INCOME TAXES

12 Months Ended

Oct. 30, 2022

INCOME TAXES

INCOME TAXES

8. INCOME TAXES

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

	2022		2021		2020
Current:
U.S.:
Federal	$	514	$	899	$	400
State		136		183		53
Foreign		1,423		1,017		640
Total current		2,073		2,099		1,093
Deferred:
U.S.:
Federal		29		(303)		(68)
State		24		(45)		9
Foreign		(119)		(93)		48
Total deferred		(66)		(441)		(11)
Provision for income taxes	$	2,007	$	1,658	$	1,082

Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2022, 2021, and 2020 was $4,977 million, $4,061 million, and $2,082 million, respectively, and in foreign countries was $4,150 million, $3,541 million, and $1,801 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:

	2022		2021		2020
U.S. federal income tax provision at the U.S. statutory rate (21 percent)	$	1,917	$	1,597	$	815
State and local taxes, net of federal effect		133		119		59
Other impacts of Tax Cuts and Jobs Act of 2017		(29)		(85)		39
Rate differential on foreign subsidiaries		121		148		106
Research and business tax credits		(65)		(48)		(50)
Excess tax benefits on equity compensation		(55)		(79)		(87)
Valuation allowances		179		18		139
Other - net		(194)		(12)		61
Provision for income taxes	$	2,007	$	1,658	$	1,082

At October 30, 2022, undistributed profits of subsidiaries outside the U.S. of approximately $5,043 million are considered indefinitely reinvested. 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 30, 2022 and October 31, 2021 in millions of dollars follows:

	2022				2021
	Deferred		Deferred		Deferred		Deferred
	Tax		Tax		Tax		Tax
	Assets		Liabilities		Assets		Liabilities
OPEB - net	$	213			$	676
Lessor lease transactions			$	310			$	399
Tax loss and tax credit carryforwards		1,405				1,542
Accrual for sales allowances		579				466
Tax over book depreciation				174				154
Goodwill and other intangible assets				178				337
Pension - net				532				448
Allowance for credit losses		90				78
Accrual for employee benefits		304				298
Share-based compensation		41				53
Deferred compensation		44				49
Lessee lease transactions		62		57		46		43
Unearned revenue		154				172
Other items		487		254		333		341
Less valuation allowances		(1,545)				(1,530)
Deferred income tax assets and liabilities	$	1,834	$	1,505	$	2,183	$	1,722

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 as if they filed separate income tax returns, with a modification for realizability of certain tax benefits.

At October 30, 2022, tax loss and tax credit carryforwards of $1,405 million were available with $940 million expiring from 2023 through 2042 and $465 million with an indefinite carryforward period.

A reconciliation of the total amounts of unrecognized tax benefits at October 30, 2022, October 31, 2021, and November 1, 2020 in millions of dollars follows:

	2022		2021		2020
Beginning of year balance	$	811	$	668	$	553
Increases to tax positions taken during the current year		98		81		63
Increases to tax positions taken during prior years		29		100		95
Decreases to tax positions taken during prior years		(18)		(23)		(30)
Decreases due to lapse of statute of limitations		(7)		(12)		(9)
Other		2		(3)		(1)
Foreign exchange		(24)				(3)
End of year balance	$	891	$	811	$	668

The amount of unrecognized tax benefits at October 30, 2022 and October 31, 2021 that would impact the effective tax rate if the tax benefits were recognized was $303 million and $227 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 to 2020 are currently under examination. Various state and foreign income tax returns 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 2022 and 2021, the total amount of expense from interest and penalties was $23 million and $7 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 2022, 2021, and 2020 was $12 million, $8 million, and $11 million, respectively. At October 30, 2022 and October 31, 2021, the liability for accrued interest and penalties totaled $80 million and $75 million, respectively, and the receivable for interest was $19 million and $11 million, respectively.