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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
Note 16: Income Taxes

The Company's geographic sources of income (loss) before income taxes and non-controlling interest are as follows (in millions):
Year ended December 31,
202120202019
United States$873.2 $(181.2)$(308.2)
Foreign284.6 357.8 584.8 
   Income before income taxes$1,157.8 $176.6 $276.6 

The Company's provision (benefit) for income taxes is as follows (in millions):
Year ended December 31,
202120202019
Current:
Federal$8.0 $0.6 $1.2 
State and local4.8 0.1 — 
Foreign43.3 54.0 48.5 
56.1 54.7 49.7 
Deferred:
Federal89.2 (69.2)(5.0)
State and local7.8 (66.4)— 
Foreign(6.5)21.1 18.0 
90.5 (114.5)13.0 
Total provision (benefit)$146.6 $(59.8)$62.7 

A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:
Year ended December 31,
202120202019
U.S. federal statutory rate21.0 %21.0 %21.0 %
Increase (decrease) resulting from:
  State and local taxes, net of federal tax benefit1.4 (1.4)(2.6)
Impact of foreign operations(2.0)7.6 3.8 
Foreign derived intangible income benefit(7.8)— — 
Impact of the Domestication (1)— (35.7)— 
  Change in valuation allowance and related effects (2)(0.4)(24.4)1.8 
Non-deductible share-based compensation costs(0.1)1.7 (0.5)
U.S. federal R&D credit(0.4)(3.6)(3.7)
Non-deductible officer compensation0.4 1.1 1.5 
  Other (3)0.6 (0.1)1.4 
Total12.7 %(33.8)%22.7 %
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(1)On July 6, 2020, the Company completed a simplification of its corporate structure by repatriating the economic rights of its non-U.S. IP to the United States via domestication of certain foreign subsidiaries (the "Domestication"). The Domestication more closely aligns the Company's corporate structure with its operating structure in accordance with the OECD’s BEPS conclusions and changes to U.S. and European tax laws. The impact of the Domestication, which is regarded as a change in tax status, resulted in a benefit primarily from recognizing certain deferred tax assets, net of
deferred tax liabilities, of $63.0 million, or 35.7%.
(2)For the year ended December 31, 2021, this included a benefit of $26.3 million, or 2.2% related to a decrease in the valuation allowance for the expiration of Japan net operating losses ("NOLs"), partially netted with an offsetting expense of $22.6 million, or 1.9% related to the expiration of those same Japan NOLs. For the year ended December 31, 2020, this included a benefit of $49.4 million, or 28.0%, for the release of a partial state valuation allowance due to an increase to forecasted domestic income as a result of the Domestication of certain foreign subsidiaries and an expense of $61.8 million, or 35.0%, primarily related to the expiration of Japan NOLs, netted with the offsetting benefit of $61.8 million, or 35.0%, primarily for the decrease in the related valuation allowance for those same Japan NOLs. For the year ended December 31, 2019, this included an expense of $11.2 million, or 4.0%, primarily related to the write-off of Hong Kong NOL and expiration of Japan NOL, netted with the offsetting benefit of $11.2 million, or 4.0%, primarily for the decrease in related valuation allowance for those same Hong Kong and Japan NOLs.
(3)For the year ended December 31, 2021, this included an expense of $8.5 million, or 0.7%, related to an election to waive Base Erosion Anti-Abuse Tax ("BEAT") deductions for all U.S. federal tax purposes for the 2021 tax year.

The Company’s effective tax rate for 2021 was 12.7%, which differs from the U.S. federal income tax rate of 21%, primarily due to the benefit received from Section 250 deduction related to FDII.

The Company’s effective tax rate for 2020 was a benefit of (33.8)%, which differs from the U.S. federal income tax rate of 21%, primarily due to the Domestication of certain foreign subsidiaries and a partial release of state valuation allowance, partially offset by foreign taxes for which the Company will not receive a U.S. tax credit as well as period costs related to the Company's global intangible low-taxed income ("GILTI") inclusion.

The Company’s effective tax rate for 2019 was 22.7%, which differs from the U.S. federal income tax rate of 21%, primarily due to foreign taxes for which the Company will not receive a U.S. tax credit as well as period costs related to the Company's GILTI inclusion.

The FASB allows taxpayers to make an accounting policy election of either treating taxes due on GILTI inclusions as a current-period expense when incurred or recognizing deferred taxes for temporary basis differences that are expected to reverse as GILTI in future years. The company has made a policy choice to include taxes due on future GILTI inclusion as a current-period expense when incurred.
The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes that give rise to significant portions of the net deferred tax asset (liability) are as follows (in millions):

As of December 31,
20212020
NOL and tax credit carryforwards$354.4 $471.6 
163 (j) interest expense carryforward17.4 65.7 
Lease liabilities50.2 32.5 
ROU asset(49.2)(32.5)
Tax-deductible goodwill and amortizable intangibles(57.5)(38.0)
Capitalization of research and development expenses185.8 90.7 
Reserves and accruals109.2 68.4 
Property, plant and equipment(110.6)(95.8)
Inventories67.9 84.3 
Undistributed earnings of foreign subsidiaries(58.7)(57.5)
Share-based compensation7.9 7.7 
Pension15.3 21.2 
Other18.4 3.2 
Deferred tax assets and liabilities before valuation allowance550.5 621.5 
  Valuation allowance(227.4)(249.9)
Net deferred tax asset$323.1 $371.6 

