Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table sets forth the geographic split of earnings before income taxes:

	Year Ended
(In millions)	December 31
	2021		2020		2019
United States	$	2,140	$	442	$	756
Foreign	1,173		1,441		832
	$	3,313	$	1,883	$	1,588

Significant components of income taxes are as follows:

(In millions)	Year Ended December 31
	2021		2020		2019
Current
Federal	$	404	$	(164)	$	37
State	79		4		11
Foreign	224		186		181
Deferred
Federal	(59)		41		47
State	(12)		(10)		1
Foreign	(58)		44		(68)
	$	578	$	101	$	209

Significant components of deferred tax liabilities and assets are as follows:

	December 31, 2021		December 31, 2020
	(In millions)
Deferred tax liabilities
Property, plant, and equipment	$	875	$	903
Intangibles	403		334
Right of use assets	214		223
Equity in earnings of affiliates	153		64
Inventory reserves	29		25
Debt exchange	53		53
Reserves and other accruals	65		195
Other	185		173
	$	1,977	$	1,970
Deferred tax assets
Pension and postretirement benefits	$	137	$	163
Lease liabilities	220		227
Stock compensation	53		80
Foreign tax loss carryforwards	465		470
Capital loss carryforwards	74		70
State tax attributes	21		79
Reserves and other accruals	158		42
Other	44		136
Gross deferred tax assets	1,172		1,267
Valuation allowances	(281)		(339)
Net deferred tax assets	$	891	$	928
Net deferred tax liabilities	$	1,086	$	1,042
The net deferred tax liabilities are classified as follows:
Noncurrent assets	$	27	$	—
Noncurrent assets (foreign)	299		260
Noncurrent liabilities	(1,079)		(957)
Noncurrent liabilities (foreign)	(333)		(345)
	$	(1,086)	$	(1,042)

Reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate on earnings is as follows:

	Year Ended
	December 31
	2021		2020		2019
Statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	1.5		(0.3)		0.6
Foreign earnings taxed at rates other than the U.S. statutory rate	(3.9)		(4.5)		(0.9)
Foreign currency effects/remeasurement	—		(1.1)		0.7
Income tax adjustment to filed returns	0.7		(0.4)		0.2
Tax benefit on U.S. biodiesel credits	(1.9)		(3.3)		(7.5)
Tax benefit on U.S. railroad credits	(2.0)		(8.0)		(3.6)
Tax on Global Intangible Low Taxed Income (GILTI)	1.1		2.9		1.4
Tax benefit on Foreign Derived Intangible Income Deduction (FDII)	(0.5)		(0.1)		—
Valuation allowances	0.7		—		—
Other	0.7		(0.8)		1.3
Effective income tax rate	17.4	%	5.4	%	13.2	%

The effective tax rates for 2021, 2020, and 2019 were impacted by the geographic mix of earnings and U.S. tax credits, including the biodiesel tax credit and the railroad maintenance tax credit.

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 generated from these jurisdictions, were 64%, 59%, and 61% of its foreign earnings before taxes in fiscal years 2021, 2020, and 2019, respectively.

Undistributed earnings of the Company’s foreign subsidiaries and corporate joint ventures were approximately $12.7 billion at December 31, 2021. Because these undistributed 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 GILTI, have been provided after the Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. It is not practicable to determine the amount of unrecognized deferred tax liability related to any remaining undistributed earnings of foreign subsidiaries and corporate joint ventures not subject to the transition tax.

The Company has elected to pay the one-time transition tax on accumulated foreign earnings over eight years. As of December 31, 2021, the Company’s remaining transition tax liability was $140 million, which will be paid in installments through 2025.

The Company incurred U.S. taxable income of $244 million, $259 million, and $105 million related to GILTI and deducted $87 million, $12 million, and $1 million related to FDII in fiscal years 2021, 2020, and 2019 respectively. The Company made an accounting policy election to treat GILTI as a period cost. 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. 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 $465 million and $470 million of tax assets related to net operating loss carry-forwards of certain international subsidiaries at December 31, 2021 and 2020, respectively.  As of December 31, 2021, approximately $359 million of these assets have no expiration date, and the remaining $106 million expire at various times through fiscal 2031.  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 $200 million and $197 million against these tax assets at December 31, 2021 and 2020, respectively, due to the uncertainty of their realization.

The Company had $74 million and $70 million of tax assets related to foreign capital loss carryforwards at December 31, 2021 and 2020, respectively.  The Company has recorded a valuation allowance of $74 million and $70 million against these tax assets at December 31, 2021 and 2020, respectively.

The Company had $21 million and $79 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, 2021 and 2020, the majority of which will expire between 2022 and 2026. Due to the uncertainty of realization, the Company recorded a valuation allowance of $13 million and $72 million related to state income tax assets net of federal tax benefit as of December 31, 2021 and 2020, respectively. The change in the valuation allowance was related to the expiration of certain state income tax attributes which were fully reserved in prior years.   

The Company remains subject to federal examination in the U.S. for the calendar tax years 2016 through 2021.

The following table sets forth a rollforward of activity of unrecognized tax benefits for the year ended December 31, 2021 and 2020 as follows:

	Unrecognized Tax Benefits
	December 31, 2021		December 31, 2020
	(In millions)
Beginning balance	$	151	$	130
Additions related to current year’s tax positions	7		2
Additions related to prior years’ tax positions	15		37
Additions (adjustments) related to acquisitions	—		(1)
Reductions related to prior years’ tax positions	—		(3)
Reductions related to lapse of statute of limitations	(9)		(9)
Settlements with tax authorities	(7)		(5)
Ending balance	$	157	$	151

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, 2021 and 2020, the Company had accrued interest and penalties on unrecognized tax benefits of $39 million and $33 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 $157 million on the tax expense for that period.

The Company’s subsidiary 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 and 2014. As of December 31, 2021, these assessments totaled $8 million in tax and up to $38 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 2014. While the statute of limitations has expired for tax years 2012 and 2013, the Company cannot rule out receiving additional assessments challenging transfer prices used to price grain exports for years subsequent to 2013, and estimates that these potential assessments could be approximately $60 million in tax and $40 million in interest (adjusted for variation in currency exchange rates as of December 31, 2021).  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. In accordance with the accounting requirements for uncertain tax positions, the Company has not recorded an unrecognized tax liability for this assessment because it has concluded that it is more likely than not to prevail on the matter based upon its technical merits and because the taxing jurisdiction’s process does not provide a mechanism for settling at less than the full amount of the assessment. The Company intends to vigorously defend its position against the current assessments and any similar assessments that may be issued for years subsequent to 2013.

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, 2021, this assessment was $92 million in tax and $33 million in interest (adjusted for variation in currency exchange rates). On April 23, 2020, the court issued an unfavorable ruling and in October 2020, assigned a third party expert to establish a valuation by early 2021. During the second quarter of 2021, the third party expert issued a final valuation. The Company expects the court to issue a ruling on this matter in the second quarter of 2022. 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 gain recognized on the reorganization for tax purposes was appropriate. As of December 31, 2021, 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.