compensation	11		(7)		(1)
Right-of-use assets/lease liabilities	(2)		(1)		—
Tax credits and tax loss carryforwards	(2)		(1)		3
Deferred withholding tax	(16)		111		(21)
Other, net	19		18		(33)
Total deferred tax benefit (provision)	$	37	$	143	$	(19)

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:

	2021		2020		2019
Percentage of Income before income taxes
Tax at United States statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.1		1.0		0.6
Earnings taxed at other than United States statutory rate	2.7		3.3		4.6
Benefit for foreign tax matters(1)	—		(2.0)		(0.9)
Non-deductible goodwill impairment charges	2.2		—		—
Foreign-derived intangible income benefit	(2.2)		(1.6)		(1.3)
Other, net	(0.5)		(0.1)		(0.6)
Effective tax rate	24.3	%	21.6	%	23.4	%

_________

(1)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 a previously recorded charge for the Tax Cuts and Jobs Act of 2017 (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.

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

	2021		2020
Deferred tax liabilities:
Goodwill and intangible assets	$	(523)	$	(603)
Property, plant and equipment	(301)		(281)
Right-of-use assets	(125)		(131)
Deferred withholding tax	(111)		(95)
Other	(35)		(52)
Total deferred tax liabilities	(1,095)		(1,162)
Deferred tax assets:
Pension and other retiree benefits	344		404
Tax credits and tax loss carryforwards	152		127
Lease liabilities	138		144
Accrued liabilities	234		250
Stock-based compensation	76		73
Other	69		125
Total deferred tax assets	1,013		1,123
Valuation Allowance	$	(120)	$	(96)
Net deferred tax assets	$	893	$	1,027
Net deferred income taxes	$	(202)	$	(135)

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 expense of $(146) was recorded directly through equity in 2021, and net tax benefits of $101 and $13 were recorded directly through equity in 2020 and 2019, respectively. The net tax expense or benefit in each year predominantly includes current and future tax impacts related to benefit plans and the impact of currency translation adjustments.

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, 2021, 2020 and 2019 is summarized below:

	2021		2020		2019
Unrecognized tax benefits:
Balance, January 1	$	227	$	173	$	190
Increases as a result of tax positions taken during the current year	26		18		14
Decreases of tax positions taken during prior years	(20)		(5)		(21)
Increases of tax positions taken during prior years	40		57		20
Decreases as a result of settlements with taxing authorities and the expiration of statutes of limitations	(23)		(19)		(30)
Effect of foreign currency rate movements	(5)		3		—
Balance, December 31	$	245	$	227	$	173

If all of the unrecognized tax benefits for 2021 above were recognized, approximately $235 would impact the effective tax rate. 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 expense of approximately $10, $9 and $0 for interest and penalties related to the above unrecognized tax benefits within income tax expense in 2021, 2020 and 2019, respectively. The Company had accrued interest and penalties of approximately $35, $24 and $23 as of December 31, 2021, 2020 and 2019, 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, 2016. 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.