INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Components of the Company’s income tax provision are as follows:

	Year Ended December 31,
	2023		2022		2021
Current:
Federal	$	76	$	106	$	404
State and Local	67		17		106
Non-U.S.	222		215		249
Total current	365		338		759
Deferred:
Federal	(14)		57		(172)
State and Local	(4)		10		(45)
Non-U.S.	(20)		(19)		(1)
Total deferred	(38)		48		(218)
Total provision for income taxes	$	327	$	386	$	541

A reconciliation of the U.S. federal statutory tax rate to the Company’s ETR on income before provision for income taxes is as follows:

	Year Ended December 31,
	2023			2022			2021
U.S. statutory tax rate	21.0		%	21.0		%	21.0		%
State and local taxes, net of federal tax benefit	2.5		%	0.8		%	1.5		%
Foreign operations	0.4		%	(0.2)		%	(1.5)		%
Release of UTP reserves	(5.7)		%	—		%	—		%
Other	(1.3)		%	0.3		%	(1.4)		%
ETR	16.9		%	21.9		%	19.6		%
Income tax paid	$	344		$	488		$	932

The source of income before provision for income taxes is as follows:

	Year Ended December 31,
	2023		2022		2021
U.S.	$	892	$	804	$	1,563
Non-U.S.	1,043		956		1,192
Income before provision for income taxes	$	1,935	$	1,760	$	2,755

The components of deferred tax assets and liabilities are as follows:

	December 31,
	2023		2022
Deferred tax assets:
Account receivable allowances	$	9	$	9
Accumulated depreciation and amortization	19		15
Stock-based compensation	60		57
Accrued compensation and benefits	53		51
Capitalized costs	25		27
Operating lease liabilities	103		115
Deferred revenue	200		206
Net operating loss	38		36
Restructuring	7		11
Uncertain tax positions	29		68
Self-insured related reserves	6		12
Other	13		14
Total deferred tax assets	562		621
Deferred tax liabilities:
Accumulated depreciation and amortization of intangible assets and capitalized software	(551)		(593)
ROU Assets	(67)		(82)
Capital gains	(20)		(29)
Self-insured related income	(6)		(12)
Revenue Accounting Standard - ASC Topic 606	(4)		(5)
Deferred tax on unremitted foreign earnings	(14)		(13)
Gain on net investment hedges - OCI	(5)		(48)
Other	(15)		(9)
Total deferred tax liabilities	(682)		(791)
Net deferred tax liabilities	(120)		(170)
Valuation allowance	(24)		(21)
Total net deferred tax liabilities	$	(144)	$	(191)

On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes to U.S. corporate tax laws. The Tax Act includes a mandatory one-time deemed repatriation tax (“transition tax”) on previously untaxed accumulated earnings of foreign subsidiaries and beginning in 2018 reduces the statutory federal corporate income tax rate from 35% to 21%. Accordingly, the Company determined the transition tax to be $236 million, with the remaining balance due of $15 million as of December 31, 2023.

As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject to U.S. tax. The Company regularly evaluates which entities it will indefinitely reinvest earnings. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested.

The Company’s annual tax expense for the year ended December 31, 2023 includes benefits from the favorable resolution of certain U.S. and non-U.S. UTPs of $120 million, excess tax benefits from stock compensation of $15 million, and other net decreases to tax positions of $13 million.

The Company had valuation allowances of $24 million and $21 million at December 31, 2023 and 2022, respectively, related to foreign net operating losses for which realization is uncertain.

As of December 31, 2023, the Company had $196 million of UTPs of which $93 million represents the amount that, if recognized, would impact the ETR in future periods. The decrease in 2021 through 2023 resulted primarily from the favorable resolution of uncertain tax positions in various U.S. and non U.S. jurisdictions.

A reconciliation of the beginning and ending amount of UTPs is as follows:

	Year Ended December 31,
	2023		2022		2021
Balance as of January 1	$	322	$	388	$	483
Additions for tax positions related to the current year	21		12		102
Additions for tax positions of prior years	3		12		18
Reductions for tax positions of prior years	(17)		(27)		—
Settlements with taxing authorities	(108)		(30)		(134)
Lapse of statute of limitations	(25)		(33)		(81)
Balance as of December 31	$	196	$	322	$	388

The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties, if incurred, are recognized in other non-operating (expense) income, net. Refer to Note 18 for disclosure of interest (expense) income relating to UTPs and other tax-related liabilities. As of December 31, 2023, 2022 and 2021 the amount of accrued interest recorded in the Company’s consolidated balance sheets related to UTPs was $36 million, $47 million and $59 million, respectively.

Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns for 2019 through 2020 are currently under examination and 2021 through 2022 remain open to examination. The Company’s New York City tax returns for 2015 through 2020 are currently under examination and years 2021 and 2022 are open for examination. The Company’s U.K. tax returns from 2017 to 2022 remain open to examination.

Given the number of years and nature of matters that remain subject to examination in various tax jurisdictions both in the U.S. and internationally, the Company is unable to estimate a range of possible changes to its UTPs for 2024. It is also possible that new issues might be raised by tax authorities which might necessitate increases to the balance of UTPs. As the Company is unable to predict the timing of conclusion of these audits, the Company is unable to estimate the amount of changes to the balance of UTPs at this time. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years, by tax jurisdiction, in accordance with ASC Topic 740.

In August 2022, the U.S. Congress passed the Inflation Reduction Act, which included a corporate minimum tax on book earnings of 15%, an excise tax on corporate share repurchases of 1%, and certain climate change and energy tax credit incentives. The adoption of a corporate minimum tax of 15% did not have a significant impact on Moody’s ETR. The excise tax of 1% on corporate share buybacks is recorded to shareholders' equity and does not have an impact on the Company’s ETR.

During 2023, multiple foreign jurisdictions in which the Company operates have enacted legislation to adopt a minimum tax rate described in the Global Anti-Base Erosion tax model rules (referred to as GloBE or Pillar Two) issued by the OECD. A minimum ETR of 15% would apply to multinational companies with consolidated revenue above €750 million, with an effective date beginning in 2024. Under the GloBE rules, a company would be required to determine a combined ETR for all entities located in a jurisdiction. If the jurisdictional tax rate is less than 15%, an additional tax generally will be due to bring the jurisdictional effective tax rate up to 15%. Through December 31, 2023, the Company continues to assess the impact of the Pillar Two minimum tax requirements for 2024. The analysis of the impact of the new requirements is currently being finalized, although it is not expected to have a material impact upon our results of operations or financial position.