INCOME TAXES

9 Months Ended

Jul. 28, 2019

INCOME TAXES

INCOME TAXES

(9)  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 assets 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 in millions of dollars follow:

	Three Months Ended July 28, 2019						Nine Months Ended July 28, 2019
	Equipment Operations			Financial Services	Total		Equipment Operations			Financial Services	Total
Net deferred tax asset remeasurement									$	5	$	5
Deemed earnings repatriation tax	$	(24)	$	(8)	$	(32)	$	(24)		(8)		(32)
Total discrete tax expense (benefit)	$	(24)	$	(8)	$	(32)	$	(24)	$	(3)	$	(27)

	Three Months Ended July 29, 2018						Nine Months Ended July 29, 2018
	Equipment Operations			Financial Services	Total		Equipment Operations			Financial Services	Total
Net deferred tax asset remeasurement	$	(58)	$	(4)	$	(62)	$	795	$	(318)	$	477
Deemed earnings repatriation tax								179		85		264
Total discrete tax expense (benefit)	$	(58)	$	(4)	$	(62)	$	974	$	(233)	$	741

The full year 2018 discrete tax expense for the remeasurement of the net deferred tax assets was $414 million and the repatriation tax was $290 million. The full year 2018 repatriation tax included an accrual of approximately $63 million for foreign withholding taxes on earnings of subsidiaries outside the U.S. that were previously expected to be indefinitely reinvested. 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 $32 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 Company’s unrecognized tax benefits at July 28, 2019 were $630 million, compared to $279 million at October 28, 2018. The liability at July 28, 2019, October 28, 2018, and July 29, 2018 consisted of approximately $274 million, $128 million, and $137 million, respectively, which would affect the effective tax rate if the tax benefits were recognized. The increase from the previously reported periods primarily relates to the interpretation of a recently issued repatriation tax regulation for fiscal year end companies. 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.