Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	2022		2021		2020
United States	$	1,169	$	1,256	$	1,317
International	1,491		1,831		2,330
Total Income before income taxes	$	2,660	$	3,087	$	3,647

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

	2022		2021		2020
United States	$	199	$	228	$	259
International	494		521		528
Total Provision for income taxes	$	693	$	749	$	787

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:

	2022		2021		2020
Goodwill and intangible assets	$	106	$	50	$	1
Property, plant and equipment	2		(19)		12
Pension and other retiree benefits	(1)		(4)		10
Stock-based compensation	(3)		11		(7)
Right-of-use assets/lease liabilities	(5)		(2)		(1)
Tax credits and tax loss carryforwards	8		(2)		(1)
Deferred withholding tax	8		(16)		111
Research and Experimentation Capitalization	58		—		—
Other, net	(10)		19		18
Total deferred tax benefit (provision)	$	163	$	37	$	143

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:

	2022		2021		2020
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	0.8		1.1		1.0
Earnings taxed at other than United States statutory rate	5.4		2.7		3.3
Benefit for foreign tax matters(1)	—		—		(2.0)
Non-deductible goodwill impairment charges	1.9		2.2		—
Foreign-derived intangible income benefit	(2.6)		(2.2)		(1.6)
Other, net	(0.4)		(0.5)		(0.1)
Effective tax rate	26.1	%	24.3	%	21.6	%

_________

(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.

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

	2022		2021
Deferred tax liabilities:
Goodwill and intangible assets	$	(405)	$	(523)
Property, plant and equipment	(375)		(301)
Right-of-use assets	(118)		(125)
Deferred withholding tax	(103)		(111)
Other	(27)		(35)
Total deferred tax liabilities	(1,028)		(1,095)
Deferred tax assets:
Pension and other retiree benefits	214		344
Tax credits and tax loss carryforwards	169		152
Lease liabilities	125		138
Accrued liabilities	218		234
Stock-based compensation	73		76
Research and Experimentation Capitalization	58		—
Other	52		69
Total deferred tax assets	909		1,013
Valuation Allowance	$	(129)	$	(120)
Net deferred tax assets	$	780	$	893
Net deferred income taxes	$	(248)	$	(202)

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 $164 and $146 were recorded directly through equity in 2022 and 2021, respectively. Net tax benefit of $101 was recorded directly through equity in 2020. 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, 2022, 2021 and 2020 is summarized below:

	2022		2021		2020
Unrecognized tax benefits:
Balance, January 1	$	245	$	227	$	173
Increases as a result of tax positions taken during the current year	32		26		18
Decreases of tax positions taken during prior years	(21)		(20)		(5)
Increases of tax positions taken during prior years	46		40		57
Decreases as a result of settlements with taxing authorities and the expiration of statutes of limitations	(2)		(23)		(19)
Effect of foreign currency rate movements	(2)		(5)		3
Balance, December 31	$	298	$	245	$	227

If all of the unrecognized tax benefits for 2022 above were recognized, approximately $289 would impact the effective tax rate. It is reasonably possible that the amount of unrecognized benefits with respect to our uncertain tax positions could change in the next twelve months and such change may or may not be material.

The Company recognized expense of approximately $8, $10 and $9 for interest and penalties related to the above unrecognized tax benefits within income tax expense in 2022, 2021 and 2020, respectively. The Company had accrued interest and penalties of approximately $40, $35 and $24 as of December 31, 2022, 2021 and 2020, 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 Internal Revenue Service (the "IRS") and there are limited matters which the Company plans to appeal for years 2010 through 2013. One such matter relates to the IRS assessment of taxes on the Company by imputing income on certain activities within one of our international operations. In light of a recent U.S. Tax Court ruling subsequent to December 31, 2022 in favor of the IRS against an unrelated party on a similar matter, the Company is in the process of reassessing its position as it relates to this matter. The Company is currently under audit by the IRS, where the same matter is being discussed, for the years 2014 through 2018. The amount of tax plus interest for the years 2010 through 2018 is estimated to be approximately $145, which is not included in our uncertain tax positions. 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.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted, which among other things, implements a 15% minimum tax on book income of certain large corporations effective for years beginning after December 31, 2022. Based on the Company’s preliminary analysis, the IRA is not expected to have a material impact on the Company’s Consolidated Financial Statements. The Company will continue to evaluate the impact of this law as additional guidance and clarification becomes available.

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.