Income Taxes

12 Months Ended

Dec. 31, 2019

U.S. Tax Reform

The impacts of the Tax Cuts and Jobs Act ("the Act") were completed in 2018. For the year ended December 31, 2017, we recognized provisional expense of $303.6 million comprised of $190.4 million of expense related to the one-time transition tax on the cumulative earnings and profits of foreign subsidiaries that were not previously taxed for U.S. income tax purposes and $113.2 million of tax expense for the remeasurement of the Company’s U.S. net deferred tax assets. During 2018, in accordance with Staff Accounting Bulletin 118 ("SAB 118"), income tax effects of the Act were refined upon obtaining, preparing, or analyzing additional information during the measurement period. For the year ended December 31, 2018, we recorded an adjustment to our provisional expense in the amount of $7.8 million. At December 31, 2018, the Company had completed its accounting for the impacts of the enactment of the Act.

We do not provide income taxes for other outside basis differences inherent in our investments in subsidiaries because the investments and related unremitted earnings are essentially permanent in duration or we have concluded that no additional tax liability will arise upon disposal or remittance. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings is not practicable due to the complexity of the hypothetical calculation.

Domestic and foreign components of income (loss) from continuing operations before income taxes are shown below:


	Year Ended December 31,
(in Millions)	2019		2018		2017
Domestic	$	(227.4)	$	(234.9)	$	(201.4)
Foreign	882.4		843.3		297.2
Total	$	655.0	$	608.4	$	95.8

The provision (benefit) for income taxes attributable to income (loss) from continuing operations consisted of:


	Year Ended December 31,
(in Millions)	2019		2018		2017
Current:
Federal ⁽¹⁾	$	(12.0)	$	25.1	$	61.9
Foreign	77.0		90.0		49.9
State	0.4		(0.4)		4.1
Total current	$	65.4	$	114.7	$	115.9
Deferred:
Federal ⁽²⁾	$	(1.2)	$	(4.4)	$	127.8
Foreign	42.7		(30.4)		(14.4)
State	4.6		(9.1)		(0.4)
Total deferred	$	46.1	$	(43.9)	$	113.0
Total	$	111.5	$	70.8	$	228.9

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(1) The years ended December 31, 2018 and 2017 include the one-time impacts of the Act, primarily related to transition tax.

(2) The years ended December 31, 2018 and 2017 include the one-time impacts of the Act, primarily related to the measurement of the Company’s U.S. domestic net deferred tax assets.

The effective income tax rate applicable to income from continuing operations before income taxes was different from the statutory U.S. federal income tax rate due to the factors listed in the following table:


	Year Ended December 31,
(in Millions)	2019		2018		2017
U.S. Federal statutory rate ⁽¹⁾	$	137.5	$	127.8	$	33.5
Impacts of Tax Cuts and Jobs Act Enactment ⁽²⁾	—		7.8		303.6
Foreign earnings subject to different tax rates ⁽³⁾	(137.7)		(154.9)		(74.5)
Capital loss on internal restructuring	—		—		(45.3)
State and local income taxes, less federal income tax benefit	(2.9)		1.4		(1.5)
Manufacturer's production deduction and miscellaneous tax credits	(3.8)		(3.7)		(8.4)
Tax on dividends, deemed dividends, and GILTI ⁽⁴⁾	46.8		45.5		10.6
Changes to unrecognized tax benefits	(5.4)		2.7		6.7
Nondeductible expenses	3.5		12.4		14.2
Change in valuation allowance ⁽⁵⁾	49.9		7.4		(29.3)
Exchange gains and losses ⁽⁶⁾	(2.1)		5.7		28.1
Other	25.7		18.7		(8.8)
Total Tax Provision	$	111.5	$	70.8	$	228.9

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(1) The years ended December 31, 2019 and 2018 includes twelve months of earnings associated with the operations of the DuPont Crop Protection Business acquired November 1, 2017. See Note 5 for additional information.

(2) Includes the one-time impacts of the of the Act, primarily related to transition tax and the decrease to the U.S. tax rate, further discussed above within Note 13.

(3) The years ended December 31, 2019 and 2018 reflects the income mix associated with twelve months of foreign earnings of the DuPont Crop Protection business acquired November 1, 2017.

(4) The years ended December 31, 2019 and 2018 includes tax expense of $41.6 million and $43.8 million, respectively, associated with the global intangible low-taxed income (GILTI) provisions of the Act.

(5) The year ended December 31, 2019 includes approximately $21 million associated with our India operations, primarily related to net operating losses with limited carryforward.

