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Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The results of operations of Credco are included in the consolidated U.S. federal income tax returns of American Express. Under an agreement with American Express, the provision for income taxes is recognized on a separate company basis. If benefits for net operating losses, future tax deductions and foreign tax credits cannot be recognized on a separate company basis, such benefits are then recognized based upon a share, derived by formula, of those deductions and credits that are recognizable on an American Express consolidated reporting basis.
The effective tax rate was 43.5 percent and 16.0 percent for the three months ended September 30, 2020 and 2019, respectively, and 35.6 percent and 14.5 percent for the nine months ended September 30, 2020 and 2019, respectively. The increase in the effective tax rate for the three month period primarily reflected changes in the level and geographic mix of pretax income. The increase in the effective tax rate for the nine month period primarily reflected a discrete tax charge of $33 million related to the attribution of income to jurisdictions outside the U.S, as well as changes in the level and geographic mix of pretax income.
Credco’s provision for income taxes for interim financial periods is not based on an estimated annual effective rate due to volatility in certain components of revenues and expenses that prevents Credco from projecting a reliable estimate of full year pretax income. A discrete calculation of the provision for income taxes is recorded for each interim period.
Credco is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which it has significant business operations. The tax years under examination and open for examination vary by jurisdiction. Credco is currently under examination by the IRS for the 2017 and 2018 tax years.
Credco believes it is reasonably possible that its unrecognized tax benefits could decrease by an immaterial amount within the next 12 months, principally as a result of potential resolutions of prior years’ tax items with various taxing authorities. The prior years’ tax items include unrecognized tax benefits relating to the attribution of taxable income to a particular jurisdiction or jurisdictions. The resolution of such items would not have a material impact on Credco’s effective tax rate.