

	December 31, 2019			December 31, 2018
	(In millions)
Deferred tax liabilities
Property, plant, and equipment	$	1,012		$	944
Intangibles	286			130
Right of use assets	220			—
Equity in earnings of affiliates	72			70
Inventory reserves	32			—
Debt exchange	80			81
Reserves and other accruals	20			25
Other	109			83
	$	1,831		$	1,333
Deferred tax assets
Pension and postretirement benefits	$	155		$	122
Lease liabilities	225			—
Stock compensation	62			55
Foreign tax loss carryforwards	411			313
Capital loss carryforwards	62			55
State tax attributes	74			74
Unrealized foreign currency losses	—			48
Reserves and other accruals	—			18
Other	147			56
Gross deferred tax assets	1,136			741
Valuation allowances	(325		)	(289		)
Net deferred tax assets	$	811		$	452

Net deferred tax liabilities	$	1,020		$	881

The net deferred tax liabilities are classified as follows:
Noncurrent assets (foreign)	$	174		$	186
Noncurrent liabilities	(969		)	(929		)
Noncurrent liabilities (foreign)	(225		)	(138		)
	$	(1,020	)	$	(881	)



	Year Ended
	December 31
	2019		2018		2017

Statutory rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal tax benefit	0.6		0.3		1.7
Foreign earnings taxed at rates other than the U.S. statutory rate	(2.2	)	(1.5	)	(4.7	)
Foreign currency effects/remeasurement	0.7		(1.9	)	(0.7	)
Income tax adjustment to filed returns	0.2		(1.9	)	(3.0	)
Tax benefit on U.S. biodiesel credits	(7.5	)	(2.3	)	—
Tax benefit on U.S. railroad credits	(3.6	)	—		—
Tax benefit on U.S. qualified production activity deduction	—		—		(2.2	)
Tax on global intangible low-taxed income	1.4		1.0		—
Tax benefit on foreign derived intangible income deduction	—		(1.0	)	—
Valuation allowances	1.3		—		0.3
U.S. tax reform impacts	0.4		(1.1	)	(23.9	)
Other	0.9		(0.7	)	(2.1	)
Effective income tax rate	13.2	%	11.9	%	0.4	%

The low 2019 effective tax rate was primarily due to the impact of U.S. tax credits, including the 2018 and 2019 biodiesel tax credit and the railroad maintenance tax credit, signed into law in December 2019. The effective tax rate for 2018 included the 2017 biodiesel tax credit recorded in the first quarter of 2018 and the additional true-up adjustments related to the 2017 U.S. tax reform, along with certain favorable discrete tax items.

The foreign rate differential was primarily due to lower tax rates from the Company's operations in Switzerland, Asia, and the Caribbean. The Company’s foreign earnings, which were taxed at rates lower than the U.S. rate and were generated from these jurisdictions, were 61%, 56%, and 59% of its foreign earnings before taxes in fiscal years 2019, 2018, and 2017, respectively.

Undistributed earnings of the Company’s foreign subsidiaries were approximately $11.6 billion at December 31, 2019. Because the Company’s undistributed foreign subsidiaries earnings continue to be indefinitely reinvested in foreign operations, no income taxes, other than the transition tax, the U.S. tax on undistributed Subpart F, and the minimum tax on Global Intangible Low Taxed Income (GILTI), have been provided. It is not practicable to determine the amount of unrecognized deferred tax liability related to any remaining undistributed foreign subsidiaries earnings not subject to the transition tax in these entities.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The income tax effects of changes in tax laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and modifications with varying effective dates, which include reducing the U.S. federal corporate income tax rate from 35% to 21%, creating a territorial tax system (with a one-time transition tax on previously deferred foreign earnings), broadening the tax base, and allowing for immediate capital expensing of certain qualified property. As a result, the Company made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax, and recognized a net provisional benefit of $379 million, which is included as a component of income tax expense in the year ended December 31, 2017. The net provisional benefit consisted of a net tax benefit of $528 million related to the remeasurement of deferred tax balance and a beneficial impact of $220 million on reserves previously established under ASC Subtopic 740-30, Income Taxes - Other Considerations or Special Areas, partially offset by the $369 million provisional impact of the transition tax. The Company performed a quarterly review of the provisional tax liability recorded in 2017 as new guidance on the Act was issued. The Company updated its calculation of the transition tax and recorded an immaterial expense in 2019 and a benefit of $29 million in 2018. The Company has elected to pay the one-time transition tax over eight years. As of December 31, 2019, the Company's remaining transition tax liability was $183 million, which will be paid in installments through 2025.

