Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Components of Income and Income Tax Expense

The domestic and foreign components of income before income taxes for the years ended December 31 were as follows:

	2023		2022		2021
	(in millions)
United States	$	4,506	$	4,228	$	4,261
Foreign	9,133		7,504		6,046
Income before income taxes	$	13,639	$	11,732	$	10,307

The total income tax provision for the years ended December 31 is comprised of the following components:

	2023		2022		2021
	(in millions)
Current
Federal	$	991	$	1,024	$	663
State and local	127		133		51
Foreign	1,563		1,296		976
	2,681		2,453		1,690
Deferred
Federal	(180)		(661)		(31)
State and local	(18)		(40)		(4)
Foreign	(39)		50		(35)
	(237)		(651)		(70)
Income tax expense	$	2,444	$	1,802	$	1,620

Effective Income Tax Rate

A reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate for the years ended December 31, is as follows:

	2023				2022				2021
	Amount		Percent		Amount		Percent		Amount		Percent
	($ in millions)
Income before income taxes	$	13,639			$	11,732			$	10,307
Federal statutory tax	2,864		21.0	%	2,464		21.0	%	2,164		21.0	%
State tax effect, net of federal benefit	82		0.6	%	72		0.6	%	60		0.6	%
Foreign tax effect	(393)		(2.9)	%	(347)		(3.0)	%	(283)		(2.7)	%
Valuation allowance - U.S. foreign tax credit	327		2.4	%	(333)		(2.8)	%	—		—	%
U.S. tax expense on foreign operations	39		0.3	%	111		0.9	%	63		0.6	%
Foreign-derived intangible income deduction	(144)		(1.1)	%	(129)		(1.1)	%	(69)		(0.7)	%
U.S. tax benefits	—		—	%	—		—	%	(132)		(1.3)	%
Windfall benefit	(88)		(0.6)	%	(68)		(0.6)	%	(67)		(0.7)	%
Other, net	(243)		(1.8)	%	32		0.3	%	(116)		(1.1)	%
Income tax expense	$	2,444	17.9	%	$	1,802	15.4	%	$	1,620	15.7	%

Note: Table may not sum due to rounding.

The effective income tax rates for the years ended December 31, 2023, 2022 and 2021 were 17.9%, 15.4% and 15.7%, respectively. The effective income tax rate for 2023 was higher than the effective income tax rate for 2022, primarily due to changes in the valuation allowance associated with the deferred tax asset related to U.S. foreign tax credits. In 2022, the Company recognized a discrete tax benefit of $333 million to release the valuation allowance resulting from U.S. tax regulations published in the first

quarter of 2022 (the “2022 Regulations”). In 2023, the treatment of foreign taxes paid under the 2022 Regulations changed due to foreign tax legislation enacted in Brazil and Notice 2023-55 (the “Notice”), released by the U.S. Department of Treasury (“Treasury”). Therefore, the Company recognized a total $327 million discrete tax expense in 2023 to establish the valuation allowance. The discrete tax expense recognized in 2023 was partially offset by the Company’s ability to claim more U.S. foreign tax credits generated in 2022 and 2023 due to the Notice released by Treasury.

The effective income tax rate for 2022 was lower than the effective income tax rate for 2021, primarily due to a discrete tax benefit in the first quarter of 2022 related to final U.S. tax regulations published in 2022. These regulations resulted in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limited the Company’s ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S. tax expense. Additionally, a more favorable geographic mix of earnings in 2022 contributed to the lower effective tax rate. The lower effective income tax rate in 2022 was partially offset by:

•the recognition of U.S. tax benefits in 2021 (the majority of which were discrete) resulting from a higher foreign derived intangible income deduction and greater utilization of foreign tax credits in the U.S.

•a discrete tax benefit in 2021 related to the remeasurement of the Company’s net deferred tax asset in the U.K. due to an enacted tax rate change in 2021

•a discrete tax expense related to an unfavorable court ruling in 2022

Singapore Income Tax Rate

In connection with the expansion of the Company’s operations in the Asia Pacific, Middle East and Africa region, the Company’s subsidiary in Singapore, Mastercard Asia Pacific Pte. Ltd. (“MAPPL”) received an incentive grant from the Singapore Ministry of Finance in 2010. The incentive had provided MAPPL with, among other benefits, a reduced income tax rate for the 10-year period commencing January 1, 2010 on taxable income in excess of a base amount. The Company continued to explore business opportunities in this region, resulting in an expansion of the incentives being granted by the Ministry of Finance, including a further reduction to the income tax rate on taxable income in excess of a revised fixed base amount commencing July 1, 2011 and continuing through December 31, 2025. Without the incentive grant, MAPPL would have been subject to the statutory income tax rate on its earnings. For 2023, 2022 and 2021, the impact of the incentive grant received from the Ministry of Finance resulted in a reduction of MAPPL’s income tax liability of $571 million, or $0.60 per diluted share, $454 million, or $0.47 per diluted share, and $300 million, or $0.30 per diluted share, respectively.

