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Tax Matters (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of Income before Income Tax, Domestic and Foreign

The components of Income before provision for taxes on income follow:


	Year Ended December 31,
(MILLIONS OF DOLLARS)	2021		2020		2019
United States	$	1,308	$	1,109	$	965
International	1,180		887		836
Income before provision for taxes on income	$	2,488	$	1,996	$	1,801

Schedule Of Components Of Provision For Income Taxes

The components of Provision for taxes on income based on the location of the taxing authorities follow:


	Year Ended December 31,
(MILLIONS OF DOLLARS)	2021		2020		2019
United States:
Current income taxes:
Federal	$	311	$	232	$	192
State and local	35		36		28
Deferred income taxes:
Federal	(84)		(29)		(5)
State and local	(10)		(14)		(15)
Total U.S. tax provision	252		225		200
International:
Current income taxes	188		154		161
Deferred income taxes	14		(19)		(60)
Total international tax provision	202		135		101
Provision for taxes on income(a)(b)(c)	$	454	$	360	$	301

(a) In 2021, the Provision for taxes on income reflects the following:

•the change 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, the impact of non-deductible and non-taxable items, and the extent and location of other income and expense items, such as gains and losses on asset divestitures;

•tax benefit related to foreign-derived intangible income;

•U.S. tax benefit related to U.S. Research and Development Tax Credit;

•tax expense related to changes in uncertain tax positions (see D. Tax Contingencies);

•a $24 million discrete tax benefit recorded in 2021 related to the excess tax benefits for share-based payments;

•an $8 million net discrete tax benefit recorded in 2021 related to the effective settlement of certain issues with tax authorities;

•a $6 million net discrete tax benefit recorded in 2021 related to changes in various other tax items; and

•a $1 million discrete tax expense recorded in 2021 related to a remeasurement of deferred tax assets and liabilities as a result of changes in statutory tax rates.

(b) In 2020, the Provision for taxes on income reflects the following:

•U.S. tax benefit related to U.S. Research and Development Tax Credit;

•tax expense related to changes in uncertain tax positions (see D. Tax Contingencies);

•a $29 million discrete tax benefit recorded in 2020 related to the excess tax benefits for share-based payments;

•a $19 million net discrete tax benefit recorded in 2020 related to changes in various other tax items;

•a $7 million discrete tax benefit recorded in 2020 related to the remeasurement of deferred tax assets and liabilities resulting from the integration of acquired businesses;

•a $5 million discrete tax expense related to the changes in valuation allowances;

•a $4 million discrete tax benefit recorded in 2020 related to a remeasurement of deferred tax assets and liabilities as a result of changes in statutory tax rates; and

•a $4 million net discrete tax benefit recorded in 2020 related to the effective settlement of certain issues with tax authorities.

•U.S. tax benefit related to U.S. Research and Development Tax Credit;

•tax expense related to changes in uncertain tax positions (see D. Tax Contingencies);

•the impact of the Global Intangible Low-Tax Income tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;

•a $20 million discrete tax benefit recorded in 2019 related to the excess tax benefits for share-based payments;

•an $18 million discrete tax benefit related to the changes in valuation allowances;

•a $14 million net discrete tax benefit recorded in the third quarter of 2019 due to a change in tax basis related to purchase accounting;

•a $12 million net discrete tax benefit recorded in 2019 related to changes in various other tax items;

•a $10 million net discrete tax benefit recorded in 2019 related to the effective settlement of certain issues with tax authorities; and

•an $8 million discrete tax benefit recorded in 2019 related to a remeasurement of deferred tax assets and liabilities as a result of changes in statutory tax rates.

