INCOME TAXES

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company’s provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was 26% and 40%, respectively. During the three-month period ended September 30, 2022, a discrete tax benefit of approximately $1 million was recorded relating to other tax adjustments. During the three-month period ended September 30, 2021, the Company’s effective tax rate was unfavorably impacted by $59 million of restructuring expenses and merger, acquisition and divestiture expenses, some of which were non-deductible for tax purposes. As such, the Company recognized a de minimis tax benefit associated with these expenses in the three months ended September 30, 2021.

The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was 25% and 24%, respectively. During the nine-month period ended September 30, 2022, a discrete tax benefit of $9 million was recorded relating to other tax adjustments. During the nine-month period ended September 30, 2021, unrecognized tax benefits and accrued interest were decreased for the lapse of the statute of limitations in a non-US jurisdiction for a tax holiday matter which, net of unrecognized foreign tax credits, resulted in a $55 million tax benefit. Additionally, an increase in the United Kingdom (“UK”) tax rate from 19% to 25% effective April 1, 2023, was enacted in June 2021, resulting in a discrete tax benefit of $20 million as a result of the revaluation of net deferred tax asset balances. Further, the Company’s effective tax rate included a net discrete tax benefit of $33 million primarily related to changes to certain withholding rates applied to unremitted earnings. The effective tax rate was unfavorably impacted by $179 million of restructuring expenses and merger, acquisition and divestiture expenses, some of which were non-deductible for tax purposes. The Company recognized $22 million of tax benefit associated with these expenses in the nine months ended September 30, 2021.

The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which vary from those in the U.S., jurisdictions with pretax losses for which no tax benefit could be realized, U.S. taxes on foreign earnings, the realization of certain business tax credits (including foreign tax credits), and permanent differences between book and tax treatment for certain items (including the Foreign-Derived Intangible Income (“FDII”) deduction and the enhanced deduction of research and development expenses in certain jurisdictions).