Indefinite Reinvestment

As of December 31, 2023 the Company does not accrue taxes on $3.6 billion of foreign earnings which remain permanently reinvested outside the U.S. The Company expects that taxes associated with any future repatriation of these earnings are immaterial.

Deferred Taxes

Deferred tax assets and liabilities represent the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The components of deferred tax assets and liabilities at December 31 were as follows:

	2023		2022
	(in millions)
Deferred Tax Assets
Accrued liabilities	$	863	$	697
Compensation and benefits	335		316
State taxes and other credits	47		43
Net operating losses	149		156
U.S. foreign tax credits	635		274
Property and equipment	277		52
Intangible assets	182		186
Lease liabilities	158		65
Other items	156		155
Less: Valuation allowance	(758)		(114)
Total Deferred Tax Assets	2,044		1,830
Deferred Tax Liabilities
Prepaid expenses and other accruals	211		186
Gains on equity investments	112		132
Goodwill and intangible assets	518		561
Right-of-use lease assets	138		58
Other items	79		135
Total Deferred Tax Liabilities	1,058		1,072
Net Deferred Tax Assets	$	986	$	758

The changes in the Company’s valuation allowance on deferred tax assets were as follows:

	Balance at December 31, 2020		Changes to Related Gross Deferred Tax Assets		Change/(Release)		Balance at December 31, 2021		Changes to Related Gross Deferred Tax Assets		Change/(Release)		Balance at December 31, 2022		Changes to Related Gross Deferred Tax Assets		Change/(Release)		Balance at December 31, 2023
	(in millions)
U.S. foreign tax credit carryforward 1	$	276	$	57	$	—	$	333	$	—	$	(333)	$	—	$	308	$	327	$	635
Net operating and capital losses 2	77		11		(6)		82		23		9		114		12		(3)		123
Total	$	353	$	68	$	(6)	$	415	$	23	$	(324)	$	114	$	320	$	324	$	758

1The 2022 activity resulted in a full release of the valuation allowance associated with the U.S. foreign tax credit carryforward due to final U.S. tax regulations published in 2022. The 2023 activity resulted in the establishment of the valuation allowance associated with the U.S. foreign tax credit carryforward due to foreign tax legislation enacted in Brazil and the Notice released by Treasury.

2Capital losses are included within other items in the deferred tax assets section of the components of the Deferred Taxes table above.

The recognition of foreign tax credits is dependent upon the realization of future foreign source income in the appropriate foreign tax credit basket in accordance with U.S. federal income tax law. The recognition of the net operating and capital losses is dependent on the timing and character of future taxable income in the applicable jurisdictions. As of December 31, 2023, the Company had a foreign tax credit carryforward and tax effected net operating loss carryforwards of $635 million and $149 million, respectively. The foreign tax credits begin to expire in 2029 and the majority of the net operating losses can be carried forward indefinitely.

A reconciliation of the beginning and ending balance for the Company’s unrecognized tax benefits for the years ended December 31, is as follows:

	2023		2022		2021
	(in millions)
Beginning balance	$	414	$	360	$	388
Additions:
Current year tax positions	23		22		17
Prior year tax positions1	16		65		4
Reductions:
Prior year tax positions1	(7)		(14)		(31)
Settlements with tax authorities	—		(13)		(15)
Expired statute of limitations	(15)		(6)		(3)
Ending balance	$	431	$	414	$	360

1Includes immaterial translational impact of currency.

As of December 31, 2023, the amount of unrecognized tax benefit was $431 million. This amount, if recognized, would reduce income tax expense by $378 million.

The Company is subject to tax in the U.S., Belgium, Singapore, the United Kingdom and various other foreign jurisdictions, as well as state and local jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation. Within the next twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations is reasonably possible and that a change in estimate, reducing unrecognized tax benefits, may occur.  While such a change may be significant, it is not possible to provide a range of the potential change until the examinations progress further or the related statutes of limitation expire. The Company has effectively settled its U.S. federal income tax obligations through 2014. With limited exception, the Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2014.