INCOME TAXES (Notes)

12 Months Ended

Dec. 31, 2022

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, 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
In millions	2022		2021		2020
Income (loss) before income taxes
Domestic	$	2,383	$	1,523	$	(681)
Foreign	3,707		6,622		2,752
Income before income taxes	$	6,090	$	8,145	$	2,071
Current tax expense (benefit)
Federal	$	434	$	(46)	$	(176)
State and local	82		48		4
Foreign	855		1,460		691
Total current tax expense	$	1,371	$	1,462	$	519
Deferred tax expense
Federal	$	63	$	130	$	184
State and local	1		26		19
Foreign	15		122		55
Total deferred tax expense	$	79	$	278	$	258
Provision for income taxes	$	1,450	$	1,740	$	777
Net income	$	4,640	$	6,405	$	1,294

Reconciliation to U.S. Statutory Rate	2022		2021		2020
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Equity earnings effect	(1.2)		(2.2)		0.2
Foreign income taxed at rates other than the statutory U.S. federal income tax rate	(1.4)		(1.3)		(2.3)
U.S. tax effect of foreign earnings and dividends	1.2		1.7		3.9
Unrecognized tax benefits	1.3		4.7		7.3
Divestitures 1	—		—		(5.1)
Changes in valuation allowances	(2.8)		2.6		12.6
Federal tax accrual adjustment 2	0.6		(5.3)		0.3
State and local income taxes	2.8		0.2		0.3
Other - net	2.3		—		(0.7)
Effective tax rate	23.8	%	21.4	%	37.5	%

1.The 2020 impact relates to the divestiture of a bio-ethanol manufacturing facility in Brazil. See Note 5 for additional information.

2.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.

Deferred Tax Balances at Dec 31	2022				2021
In millions	Assets		Liabilities		Assets		Liabilities
Property	$	505	$	3,001	$	484	$	3,150
Tax loss and credit carryforwards	1,472		—		1,784		—
Postretirement benefit obligations	749		239		1,753		303
Other accruals and reserves	1,497		279		1,487		191
Intangibles	36		415		108		556
Inventory	129		278		33		203
Investments	116		41		31		26
Other – net	999		131		1,093		101
Subtotal	$	5,503	$	4,384	$	6,773	$	4,530
Valuation allowances	(1,269)		—		(1,391)		—
Total	$	4,234	$	4,384	$	5,382	$	4,530

Operating Loss and Tax Credit Carryforwards at Dec 31	2022		2021
In millions	Assets		Assets
Operating loss carryforwards
Expire within 5 years	$	158	$	240
Expire after 5 years or indefinite expiration	752		817
Total operating loss carryforwards	$	910	$	1,057
Tax credit carryforwards
Expire within 5 years	$	77	$	227
Expire after 5 years or indefinite expiration	96		103
Total tax credit carryforwards	$	173	$	330
Capital loss carryforwards
Expire within 5 years	$	389	$	397
Total tax loss and tax credit carryforwards	$	1,472	$	1,784

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $6,013 million at December 31, 2022 and $7,769 million at December 31, 2021. 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.

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

Total Gross Unrecognized Tax Benefits
In millions	2022		2021		2020
Total unrecognized tax benefits at Jan 1	$	580	$	373	$	319
Decreases related to positions taken on items from prior years	(47)		(3)		(1)
Increases related to positions taken on items from prior years	53		187		52
Increases related to positions taken in the current year	46		44		18
Settlement of uncertain tax positions with tax authorities	(111)		(18)		(14)
Decreases due to expiration of statutes of limitations	—		(1)		(1)
Foreign exchange gain	(1)		(2)		—
Total unrecognized tax benefits at Dec 31	$	520	$	580	$	373
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	520	$	501	$	285
Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes"	$	(27)	$	359	$	84
Total accrual for interest and penalties recognized in the consolidated balance sheets	$	498	$	502	$	144

The 2022 impacts primarily relate to the settlement of uncertain tax positions in multiple foreign jurisdictions. 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 multiple jurisdictions. These returns are subject to examination and possible challenge by the tax authorities. 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. The earliest open tax years are 2004 for state income taxes and 2007 for federal income taxes in the United States and 2011 in foreign jurisdictions.