
	Year Ended December 31,
	2020		2019		2018

	(in millions)
Current tax expense (benefit):
U.S.	$	(571)	$	86	$	(346)
State and local	11		2		7
Foreign	848		879		681
Total current tax expense (benefit)	288		967		342
Deferred tax expense (benefit):
U.S.	(362)		57		80
State and local	1		(1)		1
Foreign	(8)		(76)		399
Total deferred tax expense (benefit)	(369)		(20)		480
Total income tax expense (benefit) on income (loss) before equity in earnings of operating joint ventures	(81)		947		822
Income tax expense (benefit) on equity in earnings of operating joint ventures	47		43		31
Income tax expense (benefit) on discontinued operations	0		0		0
Income tax expense (benefit) reported in equity related to:
Other comprehensive income (loss)	1,252		3,811		(1,812)
Stock-based compensation programs	0		0		0
Total income taxes	$	1,218	$	4,801	$	(959)


	Year Ended December 31,
	2020			2019(1)			2018(1)

	(in millions)
Expected federal income tax expense (benefit)	$	(68)		$	1,068		$	1,015
Non-taxable investment income	(228)			(270)			(250)
Foreign taxes at other than U.S. rate	252			234			347
Low-income housing and other tax credits	(112)			(118)			(112)


Changes in tax law	(194)			(2)			(321)
Sale of subsidiary	277			4			10
Non-controlling interest	(48)			(11)			0
Non-deductible expenses	14			23			33
Change in valuation allowance	17			(1)			(6)
State taxes	10			1			6
Other	(1)			19			100
Reported income tax expense (benefit)	$	(81)		$	947		$	822
Effective tax rate	25.1		%	18.6		%	17.0		%

The effective tax rate is the ratio of “Total income tax expense (benefit)” divided by “Income before income taxes and equity in earnings of operating joint ventures.” The Company’s effective tax rate for fiscal years 2020, 2019 and 2018 was 25.1%, 18.6% and 17.0%, respectively. The following is a description of items that had the most significant impact on the difference between the Company’s statutory U.S. federal income tax rate of 21% applicable for 2020, 2019 and 2018, and the Company’s effective tax rate during the periods presented:

Non-Taxable Investment Income. The U.S. Dividends Received Deduction (“DRD”) reduces the amount of dividend income subject to U.S. tax and accounts for most of the non-taxable investment income shown in the table above. More specifically, the U.S. DRD constitutes $109 million of the total $228 million of 2020 non-taxable investment income, $122 million of the total $270 million of 2019 non-taxable investment income, and $127 million of the total $250 million of 2018 non-taxable investment income. The DRD for the current period was estimated using information from 2019, current year investment results, and current year’s equity market performance. The actual current year DRD can vary based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from fund investments, changes in the account balances of variable life and annuity contracts, and the Company’s taxable income before the DRD.

The 952 Election. The Company made a tax election, effective for the 2017 and later tax years, to subject earnings from its insurance operations in Brazil to tax in the U.S. in the tax year earned, net of related foreign tax credits. This election has the effect of reducing the rate at which the Company will incur taxes on these earnings from the approximately 40% tax rate in Brazil to the 21% tax rate in the U.S., which in turn will reduce the amount of associated income tax expense in 2018 and thereafter. In conjunction with this election, the Company remeasured its related deferred tax assets from the previous 45% rate in Brazil to the new rate of 21% in the U.S., which resulted in additional income tax expense at the time of election. The net effect of the lower tax rate and the remeasurement of the deferred tax assets was a net increase (decrease) in income tax expense of $34 million in 2018, $(3) million in 2019 and $24 million in 2020. In October 2019, the IRS issued a legal memorandum, applicable to all taxpayers, in which the IRS argues that the election became inoperable in 1998. The Company disagrees with

Tax Act of 2017. On December 22, 2017, the Tax Act of 2017 was enacted into U.S. law. During 2018, the Company completed the collection, preparation and analysis of data relevant to the Tax Act of 2017, and interpreted any additional guidance issued by the IRS, U.S. Department of the Treasury, or other standard-setting organizations, and recognized a $153 million reduction in income tax expense primarily related to refinements of our provisional estimates of earnings of affiliated foreign companies subject to the one-time toll charge.

