INCOME TAXES

9 Months Ended

Sep. 30, 2023

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, 2023 and 2022 was 56% and 26%, respectively. During the three months ended September 30, 2023, a discrete tax benefit of approximately $31 million was recorded in relation to various changes in filling positions for prior years, a discrete tax benefit of approximately $12 million was recorded in relation to the Spin-Off, and a discrete tax expense of approximately $87 million was recorded in relation to changes in judgement related to the realization of deferred tax assets, primarily due to the impact of the Spin-Off on the allocation of the Company’s profits across jurisdictions for tax purposes as well as various tax structuring actions and strategies. During the three months ended September 30, 2022, a discrete tax benefit of $1 million was recorded relating to other tax adjustments.

The Company’s effective tax rate for the nine months ended September 30, 2023 and 2022 was 30% and 25%, respectively. During the nine months ended September 30, 2023, a discrete tax benefit of approximately $14 million was recorded related to the resolution of tax audits, a discrete tax benefit of

approximately $41 million was recorded in relation to the Spin-Off, a discrete tax benefit of approximately $39 million was recorded in relation to various changes in filling positions for prior years, a discrete tax expense of approximately $9 million was recorded for the impact of enacted tax law changes, and a discrete tax expense of approximately $85 million was recorded in relation to changes in judgement related to the recovery of deferred tax assets, primarily due to the impact of the Spin-Off on the allocation of the Company’s profits across jurisdictions for tax purposes as well as various tax structuring actions and strategies. During the nine months ended September 30, 2022, a discrete tax benefit of $8 million was recorded relating to other tax adjustments.

The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates that 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).

The Company estimates that it is reasonably possible there could be a decrease of approximately $97 million in unrecognized tax benefits and interest in the next 12 months related to the conclusion of tax audits and the lapse of statutes of limitations subsequent to the reporting period in certain taxing jurisdictions.