The Act also contains new provisions related to GILTI and Foreign Derived Intangible Income (FDII) which are effective for fiscal year 2018. The Company incurred additional U.S. taxable income of $105 million and $101 million related to GILTI and deducted $1 million and $101 million related to FDII in fiscal years 2019 and 2018, respectively. The Company made an accounting policy election to treat GILTI as a period cost. During 2018, U.S. tax authorities issued proposed Treasury Regulations addressing some of the tax reform items that were effective in 2018. The Company has recorded and will continue to record the impact of tax reform items as U.S. tax authorities issue Treasury Regulations and other guidance addressing tax reform-related changes. It is also reasonable to expect that global taxing authorities will be reviewing their current legislation for potential modifications in reaction to the implementation of the Act. The additional guidance, along with the potential for additional global tax legislation changes, may affect significant deductions and income inclusions and could have a material adverse effect on the Company's net income or cash flow.

The Company had $411 million and $313 million of tax assets related to net operating loss carry-forwards of certain international subsidiaries at December 31, 2019 and 2018, respectively. As of December 31, 2019, approximately $312 million of these assets have no expiration date, and the remaining $99 million expire at various times through fiscal 2028. The annual usage of certain of these assets is limited to a percentage of taxable income of the respective foreign subsidiary for the year. The Company has recorded a valuation allowance of $193 million and $166 million against these tax assets at December 31, 2019 and 2018, respectively, due to the uncertainty of their realization.

The Company had $74 million of tax assets related to state income tax attributes (incentive credits and net operating loss carryforwards), net of federal tax benefit, at December 31, 2019 and 2018, which will expire at various times through fiscal 2038. Due to the uncertainty of realization, the Company recorded a valuation allowance of $70 million and $68 million related to state income tax assets net of federal tax benefit as of December 31, 2019 and 2018, respectively.



	Unrecognized Tax Benefits
	December 31, 2019			December 31, 2018
	(In millions)
Beginning balance	$	107		$	56
Additions related to current year’s tax positions	8			3
Additions related to prior years’ tax positions	—			46
Additions related to acquisitions	32			7
Reductions related to prior years’ tax positions	(14		)	—
Reductions related to lapse of statute of limitations	(2		)	(2		)
Settlements with tax authorities	(1		)	(3		)
Ending balance	$	130		$	107

The additions and reductions in unrecognized tax benefits shown in the table included effects related to net income and shareholders’ equity. The changes in unrecognized tax benefits did not have a material effect on the Company’s net income or cash flow. At December 31, 2019 and 2018, the Company had accrued interest and penalties on unrecognized tax benefits of $26 million and $24 million, respectively.

The Company is subject to income taxation and routine examinations in many jurisdictions around the world and frequently faces challenges regarding the amount of taxes due. These challenges include positions taken by the Company related to the timing, nature, and amount of deductions and the allocation of income among various jurisdictions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential tax owed by the Company in accordance with applicable accounting standards. Resolution of the related tax positions, through negotiations with relevant tax authorities or through litigation, may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions and the Company cannot predict or provide assurance as to the ultimate outcome of these ongoing or future examinations. However, the Company does not anticipate that the total amount of unrecognized tax benefits will increase or decrease significantly in the next twelve months. Given the long periods of time involved in resolving tax positions, the Company does not expect that the recognition of unrecognized tax benefits will have a material impact on the Company’s effective income tax rate in any given period. If the total amount of unrecognized tax benefits were recognized by the Company at one time, there would be a reduction of $130 million on the tax expense for that period.

The Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (ADM do Brasil), has received three separate tax assessments from the Brazilian Federal Revenue Service (BFRS) challenging the tax deductibility of commodity hedging losses and related expenses for the tax years 2004, 2006, and 2007. These assessments totaled approximately $104 million in tax and $307 million in interest and penalties as of December 31, 2019 (adjusted for variation in currency exchange rates). The statute of limitations for tax years 2005 and 2008-2011 has expired. The Company does not expect to receive any additional tax assessments with respect to this issue.

ADM do Brasil enters into commodity hedging transactions that can result in gains, which are included in ADM do Brasil’s calculation of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. The Company has evaluated its tax position regarding these hedging transactions and concluded, based upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilian income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging losses in its financial statements and has not recorded any tax liability for the amounts assessed by the BFRS.

ADM do Brasil filed an administrative appeal for each of the assessments. In January 2020, the second-level administrative appeal panel found in favor of ADM do Brasil and cancelled the assessments. While it is unclear if the BFRS will appeal, the Company intends to vigorously defend its position against any appeal which could be made to the administrative panel or to a superior tax chamber. The Company expects to know if the ruling will be appealed during the first half of 2020. Based upon the view of external counsel, it is unlikely that the BFRS will be successful in appealing the matter. While the Company believes its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of additional payments of, and expense for, income tax and the associated interest and penalties.

The Company’s subsidiaries in Argentina, ADM Agro SRL (formerly ADM Argentina SA and Alfred C. Toepfer Argentina SRL), received tax assessments challenging transfer prices used to price grain exports for the tax years 1999 through 2011. As of December 31, 2019, these assessments totaled $14 million in tax and up to $53 million in interest (adjusted for variation in currency exchange rates). The Argentine tax authorities conducted a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities resulting in allegations of income tax evasion. The Company strongly believes that it has complied with all Argentine tax laws. To date, the Company has not received assessments for closed years subsequent to 2011, considering that the statute of limitation for tax years 2012 and 2013 has expired. However, it cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2014, and estimates that these potential assessments could be approximately $43 million in tax and up to $22 million in interest (adjusted for variation in currency exchange rates as of December 31, 2019). The Company believes that it has appropriately evaluated the transactions underlying these assessments, and has concluded, based on Argentine tax law, that its tax position would be sustained, and accordingly, has not recorded a tax liability for these assessments. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2011.

In accordance with the accounting requirements for uncertain tax positions, the Company has not recorded an uncertain tax liability for these assessments because it has concluded that it is more likely than not to prevail on the Brazil and Argentina matters based upon their technical merits and because the taxing jurisdictions’ processes do not provide a mechanism for settling at less than the full amount of the assessment. The Company’s consideration of these tax assessments requires judgments about the application of income tax regulations to specific facts and circumstances. The final outcome of these matters cannot reliably be predicted, may take many years to resolve, and could result in financial impacts of up to the entire amount of these assessments.

In 2014, the Company’s wholly-owned subsidiary in the Netherlands, ADM Europe B.V., received a tax assessment from the Netherlands tax authority challenging the transfer pricing aspects of a 2009 business reorganization, which involved two of its subsidiary companies in the Netherlands. As of December 31, 2019, this assessment was $91 million in tax and $34 million in interest (adjusted for variation in currency exchange rates). In September 2019, the Company received an interim decision on its appeal which directed the parties to work toward a settlement. As of December 31, 2019, an agreement has not been reached and the Company is awaiting additional guidance from the court, which could include assigning the matter to a third party expert to establish a valuation. Subsequent appeals may take an extended period of time and could result in additional financial impacts of up to the entire amount of the assessment. The Company has carefully evaluated the underlying transactions and has concluded that the amount of the gain recognized on the reorganization for tax purposes was appropriate. The Company has accrued its best estimate of what it believes will be the likely outcome of the litigation and will vigorously defend its position against the assessment.