2018 Industry Issue Resolution (IIR). In August 2018, the IRS released a Directive to provide guidance on the tax reserving for guaranteed benefits within variable annuity contracts and principle-based reserves on certain life insurance contracts. Adopting the methodology specified in the Directive resulted in an accelerated deduction for the Company’s 2017 tax return that would have otherwise been deductible in future years. Prior to the adoption of this Directive, the Company accounted for these future deductions as deferred tax assets measured using the current 21% corporate income tax rate. Upon adoption of the Directive, the tax benefits were revalued using the 35% tax rate applicable for the 2017 tax year and resulted in a reduction in income tax expense of $198 million in 2018.

The CARES Act. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law. One provision of the CARES Act amends the Tax Act of 2017 and allows companies with net operating losses (“NOLs”) originating in 2020, 2019 or 2018 to carry back those losses for up to five years. For 2020, the Company has recorded an income tax benefit of $149 million and $51 million from carrying the estimated 2020 NOL and 2018 NOL back to tax years that have a 35% tax rate.

GILTI High Tax Exclusion. On July 20, 2020, the U.S. Treasury and the Internal Revenue Service issued Final Regulations which will allow an annual election to exclude from the U.S. tax return certain GILTI amounts when the taxes paid by a foreign affiliate exceed 18.9% (90% of U.S. statutory rate of 21%) of the GILTI amount for that foreign affiliate (the “high-tax exception”). These regulations are effective for the 2021 taxable year with an election to apply to any taxable year beginning after 2017. In many of the countries in which we operate, including Japan, there are differences between local tax rules used to determine the tax base and the U.S. tax principles used to determine GILTI. Also, our Japan affiliates have a different tax year than the U.S. calendar tax year used to determine GILTI. Therefore, while many of the countries, including Japan, have a statutory tax rate above the 18.9% threshold, separate affiliates may not meet the 18.9% threshold each year and, as such, may not qualify for this exclusion. The Company plans to make the high-tax exception election for the 2020 tax year and recorded lower 2020 GILTI cost included in “Total income tax expense” for 2020. Additionally, the Company plans to make an election for 2018 by filing an amended tax return and recorded an estimated tax benefit of $4 million in “Total income tax expense” for 2020.

The Treasury Department and the IRS also issued Proposed Regulations on July 20, 2020 which would require that, if a high-tax exception election is made with respect to GILTI in any year, an election having the same effect must also be made with regard to income taxed under Subpart F of the Tax Code. Such an election under Subpart F of the Tax Code would apply to the Full Inclusion election made by the Company for its insurance operations in Brazil, thereby increasing the tax rate applied to our Brazil insurance operations. The Proposed Regulations will be effective for taxable years beginning after they are issued in final form.


	As of December 31,
	2020		2019
	(in millions)
Deferred tax assets:
Insurance reserves	$	1,926	$	730
Policyholders’ dividends	1,901		1,365
Net operating and capital loss carryforwards	205		189

Employee benefits	929		973

Other	206		113
Deferred tax assets before valuation allowance	5,167		3,370
Valuation allowance	(143)		(136)
Deferred tax assets after valuation allowance	5,024		3,234
Deferred tax liabilities:

Net unrealized investment gains	13,841		11,109
Deferred policy acquisition costs	3,518		3,799
Investments	19		138

Value of business acquired	270		262

Deferred tax liabilities	17,648		15,308
Net deferred tax liability	$	(12,624)	$	(12,074)

The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowances, will be realized.

A valuation allowance has been recorded against deferred tax assets related to federal, state and local taxes and foreign operations. Adjustments to the valuation allowance are made to reflect changes in management’s assessment of the amount of the deferred tax asset that is realizable and the amount of deferred tax asset actually realized during the year. The valuation allowance includes amounts recorded in connection with deferred tax assets as follows:


	Federal		State		Foreign Operations		Total
	(in millions)
Balance at January 1, 2018	$	0	$	196	$	18	$	214
Charged to costs and expenses	0		24		(6)		18
Other adjustments	0		(114)		(1)		(115)
Balance at December 31, 2018	0		106		11		117
Charged to costs and expenses	3		34		(5)		32
Other adjustments	0		(13)		0		(13)
Balance at December 31, 2019	3		127		6		136
Charged to costs and expenses	12		5		5		22
Other adjustments	0		(16)		1		(15)
Balance at December 31, 2020	$	15	$	116	$	12	$	143


	As of December 31,
	2020		2019
	(in millions)
Federal net operating and capital loss carryforwards(1)	$	231	$	33
State net operating and capital loss carryforwards(2)	$	1,880	$	2,005
Foreign net operating and capital loss carryforwards(3)	$	136	$	203
Federal foreign tax credit carryforwards(4)	$	9	$	4
General business credits(5)	$	82	$	0

