Income Taxes

9 Months Ended

Jul. 28, 2019

Income Taxes

Income Taxes

(8)  Income Taxes

In 2019, the Company is subject to additional provisions of the U.S. tax reform legislation enacted in December 2017 (tax reform). The Company’s 2019 U.S. statutory corporate income tax rate is 21 percent and was approximately 23.3 percent for 2018. The provisions of tax reform affecting the Company in 2019 include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion and anti-abuse tax benefits (BEAT) for certain payments between a U.S. corporation and foreign subsidiaries, a limitation on the deductibility of certain executive compensation, a deduction for foreign derived intangible income (FDII), and interest expense limitations. Based on the current interpretations of tax reform legislation and related regulations, along with the Company’s 2019 forecasts, the Company does not expect the combined effect of these provisions to be significant for the 2019 provision for income taxes.

In 2019 and 2018, the Company recorded discrete tax adjustments related to the remeasurement of the Company’s net deferred tax liabilities to the new corporate income tax rate and for the deemed earnings repatriation tax (repatriation tax). Those adjustments for the third quarter and first nine months of 2019 and 2018 were as follows (in millions of dollars):

	Three Months Ended				Nine Months Ended
	July 28		July 29		July 28		July 29
	2019		2018		2019		2018
Net deferred tax liability remeasurement			$	(3.6)	$	4.8	$	(326.0)
Deemed earnings repatriation tax	$	(13.9)				(13.9)		15.7
Total discrete tax (benefit) expense	$	(13.9)	$	(3.6)	$	(9.1)	$	(310.3)

The full year 2018 discrete tax benefit for the remeasurement of the net deferred tax liabilities was $362.9 million and the repatriation tax expense was $20.6 million. The repatriation tax determination for the 2018 U.S. income tax return was completed in the third quarter of 2019 and resulted in a discrete tax benefit of approximately $13.9 million. The discrete benefit was based on adjustments from completing the 2018 income tax returns and the interpretation of the tax law and associated regulations for the repatriation tax, primarily related to fiscal year end companies. The Company paid the repatriation tax in 2019 with a U.S. income tax overpayment.

The taxable income of the Company is included in the consolidated U.S. income tax return of Deere & Company. Under a tax sharing agreement with Deere & Company, the Company’s provision (credit) for income taxes is generally recorded as if Capital Corporation and each of its subsidiaries filed separate income tax returns, with a modification for realizability of certain tax benefits. The difference between the provision (credit) for income taxes recorded by the Company and the provision (credit) for income taxes calculated on an unmodified, separate return basis was not significant for any periods presented.

The Company’s unrecognized tax benefits at July 28, 2019 were $32.6 million, compared to $36.3 million at October 28, 2018. The liability at July 28, 2019, October 28, 2018, and July 29, 2018 consisted of approximately $16.4 million, $19.4 million, and $17.8 million, respectively, which would affect the effective tax rate if the tax benefits were recognized. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next 12 months would not be significant.