(6) Includes the impact of transaction gains or losses on net monetary assets for which no corresponding tax expense or benefit is realized and the tax provision for statutory taxable gains or losses in foreign jurisdictions for which there is no corresponding amount in income before taxes.

Significant components of our deferred tax assets and liabilities were attributable to:


	December 31,
(in Millions)	2019		2018
Reserves for discontinued operations, environmental and restructuring	$	188.3	$	148.7
Accrued pension and other postretirement benefits	2.4		2.1

Capital loss, foreign tax and other credit carryforwards	7.5		6.0
Net operating loss carryforwards	227.0		219.3
Deferred expenditures capitalized for tax	18.7		15.2
Other	163.6		143.3
Deferred tax assets	$	607.5	$	534.6
Valuation allowance, net	(303.3)		(261.4)
Deferred tax assets, net of valuation allowance	$	304.2	$	273.2
Intangibles and property, plant and equipment, net	380.0		331.2
Deferred tax liabilities	$	380.0	$	331.2
Net deferred tax assets (liabilities)	$	(75.8)	$	(58.0)

We evaluate our deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. GAAP accounting guidance requires companies to assess whether valuation allowances should be established against deferred tax assets based on all available evidence, both positive and negative, using a “more likely than not” standard. In assessing the need for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of deferred tax assets. This assessment considers, among other matters, the nature and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, and tax planning alternatives. We operate and derive income across multiple jurisdictions. As our business experiences changes in operating results across its geographic footprint, we may encounter losses in jurisdictions that have been historically profitable, and as a result might require additional valuation allowances to be recorded. We are committed to implementing tax planning actions, when deemed appropriate, in jurisdictions that experience losses in order to realize deferred tax assets prior to their expiration.

At December 31, 2019, we had net operating loss and tax credit carryforwards as follows: U.S. state net operating loss carryforwards of $25.6 million (tax-effected) expiring in future tax years through 2039, foreign net operating loss carryforwards of $201.4 million (tax-effected) expiring in various future years, and other tax credit carryforwards of $7.5 million expiring in various future years.

At December 31, 2019, our net valuation allowance was primarily comprised of balances within continuing operations locations of Brazil of $98.8 million, U.S. state of $28.1 million, Luxembourg of $30.9 million, India of $20.7 million, and Switzerland of $31.6 million and within discontinued operations in Spain of $66.4 million. The valuation allowance balances at these locations are associated mainly with net operating losses, but in some cases relate to other additional deferred tax assets in the jurisdiction.

Uncertain Income Tax Positions

U.S. GAAP accounting guidance for uncertainty in income taxes prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition.

We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The income tax returns for FMC entities taxable in the U.S. and significant foreign jurisdictions are open for examination and adjustment. As of December 31, 2019, the U. S. federal and state income tax returns are open for examination and adjustment for the years 2016 - 2019 and 1999 - 2019, respectively. Our significant foreign jurisdictions, which total 14, are open for examination and adjustment during varying periods from 2009 - 2019.

As of December 31, 2019, we had total unrecognized tax benefits of $68.2 million, of which $29.4 million would favorably impact the effective tax rate from continuing operations if recognized. As of December 31, 2018, we had total unrecognized tax benefits of $79.1 million, of which $29.5 million would favorably impact the effective tax rate if recognized. Interest and penalties related to unrecognized tax benefits are reported as a component of income tax expense. For the years ended December 31, 2019, 2018 and 2017, we recognized interest and penalties of $1.4 million, $0.9 million, and $5.2 million, respectively, in the consolidated statements of income (loss). As of December 31, 2019 and 2018, we have accrued interest and penalties in the consolidated balance sheets of $15.4 million and $14.0 million, respectively.

Due to the potential for resolution of federal, state, or foreign examinations, and the expiration of various jurisdictional statutes of limitation, it is reasonably possible that our liability for unrecognized tax benefits will decrease within the next 12 months by a range of $15.8 million to $37.2 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


(in Millions)	2019		2018		2017
Balance at beginning of year	$	79.1	$	84.0	$	111.6
Increases related to positions taken in the current year	4.1		11.8		9.4

Increases and decreases related to positions taken in prior years	3.4		(1.8)		(4.6)
Decreases related to lapse of statutes of limitations	(13.0)		(13.5)		(14.2)
Settlements during the current year	(2.8)		(1.4)		(0.3)
Decreases for tax positions on dispositions	(2.6)		—		(17.9)
Balance at end of year ⁽¹⁾	$	68.2	$	79.1	$	84.0

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(1) At December 31, 2019, 2018, and 2017 we recognized an offsetting non-current asset of $34.0 million, $45.3 million, and $59.8 million respectively, relating to the indirect income tax benefits associated with specific uncertain tax positions presented above.