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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2020

Income From Continuing Operations Before Income Tax

Income before income tax from continuing operations and the provision for income tax from continuing operations consist of the following (in millions):


Years ended December 31	2020		2019		2018
Income (loss) before income taxes:
Ireland	$	(86)	$	200	$	208
U.K.	634		228		(240)
U.S.	(29)		(219)		(601)
Other	1,946		1,662		1,879
Total	$	2,465	$	1,871	$	1,246
Income tax expense:
Current:
Ireland	$	2	$	1	$	2
U.K.	30		20		21
U.S. federal	126		22		101
U.S. state and local	22		41		35
Other	259		249		212
Total current tax expense	$	439	$	333	$	371
Deferred tax expense (benefit):
Ireland	$	(1)	$	(1)	$	(1)
U.K.	39		35		19
U.S. federal	(72)		(20)		(165)
U.S. state and local	(4)		(27)		(56)
Other	47		(23)		(22)
Total deferred tax expense (benefit)	$	9	$	(36)	$	(225)
Total income tax expense	$	448	$	297	$	146

Reconciliation of the Income Tax Provisions based on the U.S. Statutory Corporate Tax Rate to the Provisions Reflected in the Consolidated Financial Statements

The reconciliation to the provisions from continuing operations reflected in the Consolidated Financial Statements is as follows:


Years ended December 31	2020	2019	2018
Statutory tax rate	25.0%	19.0%	19.0%
U.S. state income taxes, net of U.S. federal benefit	1.0	0.5	(0.4)
Taxes on international operations (1) (4)	(9.8)	(6.0)	(7.3)
Nondeductible expenses	2.1	1.6	2.7
Adjustments to prior year tax requirements (4)	—	0.1	0.9
Deferred tax adjustments, including statutory rate changes	0.7	—	—
Deferred tax adjustments, international earnings	0.7	—	—
Adjustments to valuation allowances	—	1.8	3.8
Change in uncertain tax positions	1.5	2.2	0.9
Excess tax benefits related to shared based compensation (2)	(2.2)	(2.8)	(3.6)
U.S. Tax Reform impact (3)	—	(0.3)	7.1
Loss on disposition	—	—	(10.2)
Capital Losses	(1.8)	—	—
Non-deductible transaction costs	1.3	—	—
Other — net	(0.3)	(0.2)	(1.2)
Effective tax rate	18.2%	15.9%	11.7%

(1)The Company determines the adjustment for taxes on international operations based on the difference between the statutory tax rate applicable to earnings in each foreign jurisdiction and the enacted rate of 25.0%, 19.0% and 19.0% at December 31, 2020, 2019, and 2018, respectively. The benefit to the Company’s effective income tax rate from taxes on international operations relates to benefits from lower-taxed global operations, primarily due to the use of global funding structures and the tax holiday in Singapore.

(2)Excess tax benefits and deficiencies from share-based payment transactions are recognized as income tax expense or benefit in the Company’s Consolidated Statements of Income.

(3)The impact of the Tax Reform Act including the Transition Tax, the re-measurement of U.S. deferred tax assets and liabilities from 35% to 21%, withholding tax accruals, and the allocation of tax benefit between continuing operations and discontinued operations related to utilization of foreign tax credits.

(4)In July 2020, final U.S. tax regulations were issued regarding the global intangible low-tax income (“GILTI”) high tax election, allowing taxpayers to exclude from GILTI the income of a Controlled Foreign Corporation that incurs a foreign tax rate more than 90% of the top U.S. corporate tax rate. A GILTI high tax election may be made on an annual basis, and taxpayers may choose to apply the election to taxable years beginning after December 31, 2017. The Company expects to make the GILTI high-tax election for 2020 and 2019 and therefore recorded the impact of making the election for both years.

Components of Aon's Deferred Tax Assets and Liabilities

The components of the Company’s deferred tax assets and liabilities are as follows (in millions):


As of December 31	2020		2019
Deferred tax assets:
Net operating loss, capital loss, interest, and tax credit carryforwards	$	653	$	440
Employee benefit plans	312		373
Lease liabilities	248		247
Other accrued expenses	103		68
Deferred revenue	36		24
Investment basis differences	28		28
Lease and service guarantees	2		3
Accrued interest	—		116
Other	54		57
Total	1,436		1,356
Valuation allowance on deferred tax assets	(205)		(200)
Total	$	1,231	$	1,156
Deferred tax liabilities:
Intangibles and property, plant and equipment	$	(291)	$	(251)
Lease right-of-use asset	(211)		(219)
Deferred costs	(141)		(128)
Unremitted earnings	(37)		(28)
Unrealized foreign exchange gains	(26)		(26)
Other accrued expenses	(22)		(25)
Other	(41)		(33)
Total	$	(769)	$	(710)
Net deferred tax asset	$	462	$	446

Deferred Income Taxes (Assets and Liabilities Netted by Jurisdiction) as Classified in the Consolidated Statements of Financial Position

Deferred income taxes (assets and liabilities have been netted by jurisdiction) have been classified in the Consolidated Statements of Financial Position as follows (in millions):


As of December 31	2020		2019
Deferred tax assets — non-current	$	724	$	645
Deferred tax liabilities — non-current	(262)		(199)
Net deferred tax asset	$	462	$	446

Summary of Operating and Capital Loss Carryforwards

The Company had the following net operating loss, capital loss, and interest carryforwards (in millions):


As of December 31	2020		2019
U.K.
Operating loss carryforwards	$	266	$	438
Capital loss carryforwards	$	577	$	411
Interest carryforwards	$	121	$	203

U.S.
Federal operating loss carryforwards	$	49	$	1
Federal capital loss carryforwards	$	112	$	112
Federal interest carryforwards	$	1,220	$	355

State operating loss carryforwards	$	378	$	376
State capital loss carryforwards	$	123	$	123
State interest carryforwards	$	573	$	172

Other Non-U.S.
Operating loss carryforwards	$	400	$	308
Capital loss carryforwards	$	42	$	29
Interest carryforwards	$	34	$	159

Reconciliation of the Beginning and Ending Amount of Unrecognized Tax Benefits

The following is a reconciliation of the Company’s beginning and ending amount of uncertain tax positions (in millions):


	2020		2019
Balance at January 1	$	299	$	279
Additions based on tax positions related to the current year	25		23
Additions for tax positions of prior years	7		12
Reductions for tax positions of prior years	(3)		(5)
Settlements	—		(5)
Business combinations	—		—
Lapse of statute of limitations	(7)		(5)
Foreign currency translation	—		—
Balance at December 31	$	321	$	299