Income Taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items within the periods presented. The comparison of our effective tax rate between periods is significantly impacted by the level and mix of earnings and losses by tax jurisdiction and discrete items.

The income tax provision for the three months ended September 30, 2024 was $52 million resulting in an effective tax rate of 19.3%, compared to a $33 million expense resulting in an effective tax rate of 17.8% for the same period in 2023. The income tax provision for the nine months ended September 30, 2024 was $148 million resulting in an effective tax rate of 20.7%, compared to a $82 million expense resulting in an effective tax rate of 19.3% for the same period in 2023. The effective tax rate for the three and nine month periods ended September 30, 2024 was lower than the U.S. federal statutory rate primarily due to earnings mix.

Unrecognized Tax Benefits

During 2019, Xylem’s Swedish subsidiary received a tax assessment from the Swedish Tax Agency (the "STA") for the 2013 tax year related to the tax treatment of an intercompany transfer of certain intellectual property that was made in connection with a reorganization of our European businesses. Xylem filed an appeal with the Administrative Court of Växjö, which rendered a decision adverse to Xylem in June 2022 for SEK837 million (approximately $83 million), consisting of the full tax assessment amount plus penalties and interest. Xylem appealed this decision with the intermediate appellate court, the Administrative Court of Appeal, and on May 15, 2024, that court rendered a decision in favor of Xylem and also remanded an issue to the trial court for resolution. In June 2024, the STA filed a notice of appeal of this decision to the Supreme Administrative Court (the “Court”). The parties await the Court’s decision as to whether it will hear the STA’s appeal, and the trial court has stayed the proceeding on the issue on remand until the Court's decision. Management, in consultation with external legal advisors, continues to believe it is more likely than not that Xylem will prevail on the proposed assessment and will continue to vigorously defend our position through this litigation. There can be no assurance that the final determination by the authorities will not be materially different than our position. As of September 30, 2024, we do not have any unrecognized tax benefits related to this tax position.