Consistent with the Tax Act of 2017, the Company provides applicable U.S. income tax for all unremitted earnings of the Company’s foreign affiliates. For certain foreign affiliates organized in withholding tax jurisdictions, the Company considers the unremitted foreign earnings of those affiliates to be indefinitely reinvested, and therefore does not provide for the withholding tax when calculating its current and deferred tax obligations. For certain other foreign affiliates organized in withholding tax jurisdictions, the Company does not consider unremitted earnings indefinitely reinvested, and therefore provides for foreign withholding tax when calculating its current and deferred tax obligations. The following table summarizes the Company’s indefinite reinvestment assertions for jurisdictions in which the Company operates that impose a withholding tax on dividends or may be subject to other foreign country tax upon a remittance:


Unremitted earnings are indefinitely reinvested			Unremitted earnings are not indefinitely reinvested
Insurance operations in Chile and China and non-insurance operations in Korea and certain operations in Luxembourg			Insurance operations in Argentina, India, Indonesia, Ghana and Taiwan, and non-insurance operations in China, India, Italy and Taiwan

During the first and second quarters of 2018, respectively, the Company determined that the earnings of its Polish and Italian insurance operations would be repatriated to the United States; accordingly, these earnings were not considered indefinitely reinvested, and the Company recognized an income tax expense of $10 million in “Income (loss) before equity in earnings of operating joint ventures” during 2018. During the first and fourth quarters of 2018, the Company determined that a portion of the earnings of its Korean insurance operation would be repatriated to the United States; accordingly, a portion of these earnings were not considered indefinitely reinvested, and the Company recognized an income tax expense of $14 million in “Income (loss) before equity in earnings of operating joint ventures” during 2018. The Company made no changes with respect to its repatriation assumptions in 2019. During the second and third quarters of 2020, respectively, the Company determined that the earnings of its Korean and Taiwan insurance operations would be repatriated to the United States; accordingly, these earnings were not considered indefinitely reinvested, and the Company recognized an income tax expense of $132 million in “Income (loss) before equity in earnings of operating joint ventures” during 2020. During the second quarter of 2020, the Company changed the permanent investment assertion for Europrisa Management Company S.A (Luxembourg) due to a plan to liquidate the company, which gave rise to an immaterial amount of income tax expense during 2020.

The following table sets forth the undistributed earnings of foreign subsidiaries, where the Company assumes indefinite reinvestment of such earnings and for which, in 2020, 2019, and 2018, U.S. deferred taxes have not been provided, and for which foreign deferred withholding taxes have not been provided. The net tax liability that may arise if the 2020 earnings were remitted which includes any foreign exchange impacts, is immaterial.

The Company’s “Income (loss) before income taxes and equity in earnings of operating joint ventures” includes income (loss) from domestic operations of $(3,226) million, $1,985 million and $1,447 million, and income (loss) from foreign operations of $2,903 million, $3,101 million and $3,387 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the IRS or other taxing authorities. The completion of review or the expiration of the Federal statute of limitations for a given audit period could result in an adjustment to the liability for income taxes.


	2020		2019		2018
	(in millions)
Balance at January 1,	$	18	$	20	$	45
Increases in unrecognized tax benefits—prior years	0		0		20
(Decreases) in unrecognized tax benefits—prior years	(1)		(2)		0
Increases in unrecognized tax benefits—current year	0		0		0
(Decreases) in unrecognized tax benefits—current year	0		0		0
Settlements with taxing authorities	0		0		(45)
Balance at December 31,	$	17	$	18	$	20
Unrecognized tax benefits that, if recognized, would favorably impact the effective rate	$	0	$	0	$	0

The Company participates in the IRS’s Compliance Assurance Program. Under this program, the IRS assigns an examination team to review completed transactions as they occur in order to reach agreement with the Company on how they should be reported in the relevant tax returns. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner.

Some of the Company’s affiliates in Japan file a consolidated tax return, while others file separate tax returns. The Company’s affiliates in Japan are subject to audits by the local taxing authority. The general statute of limitations is five years from when the return is filed. The Japanese National Tax Service conducted tax audits of some non-insurance companies during the reporting period, which had no material impact on the Company’s 2020, 2019 or 2018 results.

The Company’s affiliates in South Korea file separate tax returns and are subject to audits by the local taxing authority. The general statute of limitations is five years from when the return is filed. During 2020, the Korean tax authority substantially completed a routine tax audit of Prudential of Korea for 2017, 2016, and 2015 tax years. These activities are expected to have no material impact on the Company’s 2020, 2019 or 2018 results.