Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Schedule of Effective Income Tax Rate Reconciliation

The following table summarizes the difference between an income tax benefit at the United States statutory rate of 21% in 2019 and 2018, respectively, and 35% in 2017, and the income tax expense at effective worldwide tax rates for the respective periods:



Millions of dollars	2019			2018			2017
Earnings (loss) before income taxes
United States	$	674		$	729		$	671
Foreign	878			(750		)	216
Earnings (loss) before income taxes	$	1,552		$	(21	)	$	887

Income tax (benefit) expense computed at United States statutory rate	$	326		$	(4	)	$	310
U.S. government tax incentives	(21		)	(11		)	(13		)
Foreign government tax incentives, including BEFIEX	(13		)	(21		)	(29		)
Foreign tax rate differential	70			(24		)	(14		)
U.S. foreign tax credits	(86		)	(260		)	17
Valuation allowances	(150		)	75			(68		)
State and local taxes, net of federal tax benefit	42			23			29
Foreign withholding taxes	54			24			41
U.S. tax on foreign dividends and subpart F income	67			72			12
Settlements and changes in unrecognized tax benefits	113			72			48
U.S. Transition Tax	26			40			190
Changes in enacted tax rates	42			(54		)	49
Nondeductible goodwill	—			139			—
Nondeductible fines & penalties	—			30			—
Sale of Embraco	58			—			—
Legal entity merger tax impact	(147		)	—			—
Other items, net	(27		)	37			(22		)
Income tax computed at effective worldwide tax rates	$	354		$	138		$	550

Schedule of Components of Income Tax Expense (Benefit)

The following table summarizes our income tax (benefit) provision for 2019, 2018 and 2017:



	2019					2018						2017
Millions of dollars	Current		Deferred			Current			Deferred			Current		Deferred
United States	$	203	$	74		$	(70	)	$	120		$	138	$	386
Foreign	432		(406		)	182			(119		)	213		(233		)
State and local	42		9			12			13			12		34
	$	677	$	(323	)	$	124		$	14		$	363	$	187
Total income tax expense			$	354					$	138				$	550

Schedule of Deferred Tax Assets and Liabilities

The following table summarizes the significant components of our deferred tax liabilities and assets at December 31, 2019 and 2018:



Millions of dollars	2019			2018
Deferred tax liabilities
Intangibles	$	439		$	450
Property, net	175			195
Right of use assets	238			—
LIFO inventory	89			37
Other	215			262
Total deferred tax liabilities	$	1,156		$	944
Deferred tax assets
U.S. general business credit carryforwards, including Energy Tax Credits	$	787		$	875
Lease liabilities	242			—
Pensions	66			144
Loss carryforwards	1,226			1,051
Postretirement obligations	145			99
Foreign tax credit carryforwards	39			—
Research and development capitalization	133			135
Employee payroll and benefits	96			98
Accrued expenses	93			154
Product warranty accrual	78			55
Receivable and inventory allowances	72			85
Other	574			536
Total deferred tax assets	3,551			3,232
Valuation allowances for deferred tax assets	(192		)	(348		)
Deferred tax assets, net of valuation allowances	3,359			2,884
Net deferred tax assets	$	2,203		$	1,940

Reconciliation of Unrecognized Tax Benefits

The following table represents a reconciliation of the beginning and ending amount of unrecognized tax benefits that if recognized would impact the effective tax rate, excluding federal benefits of state and local tax positions, and interest and penalties:



Millions of dollars	2019			2018			2017
Balance, January 1	$	278		$	219		$	102
Additions for tax positions of the current year	20			21			25
Additions for tax positions of prior years	138			60			110
Reductions for tax positions of prior years	(26		)	(5		)	(1		)
Settlements during the period	(4		)	(8		)	(10		)
Lapses of applicable statute of limitation	(12		)	(9		)	(7		)
Balance, December 31	$	394		$	278		$	219