Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes by taxing jurisdiction and by significant components consisted of the following:

($ in millions)	2022	2021	2020
Current
U.S. federal	$137	$25	$12
U.S. state and local	20	13	6
Foreign	325	301	320
Total current income tax expense	$482	$339	$338
Deferred
U.S. federal	($79)	$12	$1
U.S. state and local	(7)	3	(3)
Foreign	(71)	20	(45)
Total deferred income tax (benefit)/expense	($157)	$35	($47)
Total income tax expense	$325	$374	$291

A reconciliation of the statutory U.S. corporate federal income tax rate to the Company’s effective tax rate follows:

	2022		2021		2020
U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Changes in rate due to:
Taxes on non-U.S. earnings	3.6		2.7		3.3
U.S. state and local taxes	0.7		0.8		0.3
U.S. tax (benefit)/cost on foreign operations	(0.4)		(1.6)		0.1
Tax benefits from equity awards	(0.3)		(0.3)		(0.4)
Change in valuation allowance reserves	0.6		—		(1.4)
U.S. tax incentives	(1.0)		(0.6)		(0.9)
Uncertain tax positions	(0.4)		(1.4)		0.9
Other	(0.3)		—		(1.5)
Effective income tax rate	23.5	%	20.6	%	21.4	%

The effective tax rate for the year-ended December 31, 2022 was 23.5%, an increase of 2.9% from the prior year primarily driven by charges associated with PPG’s operations in Russia along with a reduction in the release of reserves for uncertain tax positions compared to the prior year.

Income before income taxes of the Company’s U.S. operations for 2022, 2021 and 2020 was $288 million, $469 million and $190 million, respectively. Income before income taxes of the Company’s foreign operations for 2022, 2021 and 2020 was $1,093 million, $1,346 million and $1,172 million, respectively.

Deferred income taxes

Deferred income taxes are provided for the effect of temporary differences that arise because there are certain items treated differently for financial accounting than for income tax reporting purposes. The deferred tax assets and liabilities are determined by applying the enacted tax rate in the year in which the temporary difference is expected to reverse.

($ in millions)	2022	2021
Deferred income tax assets related to
Employee benefits	$275	$386
Contingent and accrued liabilities	67	74
Operating loss and other carry-forwards	218	278
Operating lease liabilities	203	215
Research and development amortization	149	68
Other	168	121
Valuation allowance	(182)	(172)
Total	$898	$970
Deferred income tax liabilities related to
Property	$223	$278
Intangibles	720	814
Employee benefits	81	75
Operating lease right-of-use assets	206	216
Other	74	36
Total	$1,304	$1,419
Deferred income tax liabilities – net	($406)	($449)

Net operating loss and credit carryforwards

($ in millions)	2022	2021	Expiration
Available net operating loss carryforwards, tax effected:
Indefinite expiration	$84	$106	NA
Definite expiration	66	77	2023-2042
Total	$150	$183
Income tax credit carryforwards	$89	$115	2023-2042

A valuation allowance of $182 million and $172 million has been established for carry-forwards and certain other items at December 31, 2022 and 2021, respectively, when the ability to utilize them is not likely.

Undistributed foreign earnings

The Company had $4.6 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2022. This amount relates to approximately 280 subsidiaries in approximately 80 taxable jurisdictions. The Company estimates repatriation of undistributed earnings of non-U.S. subsidiaries as of December 31, 2022 would result in a tax cost of $101 million.

As of December 31, 2022, the Company had not changed its intention to reinvest foreign earnings indefinitely or repatriate when it is tax effective to do so, and as such, has not established a liability for foreign withholding taxes or other costs that would be incurred if the earnings were repatriated.

Unrecognized tax benefits

The Company files federal, state and local income tax returns in numerous domestic and foreign jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is no longer subject to examinations by tax authorities in any major tax jurisdiction for years before 2008. Additionally, the Company is no longer subject to examination by the Internal Revenue Service for U.S. federal income tax returns filed for years through 2016. The examinations of the Company’s U.S. federal income tax returns for 2017 and 2018 are currently underway.

A reconciliation of the total amounts of unrecognized tax benefits (excluding interest and penalties) as of December 31 follows:

($ in millions)	2022	2021	2020
January 1	$158	$175	$167
Current year tax positions - additions	19	12	25
Prior year tax positions - additions	2	10	5
Prior year tax positions - reductions	(2)	(2)	(2)
Statute of limitations expirations	(23)	(19)	(8)
Settlements	(3)	(21)	(11)
Foreign currency translation	(6)	3	(1)
December 31	$145	$158	$175

The Company expects that any reasonably possible change in the amount of unrecognized tax benefits in the next 12 months would not be significant. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $120 million as of December 31, 2022.

Interest and penalties

($ in millions)	2022	2021	2020
Accrued interest and penalties related to unrecognized tax benefits	$17	$17	$18
Loss/(income) recognized in income tax expense related to interest and penalties	$1	($2)	$2

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.