Income Taxes

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

	Quarter ended						Year to date
	2023			2022			2023			2022
Income tax (benefit) provision	$	60		$	166		$	131		$	165
Effective tax rate	12.6		%	42.6		%	15.4		%	21.0		%

Our second quarter effective tax rate was lower than the prior year primarily due to the following:

•$71 million of net tax expense recorded in the quarter ended June 30, 2022, resulting from the Company’s decision to exit KFC Russia. We remeasured and reassessed the need for a valuation allowance on deferred tax assets in Switzerland due to the then expected reduction in the tax basis of intellectual property rights associated with the loss of the Russian royalty income. In addition, we reassessed certain deferred tax liabilities associated with the Russia business given the expectation that the existing basis difference was going to reverse by way of sale.

•$18 million tax benefit recorded in the quarter ended June 30, 2023, associated with the reversal of a reserve established in prior years due to the favorable resolution of a tax audit in a foreign jurisdiction.

•$10 million tax benefit recorded in the quarter ended June 30, 2023, associated with establishing additional net operating loss carryforward deferred tax assets in a foreign jurisdiction.

Our year to date effective tax rate was lower than the prior year primarily due to the items discussed above, partially offset by:

•$82 million of tax benefit discretely recorded in the quarter ended March 31, 2022, from the release of a valuation allowance on foreign tax credit carryforwards. In January 2022, the U.S. Treasury published new regulations impacting foreign tax credit utilization beginning in the Company’s 2022 tax year. These regulations made foreign taxes paid to certain countries no longer creditable in the U.S., which was expected to result in additional foreign tax credit carryforward utilization prospectively. As a result, we reversed a valuation allowance associated with existing foreign tax credit carryforwards. The U.S. Treasury published clarifying guidance in November 2022 which resulted in foreign taxes originally determined to be non-creditable under the January 2022 regulations to now be treated as creditable taxes. As such, the valuation allowance on foreign tax credit carryforwards that was released in the quarter ended March 31, 2022, was re-established in the quarter ended December 31, 2022.