INCOME TAXES (Notes)

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The financial statements for Dow Inc. and TDCC are substantially similar, including the reporting of current and deferred tax expense (benefit), provision for income taxes on continuing operations, and deferred tax asset and liability balances. As a result, the following income tax discussion pertains to Dow Inc. only.

Geographic Allocation of Income and Provision for Income Taxes on Continuing Operations
In millions	2021		2020		2019
Income (loss) from continuing operations before income taxes
Domestic 1	$	1,523	$	(681)	$	(1,196)
Foreign 2	6,622		2,752		(51)
Income (loss) from continuing operations before income taxes	$	8,145	$	2,071	$	(1,247)
Current tax expense (benefit)
Federal	$	(46)	$	(176)	$	(287)
State and local	48		4		25
Foreign	1,460		691		960
Total current tax expense	$	1,462	$	519	$	698
Deferred tax expense (benefit)
Federal	$	130	$	184	$	52
State and local	26		19		19
Foreign	122		55		(299)
Total deferred tax expense (benefit)	$	278	$	258	$	(228)
Provision for income taxes on continuing operations	$	1,740	$	777	$	470
Income (loss) from continuing operations, net of tax	$	6,405	$	1,294	$	(1,717)

1.The 2019 amount includes approximately $1.4 billion of expense related to goodwill impairment and environmental matters. See Notes 13 and 16 for additional information.

2.The 2019 amount includes approximately $1.8 billion of expense for Sadara related charges. See Note 12 for additional information.

Reconciliation to U.S. Statutory Rate	2021		2020 1		2019 1
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Equity earnings effect	(2.2)		0.2		(3.2)
Foreign income taxed at rates other than the statutory U.S. federal income tax rate	(1.3)		(2.3)		(14.8)
U.S. tax effect of foreign earnings and dividends	1.7		3.9		1.9
Unrecognized tax benefits	4.7		7.3		1.0
Divestitures 2	—		(5.1)		—
Changes in valuation allowances	2.6		12.6		—
Impact of tax reform 3	—		—		11.1
Federal tax accrual adjustment 4	(5.3)		0.3		10.4
State and local income taxes	0.2		0.3		(4.4)
Sadara related charges 5	—		—		(29.5)
Goodwill impairment 6	—		—		(17.5)
Other - net	—		(0.7)		(13.7)
Effective tax rate	21.4	%	37.5	%	(37.7)	%

1.Certain prior year rates have been adjusted to conform with the current year presentation.

2.The 2020 impact relates to the divestiture of a bio-ethanol manufacturing facility in Brazil. See Note 6 for additional information.

3.Includes the impact of tax reform in Switzerland and the United States.

4.The 2021 impact represents a capital loss incurred on an internal restructuring fully offset by a valuation allowance reported in "Changes in valuation allowances" line item. The 2019 impact primarily relates to the favorable impact of the restoration of tax basis in assets, driven by a court judgment that did not involve the Company.

5.See Note 12 for additional information.

6.See Note 13 for additional information.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. While the CARES Act had no significant impact on the Company's provision for income taxes on continuing operations in 2020, the Company filed a tax loss carryback claim for $291 million in accordance with the provisions of the CARES Act in 2020. This resulted in an increase in "Accounts and notes receivable - other" and a decrease in "Deferred income tax assets" in the consolidated balance sheets. In 2021, the Company received $247 million of the tax loss carryback claim with the residual balance expected to be received in 2022.

In the fourth quarter of 2020, a valuation allowance of $260 million was recorded in the United States, primarily due to filing of the final combined Dow and DuPont tax return and related unutilized foreign tax credits. In 2021, the Company's strong earnings and revised projections resulted in a reversal of the valuation allowance.

Deferred Tax Balances at Dec 31	2021				2020 1
In millions	Assets		Liabilities		Assets		Liabilities
Property	$	484	$	3,150	$	448	$	3,337
Tax loss and credit carryforwards	1,784		—		2,004		—
Postretirement benefit obligations	1,753		303		2,712		250
Other accruals and reserves	1,487		191		1,542		78
Intangibles	108		556		124		638
Inventory	33		203		30		198
Investments	31		26		142		51
Other – net	1,093		101		858		196
Subtotal	$	6,773	$	4,530	$	7,860	$	4,748
Valuation allowances	(1,391)		—		(1,302)		—
Total	$	5,382	$	4,530	$	6,558	$	4,748

1.Certain prior year balances have been adjusted to conform with the current year presentation.

Operating Loss and Tax Credit Carryforwards at Dec 31	2021		2020
In millions	Assets		Assets
Operating loss carryforwards
Expire within 5 years	$	240	$	274
Expire after 5 years or indefinite expiration	817		1,031
Total operating loss carryforwards	$	1,057	$	1,305
Tax credit carryforwards
Expire within 5 years	$	227	$	434
Expire after 5 years or indefinite expiration	103		265
Total tax credit carryforwards	$	330	$	699
Capital loss carryforwards
Expire within 5 years	$	397	$	—
Total tax loss and tax credit carryforwards	$	1,784	$	2,004

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $7,769 million at December 31, 2021 and $7,401 million at December 31, 2020. Undistributed earnings are subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. It is not practicable to calculate the unrecognized deferred tax liability on undistributed earnings.

Prior to the separation, TDCC and its consolidated subsidiaries were included in DowDuPont's consolidated federal income tax group and consolidated tax return. Generally, the consolidated tax liability of the DowDuPont U.S. tax group for each year was apportioned among the members of the consolidated group based on each member’s separate taxable income. TDCC and DuPont intend that, to the extent federal and/or state corporate income tax liabilities are reduced through the utilization of tax attributes of the other, settlement of any receivable and payable generated from the use of the other party’s sub-group attributes will be in accordance with a tax sharing agreement and/or tax matters agreement. At December 31, 2021, the Company had a receivable of zero related to the tax sharing agreement ($261 million at December 31, 2020), included in "Other current assets" in the consolidated balance sheets. Balances related to the tax matters agreement are further discussed in Note 3.

The following table provides a reconciliation of the Company's unrecognized tax benefits:

Total Gross Unrecognized Tax Benefits
In millions	2021		2020		2019
Total unrecognized tax benefits at Jan 1	$	373	$	319	$	314
Decreases related to positions taken on items from prior years	(3)		(1)		(1)
Increases related to positions taken on items from prior years	187		52		16
Increases related to positions taken in the current year	44		18		10
Settlement of uncertain tax positions with tax authorities	(18)		(14)		(19)
Decreases due to expiration of statutes of limitations	(1)		(1)		—
Foreign exchange gain	(2)		—		(1)
Total unrecognized tax benefits at Dec 31	$	580	$	373	$	319
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	501	$	285	$	234
Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes on continuing operations"	$	359	$	84	$	(11)
Total accrual for interest and penalties recognized in the consolidated balance sheets	$	502	$	144	$	100

The 2021 impacts primarily relate to an increase in uncertain tax positions due to controversy in multiple jurisdictions related to various prior year cross-border matters.

The Company files tax returns in the multiple jurisdictions. These returns are subject to examination and possible challenge by the tax authorities. Open tax years are indicated in the table below.

Tax Years Subject to Examination by Major Tax Jurisdiction at Dec 31, 2021	Earliest Open Year
Jurisdiction
Argentina	2014
Brazil	2015
Canada	2012
China	2011
Germany	2014
Italy	2016
The Netherlands	2019
Switzerland	2016
United States:
Federal income tax	2007
State and local income tax	2004

Open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations.