INCOME TAXES (Notes)

12 Months Ended

Dec. 31, 2023

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 (Credit) for Income Taxes
In millions	2023		2022		2021
Income (loss) before income taxes
Domestic	$	(602)	$	2,383	$	1,523
Foreign	1,258		3,707		6,622
Income before income taxes	$	656	$	6,090	$	8,145
Current tax expense (benefit)
Federal	$	249	$	434	$	(46)
State and local	18		82		48
Foreign	951		855		1,460
Total current tax expense	$	1,218	$	1,371	$	1,462
Deferred tax expense (benefit)
Federal	$	(445)	$	63	$	130
State and local	3		1		26
Foreign	(780)		15		122
Total deferred tax expense (benefit)	$	(1,222)	$	79	$	278
Provision (credit) for income taxes	$	(4)	$	1,450	$	1,740
Net income	$	660	$	4,640	$	6,405

Reconciliation to U.S. Statutory Rate	2023		2022		2021
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Equity earnings effect	4.2		(1.2)		(2.2)
Foreign income taxed at rates other than the statutory U.S. federal income tax rate	8.3		(1.4)		(1.3)
U.S. tax effect of foreign earnings and dividends	(13.0)		1.2		1.7
Unrecognized tax benefits	33.1		1.3		4.7
Changes in valuation allowances	18.8		(2.8)		2.6
Federal tax accrual adjustment	(21.2)		0.6		(5.3)
State and local income taxes	3.0		2.8		0.2
Change in tax basis in foreign assets 1	(56.0)		—		—
Other - net	1.2		2.3		—
Effective tax rate	(0.6)	%	23.8	%	21.4	%

1.The 2023 impact primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.

Deferred Tax Balances at Dec 31	2023				2022
In millions	Assets		Liabilities		Assets		Liabilities
Property	$	404	$	2,663	$	505	$	3,001
Tax loss and credit carryforwards	1,754		—		1,472		—
Postretirement benefit obligations	983		196		749		239
Other accruals and reserves	1,923		521		1,497		279
Intangibles 1	2,090		331		36		415
Inventory	114		272		129		278
Investments	166		34		116		41
Other – net	733		115		999		131
Subtotal	$	8,167	$	4,132	$	5,503	$	4,384
Valuation allowances 1	(2,948)		—		(1,269)		—
Total	$	5,219	$	4,132	$	4,234	$	4,384

1.The change in 2023 primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.

Operating Loss and Tax Credit Carryforwards at Dec 31	2023		2022
In millions	Assets		Assets
Operating loss carryforwards
Expire within 5 years	$	213	$	158
Expire after 5 years or indefinite expiration	727		752
Total operating loss carryforwards	$	940	$	910
Tax credit carryforwards
Expire within 5 years	$	80	$	77
Expire after 5 years or indefinite expiration	317		96
Total tax credit carryforwards	$	397	$	173
Capital loss carryforwards
Expire within 5 years	$	417	$	389
Total tax loss and tax credit carryforwards	$	1,754	$	1,472

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $7,148 million at December 31, 2023 and $6,013 million at December 31, 2022. 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	2023		2022		2021
Total unrecognized tax benefits at Jan 1	$	520	$	580	$	373
Decreases related to positions taken on items from prior years	(58)		(47)		(3)
Increases related to positions taken on items from prior years	89		53		187
Increases related to positions taken in the current year	77		46		44
Settlement of uncertain tax positions with tax authorities	(109)		(111)		(18)
Decreases due to expiration of statutes of limitations	(11)		—		(1)
Foreign exchange loss (gain)	5		(1)		(2)
Total unrecognized tax benefits at Dec 31	$	513	$	520	$	580
Total unrecognized tax benefits that, if recognized, would impact the effective tax rate	$	513	$	520	$	501
Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes"	$	126	$	(27)	$	359
Total accrual for interest and penalties recognized in the consolidated balance sheets	$	561	$	498	$	502

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 for taxes in foreign jurisdictions.