Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

A. Taxes on Income

Our effective tax rate was 19.8% for the three months ended September 30, 2020, compared with 18.0% for the three months ended September 30, 2019. The higher effective tax rate for the three months ended September 30, 2020, was primarily attributable to:

•a $14 million net discrete tax benefit recorded in the three months ended September 30, 2019, due to a change in tax basis related to purchase accounting,

partially offset by:

•a $4 million and $1 million discrete tax benefit recorded in the three months ended September 30, 2020 and 2019, respectively, related to the excess tax benefits for share-based payments.

Our effective tax rate was 18.9% for the nine months ended September 30, 2020, compared with 18.2% for the nine months ended September 30, 2019. The higher effective tax rate for the nine months ended September 30, 2020, was primarily attributable to:

•changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible items;

•a $19 million net discrete tax benefit recorded in the nine months ended September 30, 2019, primarily related to the effective settlement of certain issues with non-U.S. tax authorities and a prior period tax adjustment; and

•a $14 million net discrete deferred tax benefit recorded in the nine months ended September 30, 2019, due to a change in tax basis related to purchase accounting,

partially offset by:

•a $29 million and $17 million discrete tax benefit recorded in the nine months ended September 30, 2020 and 2019, respectively, related to the excess tax benefits for share-based payments;

•a $7 million discrete tax benefit recorded in the nine months ended September 30, 2020 related to a remeasurement of deferred taxes resulting from the integration of acquired businesses; and

•a $4 million and $3 million discrete tax benefit recorded in the nine months ended September 30, 2020 and 2019, respectively, related to a remeasurement of deferred taxes as a result of a change in non-U.S. statutory tax rates.

B. Deferred Taxes

As of September 30, 2020, the total net deferred income tax liability of $313 million is included in Noncurrent deferred tax assets ($97 million) and Noncurrent deferred tax liabilities ($410 million).

As of December 31, 2019, the total net deferred income tax liability of $346 million is included in Noncurrent deferred tax assets ($88 million) and Noncurrent deferred tax liabilities ($434 million).

C. Tax Contingencies

As of September 30, 2020, the net tax liabilities associated with uncertain tax positions of $192 million (exclusive of interest and penalties related to uncertain tax positions of $14 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($190 million).

As of December 31, 2019, the net tax liabilities associated with uncertain tax positions of $182 million (exclusive of interest and penalties related to uncertain tax positions of $12 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($180 million).

Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly decrease as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.