Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

For interim tax reporting, the Company estimates its annual effective tax rate and applies it to year-to-date ordinary income. Jurisdictions where no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The effect of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a quarter due to the mix and timing of actual earnings versus annual projections. The tax effects of certain items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

For the three months ended March 31, 2020, the Company recorded income tax benefit of $94 million on loss from continuing operations before income taxes of $920 million. This compares to recording no income tax expense on losses from continuing operations of $105 million in the three months ended March 31, 2019.

Income tax expense for the three months ended March 31, 2020 differs from the U.S. statutory rate due primarily to $105 million of tax benefit recognized relating to the impairment of $854 million of assets, pre-tax income taxed at rates higher than the U.S. statutory rate, and pre-tax losses with no tax benefit. Income tax expense for the three months ended March 31, 2019 differs from the U.S. statutory rate due primarily to pre-tax income taxed at rates higher than the U.S. statutory rate and pre-tax losses with no tax benefit.

The Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. If operational results decline due to the COVID-19 global pandemic in certain jurisdictions, exceed current estimates, or economic recovery takes longer than currently anticipated, the Company believes it is reasonably possible there may be sufficient negative evidence for a valuation allowance to be recorded in the next twelve months. This may result in a one-time tax expense of up to $550 million, primarily related to the U.S., China, France, Poland, and Spain.

The Company believes it is reasonably possible up to $32 million in unrecognized tax benefits related to the expiration of foreign statute of limitations and the conclusion of income tax examinations may be recognized within the next twelve months.

After considering the effect of COVID-19 on the 2020 forecast, the Company is not projecting sufficient income to utilize its 2011 and 2012 foreign tax credit carryforwards of $29 million and $21 million. The Company has certain U.S. reserves that provide positive evidence these foreign tax credits would be utilized in the event of an assessment by the U.S. tax authorities; therefore, it has netted the foreign tax credit carryforward deferred tax assets with its uncertain tax position liability on the

balance sheet. Should the 2011 and 2012 foreign tax credit carryforwards expire without utilization, the foreign tax credit carryforward deferred tax assets would be written off with a charge to income tax expense.