Income taxes

3 Months Ended

Mar. 28, 2020

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

We compute the year-to-date income tax provision by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust for discrete tax items in the period in which they occur.

For the three months ended March 28, 2020, we had an income tax benefit of $16.1 million on pre-tax income of $23.8 million, which resulted in an effective tax rate of (67.6)%, compared with an income tax benefit of $539.7 million on pre-tax income of $65.4 million, which resulted in an effective tax rate of (825.2)% for the three months ended March 30, 2019.

The increase in the effective tax rate for the three months ended March 28, 2020 compared with the prior year period was due primarily to the recognition in the prior year of a discrete benefit of $617.3 million related to the release of valuation allowances, mainly related to Luxembourg net operating losses, partially offset by a discrete expense of $66.1 million related primarily to unrecognized tax benefits from the European business reorganization. The current year rate is driven mainly by discrete tax benefits of $24.7 million, related to the reversal of unrecognized tax benefits, net of settlement amounts, arising from the resolution of audits in Canada and Germany and $3.2 million from law changes in India with respect to the taxation of dividends. These current period benefits were offset partially by $6.3 million of discrete expenses arising from the enactment in the U.S. of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

Deferred Tax Assets and Liabilities

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under U.S. GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.

Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including:

•taxable income in prior carry back years if carry back is permitted under the relevant tax law;

•future reversal of existing temporary differences;

•tax-planning strategies that are prudent and feasible; and

•future taxable income exclusive of reversing temporary differences and carryforwards.