INCOME TAXES

12 Months Ended

Oct. 31, 2021

INCOME TAXES

INCOME TAXES

9. INCOME TAXES

The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars:

	2021		2020		2019
Current:
U.S.:
Federal	$	899	$	400	$	545
State		183		53		72
Foreign		1,017		640		700
Total current		2,099		1,093		1,317
Deferred:
U.S.:
Federal		(303)		(68)		(345)
State		(45)		9		(26)
Foreign		(93)		48		(94)
Total deferred		(441)		(11)		(465)
Provision for income taxes	$	1,658	$	1,082	$	852

Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2021, 2020, and 2019 was $4,061 million, $2,082 million, and $2,166 million, respectively, and in foreign countries was $3,541 million, $1,801 million, and $1,922 million, respectively. Certain foreign operations are branches or partnerships of Deere & Company and are subject to U.S. as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are not directly related.

A comparison of the statutory and effective income tax provision and reasons for related differences in millions of dollars follow:

	2021		2020		2019
U.S. federal income tax provision at the U.S. statutory rate (21 percent)	$	1,597	$	815	$	859
State and local taxes, net of federal effect		119		59		47
Other Impacts of Tax Cuts and Jobs Act of 2017		(85)		39		(101)
Rate differential on foreign subsidiaries		148		106		89
Research and business tax credits		(48)		(50)		(85)
Excess tax benefits on equity compensation		(79)		(87)		(40)
Valuation allowances		18		139		28
Other - net		(12)		61		55
Provision for income taxes	$	1,658	$	1,082	$	852

At October 31, 2021, accumulated earnings in certain subsidiaries outside the U.S. totaled $2,155 million. A provision for foreign withholding taxes has not been made since these earnings are expected to remain indefinitely reinvested outside the U.S. Determination of the amount of a foreign withholding tax liability on these unremitted earnings is not practicable.

Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of the deferred income tax assets and liabilities at October 31, 2021 and November 1, 2020 in millions of dollars follows:

	2021				2020
	Deferred		Deferred		Deferred		Deferred
	Tax		Tax		Tax		Tax
	Assets		Liabilities		Assets		Liabilities
OPEB liabilities	$	676			$	804
Lessor lease transactions			$	399			$	489
Tax loss and tax credit carryforwards		1,542				937
Accrual for sales allowances		466				362
Tax over book depreciation				154				196
Goodwill and other intangible assets				337				368
Pension - net				448		316
Allowance for credit losses		78				81
Accrual for employee benefits		298				249
Share-based compensation		53				41
Deferred compensation		49				40
Lessee lease transactions		46		43		56		56
Unearned revenue		172				22
Other items		333		341		344		305
Less valuation allowances		(1,530)				(858)
Deferred income tax assets and liabilities	$	2,183	$	1,722	$	2,394	$	1,414

Deere & Company files a consolidated federal income tax return in the U.S., which includes the wholly-owned financial services subsidiaries. These subsidiaries account for income taxes generally as if they filed separate income tax returns, with a modification for realizability of certain tax benefits.

At October 31, 2021, tax loss and tax credit carryforwards of $1,542 million were available with $1,068 million expiring from 2022 through 2041 and $474 million with an indefinite carryforward period.

A reconciliation of the total amounts of unrecognized tax benefits at October 31, 2021, November 1, 2020, and November 3, 2019 in millions of dollars follows:

	2021		2020		2019
Beginning of year balance	$	668	$	553	$	279
Increases to tax positions taken during the current year		81		63		30
Increases to tax positions taken during prior years		100		95		357
Decreases to tax positions taken during prior years		(23)		(30)		(30)
Decreases due to lapse of statute of limitations		(12)		(9)		(6)
Settlements		(3)		(1)		(75)
Foreign exchange				(3)		(2)
End of year balance	$	811	$	668	$	553

The amount of unrecognized tax benefits at October 31, 2021 and November 1, 2020 that would impact the effective tax rate if the tax benefits were recognized was $227 million and $134 million, respectively. 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 twelve months would not be significant.

The company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction and various state and foreign jurisdictions. The U.S. Internal Revenue Service (IRS) has completed the examination of the company’s federal income tax returns for periods prior to 2015. The federal income tax returns for years 2015, 2016, and 2017 are currently under examination. Various state and foreign income tax returns, including major tax jurisdictions in Argentina, Australia, Brazil, Canada, China, Finland, France, Germany, India, Luxembourg, Mexico, Russia, Singapore, and Spain also remain subject to examination by taxing authorities.

The company’s policy is to recognize interest related to income taxes in interest expense and interest income and recognize penalties in selling, administrative and general expenses. During 2021 and 2019, the total amount of expense from interest and penalties was $7 million and $13 million. During 2020, interest and penalties previously recorded were reversed when tax positions were effectively settled resulting in a $3 million net benefit. The interest income in 2021, 2020, and 2019 was $8 million, $11 million, and $25 million, respectively. At October 31, 2021 and November 1, 2020, the liability for accrued interest and penalties totaled $75 million and $72 million, respectively, and the receivable for interest was $11 million and $6 million, respectively.