Schedule of Effective Income Tax Rate Reconciliation

The reconciliation of the U.S. statutory income tax rate to our effective tax rate follows:


	Year Ended December 31,
	2021		2020		2019
U.S. statutory income tax rate	21	%	21	%	21	%
State and local taxes, net of federal benefits	0.8		0.9		0.6
Unrecognized tax benefits and tax settlements and resolution of certain tax positions(a)	0.1		0.1		0.5


Foreign Derived Intangible Income	(1.1)		—		(0.6)
U.S. Research and Development Tax Credit	(0.6)		(0.7)		(0.7)
Share-based payments	(0.9)		(1.3)		(1.0)
Non-deductible / non-taxable items	0.3		0.4		0.4
Taxation of non-U.S. operations(b)(c)	(1.3)		(1.6)		(3.1)
All other—net	(0.1)		(0.8)		(0.4)
Effective tax rate	18.2	%	18.0	%	16.7	%

(a) For a discussion about unrecognized tax benefits and tax settlements and resolution of certain tax positions, see above in this section and D. Tax Contingencies.

(b) In all years, the rate impact of taxation of non-U.S. operations was a decrease to our effective tax rate due to the jurisdictional mix of earnings.

(c) In 2020, the rate impact of non-U.S. operations also includes (i) a $5 million discrete tax expense related to the changes in valuation allowances, and (ii) an $8 million net discrete tax benefit related to changes in various other tax items. In 2019, the rate impact of non-U.S. operations also includes (i) an $18 million discrete tax benefit related to the changes in valuation allowances, (ii) a $14 million net discrete tax benefit due to a change in tax basis related to purchase accounting, and (iii) a $10 million discrete tax benefit related to the effective settlement of certain issues with non-U.S. tax authorities.

Schedule of Deferred Tax Assets and Liabilities

The components of our deferred tax assets and liabilities follow:


	As of December 31,
	2021		2020
(MILLIONS OF DOLLARS)	Assets (Liabilities)
Prepaid/deferred items	$	109	$	64
Inventories	10		15
Intangibles	(187)		(237)
Property, plant and equipment	(183)		(168)
Employee benefits	58		59
Restructuring and other charges	3		3
Legal and product liability reserves	14		15
Net operating loss/credit carryforwards	132		127
Unremitted earnings	(7)		(6)
All other	5		1
Subtotal	(46)		(127)
Valuation allowance	(174)		(157)
Net deferred tax liability(a)(b)	$	(220)	$	(284)

(a) The decrease in the total net deferred tax liability from December 31, 2020 to December 31, 2021 is primarily attributable to a decrease in deferred tax liabilities related to intangibles, partially offset by an increase in valuation allowances representing the amounts determined to be unrecoverable, and deferred tax liabilities related to property, plant and equipment. In addition, the decrease in the total net deferred tax liability was also attributable to an increase in deferred tax assets related to prepaid/deferred items and net operation loss/credit carry forwards, partially offset by a decrease in inventory and employee benefits.

(b) In 2021, included in Noncurrent deferred tax assets ($100 million) and Noncurrent deferred tax liabilities ($320 million). In 2020, included in Noncurrent deferred tax assets ($94 million) and Noncurrent deferred tax liabilities ($378 million).

Schedule of Unrecognized Tax Benefits Roll Forward

The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:


(MILLIONS OF DOLLARS)	2021		2020		2019
Balance, January 1	$	(188)	$	(182)	$	(185)
Increases based on tax positions taken during a prior period(a)(b)	(1)		(6)		(3)
Decreases based on tax positions taken during a prior period(a)(c)	7		6		12
Increases based on tax positions taken during the current period(a)(d)	(9)		(9)		(8)

Lapse in statute of limitations	2		3		2
Balance, December 31(e)	$	(189)	$	(188)	$	(182)

(a) Primarily included in Provision for taxes on income.

(b) In 2021, 2020 and 2019, the increases are primarily related to movements on prior year positions.

(c) In 2021 and 2020, the decreases are primarily related to effective settlement of certain issues with tax authorities. In 2019, the decreases are primarily related to movements on prior year positions and effective settlement of certain issues with tax authorities, including movements in foreign translation adjustments on prior year positions.

(d) In 2021, 2020 and 2019, the increases are primarily related to movements on current year positions.

(e) In 2021, included in Noncurrent deferred tax assets and Other noncurrent assets ($1 million) and Other taxes payable ($188 million). In 2020, included in Noncurrent deferred tax assets and Other noncurrent assets ($1 million) and Other taxes payable ($187 million). In 2019, included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($180 million).