Income Taxes

9 Months Ended

Sep. 30, 2019

Arconic’s year-to-date tax provision is comprised of the most recent estimated annual effective tax rate applied to year-to-date pre-tax ordinary income. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur. In addition, the tax provision is adjusted for the interim period impact of non-benefited pre-tax losses.

The estimated annual effective tax rate, before discrete items, applied to ordinary income was 43.9% in both the third quarter and nine months ended September 30, 2019, and 26.5% in both the third quarter and nine months ended September 30, 2018. The estimated annual rates in 2019 and 2018 were higher than the U.S. federal statutory rate of 21.0% primarily due to estimated U.S. tax on Global Intangible Low-Taxed Income, the state tax impact of domestic taxable income, and foreign income taxed in higher rate jurisdictions. The 2019 estimated annual rate was also increased by certain nondeductible costs related to the proposed separation transaction and the impairment of certain domestic and foreign assets.

For the third quarter of 2019 and 2018, the tax rate including discrete items was 54.5% and 35.3%, respectively. For the third quarter of 2019, the Company recorded a discrete charge of $10 related to the following: a charge of $9 for the adjustment of prior year taxes, a charge of $2 for interest accruals for the potential underpayment of taxes, and a benefit of $1 to remeasure certain deferred tax assets as a result of a foreign tax rate change. For the third quarter of 2018, the Company recorded a discrete charge of $26 related to the following: a charge of $59 to establish a tax reserve in Spain (see Note R), a charge of $13 related to prior year adjustments to various jurisdictions, a benefit of $38 for the reversal of a foreign tax reserve that is effectively settled, and a benefit of $8 for the reduction to the estimate of the then provisional impact of the Tax Cut and Jobs Act of 2017.

For the nine months ended September 30, 2019 and 2018, the tax rate including discrete items was 40.6% and 34.0%, respectively. For the nine months ended September 30, 2019, the Company recorded a discrete benefit of $25 related to the following: a benefit of $25 to deduct prior year foreign taxes rather than claim a U.S. foreign tax credit and a benefit of $13 to remeasure certain deferred tax assets as a result of a foreign tax rate change, partially offset by a charge of $9 for the adjustment of prior year taxes, a charge of $2 for interest accruals for the potential underpayment of taxes, and a net charge $2 for a number of small items. For the nine months ended September 30, 2018 the Company recorded a discrete charge of $49 related to the following: a charge of $59 to establish a tax reserve in Spain (see Note R), a charge of $13 primarily related to revised estimates of the then provisional impact for the Tax Cuts and Jobs Act of 2017, a charge of $13 related to prior year adjustments to various jurisdictions, and a charge of $2 related to stock compensation, partially offset by a benefit of $38 for the reversal of a foreign tax reserve that is effectively settled.

The tax provisions for the third quarter and nine months ended September 30, 2019 and 2018 were comprised of the following:



	Third quarter ended					Nine months ended
	September 30,					September 30,
	2019		2018			2019			2018
Pre-tax income at estimated annual effective income tax rate before discrete items	$	92	$	66		$	119		$	170
Impact of change in estimated annual effective tax rate on previous quarter’s pre-tax income	5		(2		)	—			—
Interim period treatment of operational losses in foreign jurisdictions for which no tax benefit is recognized	7		(2		)	16			(1		)
Other discrete items	10		26			(25		)	49
Provision for income taxes	$	114	$	88		$	110		$	218