As of December 31, 2021 and 2020, the Company had approximately $77.5 million and $99.0 million, respectively, of U.S. federal NOL carryforwards, before the impact of unrecognized tax benefits. The decrease is primarily due to current year utilization, partially offset by NOLs acquired in the GTAT acquisition. A portion of these NOL carryforwards expire at various dates through 2037, if unutilized. NOLs generated after December 31, 2017 are carried forward indefinitely. As of December 31, 2021 and 2020, the Company had approximately $43.6 million and $153.4 million, respectively, of U.S. federal credit carryforwards, before the impact of unrecognized tax benefits. The decrease is primarily due to current year utilization. The credits will expire at various dates through 2041, if unutilized. These NOL carryforwards, and a portion of the credits, relate to acquisitions and, consequently, are limited in the amount that can be utilized in any one year as a result of the ownership change.

As of December 31, 2021 and 2020, the Company had approximately $491.1 million and $741.3 million, respectively, of U.S. state NOL carryforwards, before consideration of valuation allowance or the impact of unrecognized tax benefits. The decrease is primarily due to current year utilization, partially offset by NOLs acquired in the GTAT acquisition. The U.S. state NOL carryforwards will expire at various dates through 2040, if unutilized. As of December 31, 2021 and 2020, the Company had $138.4 million and $141.1 million, respectively, of U.S. state credit carryforwards before consideration of valuation allowance or the impact of unrecognized tax benefits. The U.S. state credits will expire at various dates through 2035, if unutilized.

As of December 31, 2021 and 2020, the Company had approximately $551.8 million and $581.6 million, respectively, of foreign NOL carryforwards, before consideration of valuation allowance. The decrease is primarily due to the expiration of Japan NOLs. As of December 31, 2021 and 2020, the Company had $69.2 million and $69.4 million, respectively, of foreign credit carryforwards before consideration of valuation allowance or the impact of unrecognized tax benefits. A significant portion of the foreign NOLs and credit carryforwards will expire at various dates through 2025, if unutilized.

The Company continues to maintain a valuation allowance of $93.4 million on a portion of its Japan NOLs, which expire at various dates through 2024. In addition to the valuation allowance on the Japan NOLs, the Company maintains a full valuation allowance on NOLs in Hong Kong of $25.5 million. The Company also maintains a partial valuation allowance of $69.7 million on its U.S. state deferred tax assets, primarily NOLs and credits. The remaining valuation allowance relates to NOLs and tax credits in certain other foreign jurisdictions that primarily expire in 2025.

At December 31, 2021, the Company was not indefinitely reinvested with respect to the earnings of its foreign subsidiaries and has therefore accrued withholding taxes that would be owed upon future distributions of such earnings.
 
The Company maintains liabilities for unrecognized tax benefits. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. The Company is currently under examination by various taxing authorities. Although the outcome of any tax audit is uncertain, the Company believes that it has adequately provided in its consolidated financial statements for any additional taxes that the Company may be required to pay as a result of such examinations. If the payment ultimately proves not to be necessary, the reversal of these tax liabilities would result in tax benefits being recognized in the period the Company determines such liabilities are no longer necessary. However, if an ultimate tax assessment exceeds the Company's estimate of tax liabilities, additional tax expense will be recorded. The impact of such adjustments could have a material impact on the Company's results of operations in future periods.

The activity for unrecognized gross tax benefits is as follows (in millions):
202120202019
Balance at beginning of year$151.0 $130.0 $112.2 
Acquired balances9.3 — 15.5 
Additions for tax benefits related to the current year3.1 11.9 9.4 
Additions for tax benefits of prior years— 12.3 8.0 
Reductions for tax benefits of prior years(19.7)(1.4)(0.2)
Lapse of statute(2.7)(1.3)(8.2)
Settlements(3.8)(0.5)(6.7)
Balance at end of year$137.2 $151.0 $130.0 

Included in the December 31, 2021 balance of $137.2 million is $92.5 million related to unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. Also included in the balance of unrecognized tax benefits as of December 31, 2021 is $44.7 million of benefit that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. Although the Company cannot predict the timing of resolution with taxing authorities, if any, the Company believes it is reasonably possible that its unrecognized tax benefits will be reduced by $64.2 million in the next 12 months due to settlement with tax authorities or expiration of the applicable statute of limitations.
 
The Company recognizes interest and penalties accrued in relation to unrecognized tax benefits in tax expense. The Company recognized approximately $3.3 million of net tax benefit and $0.2 million of tax expense for interest and penalties during the year ended December 31, 2021 and 2020, respectively. The Company did not recognize any additional tax benefit or expense for interest and penalties during the year ended December 31, 2019. The Company had approximately $1.3 million, $5.3 million, and $5.1 million of accrued interest and penalties at December 31, 2021, 2020, and 2019, respectively.
The Company is currently under IRS examination for the 2017 tax year. Tax years prior to 2017 are generally not subject to examination by the IRS. For state tax returns, the Company is generally not subject to income tax examinations for tax years prior to 2017. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. With respect to jurisdictions outside the United States, the Company is generally not subject to examination for tax years prior to 2011. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.