Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income tax expense was $100 million and $353 million for the three and nine months ended September 30, 2021, respectively, compared to income tax expense of $141 million and $231 million in the same periods of 2020.

For the three months ended September 30, 2021, the decrease in tax expense from the prior period is primarily due to a tax benefit from tax audits and settlements related to the favorable outcome of certain tax litigation in Brazil. Specifically, on September 24, 2021, the Brazilian Supreme Court rendered a favorable decision in a case involving an unrelated taxpayer but applicable to Whirlpool and certain other companies, that exempts interest income received from the Brazilian government from income tax, resulting in a tax benefit of approximately $34 million. For the nine months ended September 30, 2021, the increase in tax expense from the prior period is due to higher overall earnings and related tax expense, partially offset by the tax effect of divestitures, audits and settlements and legal entity restructuring.

The following table summarizes the difference between income tax expense (benefit) at the U.S. statutory rate of 21% and the income tax expense (benefit) at effective worldwide tax rates for the respective periods:

	Three Months Ended September 30,				Nine Months Ended September 30,
Millions of dollars	2021		2020		2021		2020
Earnings before income taxes	$	586	$	534	$	1,859	$	793
Income tax expense computed at United States statutory tax rate	123		112		390		167
State and local taxes, net of federal tax benefit	17		15		49		22
Valuation allowances	3		6		5		12
Audit and settlements	(32)		14		(17)		31
U.S. foreign income items, net of credits	(1)		(2)		(1)		(1)
Changes in enacted tax rates	—		(6)		(14)		(6)
Divestiture tax impact	(1)		—		(22)		—
Legal entity restructuring tax impact	—		—		(46)		—
Other	(9)		2		9		6
Income tax expense (benefit) computed at effective worldwide tax rates	$	100	$	141	$	353	$	231

At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the quarterly rate as necessary.

Divestiture Tax Impact

For the second quarter of 2021, the divestitures detailed in Note 15 generated an overall gain of $120 million, however for tax purposes, a taxable loss was incurred with no tax benefit recognized, resulting in a corresponding impact to tax expense of $21 million. As part of the legal entity restructuring associated with the Whirlpool China divestment, a tax deductible loss was generated in a separate jurisdiction with a related tax benefit in the amount of $46 million.

An immaterial adjustment to the loss on sale and disposal of business was recorded in the third quarter of 2021.

For additional information see Note 15 to the Consolidated Condensed Financial Statements.

Other Income Tax Matters

During its examination of Whirlpool’s 2009 U.S. federal income tax return, the IRS asserted that income earned by a Luxembourg subsidiary via its Mexican branch should be recognized as income on its 2009 U.S. federal income tax return. The Company believed the proposed assessment was without merit and contested the matter in United States Tax Court (US Tax Court). Both Whirlpool and the IRS moved for partial summary judgment on this issue. On May 5, 2020, the US Tax Court granted the IRS’s motion for partial summary judgment and denied Whirlpool’s. The Company has appealed the US Tax Court decision to the United States Court of Appeals for the Sixth Circuit, which heard arguments in June 2021. The Company believes that it will be successful and has not recorded any impact of the US Tax Court’s decision in its consolidated financial statements.