Income Taxes (Tables)

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Reconciliation of the U.S. federal statutory rate to effective rate

A reconciliation of the U.S. federal statutory rate to the effective rate for the years ended December 31, was as follows: 

(Millions of dollars)
	2022				2021				2020
Taxes computed at U.S. statutory rates	$	154	21.0	%	$	146	21.0	%	$	91	21.0	%
(Decreases) increases in taxes resulting from:
State income tax, net of federal Tax	4		0.5	%	3		0.4	%	(1)		(0.2)	%
Non-U.S. subsidiaries taxed at other than the U.S. rate	19		2.6	%	22		3.2	%	29		6.7	%
Valuation allowances	15		2.1	%	5		0.7	%	10		2.3	%
Other, net	(3)		(0.4)	%	2		0.3	%	(3)		(0.7)	%
Provision for income taxes	$	189	25.8	%	$	178	25.6	%	$	126	29.1	%

Components of Profit before income taxes

The components of Profit before income taxes for the years ended December 31, were as follows: 

(Millions of dollars)
	2022		2021		2020
U.S.	$	439	$	288	$	99
Non-U.S.	292		407		335
Total	$	731	$	695	$	434

Components of the Provision for income taxes

The components of the Provision for income taxes were as follows for the years ended December 31: 

(Millions of dollars)
	2022		2021		2020
Current income tax provision:
U.S.	$	116	$	101	$	46
Non-U.S.	95		162		80
State (U.S.)	5		5		1
	216		268		127
Deferred income tax provision (benefit):
U.S.	(36)		(56)		(45)
Non-U.S.	8		(33)		46
State (U.S.)	1		(1)		(2)
	(27)		(90)		(1)
Total Provision for income taxes	$	189	$	178	$	126

Deferred income tax assets and liabilities

The amounts of deferred income taxes at December 31, included in the following lines in our Consolidated Statements of Financial Position were: 

(Millions of dollars)
	2022		2021
Assets:
Other assets	$	115	$	107
Liabilities:
Other liabilities	(610)		(592)
Deferred income taxes, net	$	(495)	$	(485)

Our consolidated deferred income taxes consisted of the following components as of December 31: 

(Millions of dollars)
	2022		2021
Deferred income tax assets:
Allowance for credit losses	$	97	$	90
Tax carryforwards	93		83
Revenue timing differences	20		38
Other, net	28		33
	238		244
Deferred income tax liabilities:
Capital assets, including lease basis differences	(461)		(501)
Deferred income tax on translation adjustment	(219)		(189)
	(680)		(690)
Valuation allowance for deferred income tax assets	(53)		(39)
Deferred income taxes, net	$	(495)	$	(485)

Summary of net operating loss carryforwards

As of December 31, 2022, approximately $73 million of U.S. state tax net operating losses (NOL) were available. These carryforwards primarily expire over the next eighteen years. The total deferred income tax asset associated with these NOL carryforwards is $5 million as of December 31, 2022, partially offset by a valuation allowance of $1 million.

In some U.S. state income tax jurisdictions, we join with other Caterpillar entities in filing combined income tax returns. In other U.S. state income tax jurisdictions, we file on a separate, stand-alone basis.

As of December 31, 2022, NOL carryforwards in various non-U.S. taxing jurisdictions were approximately $363 million. Of these, $41 million expire between 2023 and 2033. The remaining carryforwards do not expire.

As of December 31, 2022, valuation allowances of $51 million and $1 million have been recorded at certain non-U.S. subsidiaries and U.S. subsidiaries, respectively, that have not yet demonstrated consistent and/or sustainable profitability to support the recognition of net deferred income tax assets.

As a result of improving profit before tax in one of our non-U.S. entities, we believe there is a reasonable possibility that a significant portion of the $23 million valuation allowance at December 31, 2022 recorded against the entity’s deferred tax assets may no longer be needed in 2023. Due to the uncertainty of inflation impacts on taxable income for one of our non-U.S. entities, we believe there is a reasonable possibility that we will need to record a valuation allowance in 2023 against some or all of the $36 million deferred tax asset at December 31, 2022. The potential amounts of the valuation allowance changes are dependent on each entity’s future taxable income.

Schedule of unrecognized tax benefits

A reconciliation of the beginning and ending amounts of gross unrecognized income tax benefits for uncertain income tax positions, including positions impacting only the timing of income tax benefits was as follows: 

(Millions of dollars)
	2022		2021		2020
Reconciliation of unrecognized income tax benefits(1):
Balance at beginning of year	$	131	$	119	$	119
Additions for income tax positions related to current year	—		2		—
Additions for income tax positions related to prior year	—		10		—
Reductions for income tax positions related to settlements	(4)		—		—
Balance at end of year	$	127	$	131	$	119
Amount that, if recognized, would impact the effective tax rate	$	127	$	131	$	119

(1) Foreign currency translation amounts are included within each line as applicable.