Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	Years Ended December 31
	2021		2020		2019
Income (loss) before income taxes:
Ireland	$	15	$	(86)	$	200
U.K.	549		634		228
U.S.	(818)		(28)		(220)
Other	2,185		1,946		1,662
Total	$	1,931	$	2,466	$	1,870
Income tax expense:
Current:
Ireland	$	2	$	2	$	1
U.K.	50		30		20
U.S. federal	197		126		22
U.S. state and local	72		22		41
Other	291		259		249
Total current tax expense	$	612	$	439	$	333
Deferred tax expense (benefit):
Ireland	$	(1)	$	(1)	$	(1)
U.K.	131		39		35
U.S. federal	(83)		(72)		(20)
U.S. state and local	(30)		(4)		(27)
Other	(6)		47		(23)
Total deferred tax expense (benefit)	$	11	$	9	$	(36)
Total income tax expense	$	623	$	448	$	297

Income before income taxes shown above is based on the location of the business unit to which such earnings are attributable for tax purposes. In addition, because the earnings shown above may, in some cases, be subject to taxation in more than one country, the income tax provision shown above as Ireland, U.K., U.S. or Other may not correspond to the geographic attribution of the earnings.

The Company performs a reconciliation of the income tax provisions based on its domicile and statutory rate at each reporting period. Due to the Reorganization, the 2021 and 2020 reconciliations are based on the Irish statutory corporate tax rate of 25.0%, while the 2019 reconciliation is based on the U.K. statutory corporate tax rate of 19.0%. The reconciliation to the provisions reflected in the Consolidated Financial Statements is as follows:

	Years Ended December 31
	2021	2020	2019
Statutory tax rate	25.0%	25.0%	19.0%
U.S. state income taxes, net of U.S. federal benefit	1.5	1.0	0.5
Taxes on international operations (1) (4)	(15.4)	(9.8)	(6.0)
Nondeductible expenses	3.3	2.1	1.6
Adjustments to prior year tax requirements	(0.2)	—	0.1
Deferred tax adjustments, including statutory rate changes	3.2	0.7	—
Deferred tax adjustments, international earnings	1.8	0.7	—
Adjustments to valuation allowances	(0.2)	—	1.8
Change in uncertain tax positions	2.1	1.5	2.2
Excess tax benefits related to shared based compensation (2)	(2.4)	(2.2)	(2.8)
U.S. Tax Reform impact (3)	—	—	(0.3)
Capital Losses	—	(1.8)	—
Non-deductible transaction costs	1.1	1.3	—
Non-deductible termination fee	12.9	—	—
Other — net	(0.4)	(0.3)	(0.2)
Effective tax rate	32.3%	18.2%	15.9%

(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%, 25.0% and 19.0% at December 31, 2021, 2020, and 2019, 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 Cuts and Jobs Act including adjustments to the Transition Tax.

(4)In July 2020, final U.S. tax regulations were issued regarding the 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 2021 and therefore recorded the impact of making the election.

The Company has elected to account for GILTI in the period in which it is incurred, and therefore has not provided deferred tax impacts of GILTI in its Consolidated Financial Statements.

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

As of December 31	2021		2020
Deferred tax assets:
Net operating loss, capital loss, interest, and tax credit carryforwards	$	581	$	653
Lease liabilities	207		248
Employee benefit plans	160		312
Other accrued expenses	132		103
Accrued interest	97		—
Federal and state benefit of interest from uncertain tax positions (1)	45		37
Deferred revenue	36		36
Investment basis differences	25		28
Lease and service guarantees	1		2
Other	25		17
Total	1,309		1,436
Valuation allowance on deferred tax assets	(230)		(205)
Total	$	1,079	$	1,231
Deferred tax liabilities:
Intangibles and property, plant and equipment	$	(243)	$	(291)
Lease right-of-use asset	(173)		(211)
Deferred costs	(159)		(141)
Unremitted earnings	(58)		(37)
Other accrued expenses	(27)		(22)
Unrealized foreign exchange gains	(22)		(26)
Other	(32)		(41)
Total	$	(714)	$	(769)
Net deferred tax asset	$	365	$	462

(1)The $37 million of Federal and state benefit of interest from uncertain tax positions as of December 31, 2020 was previously classified as Other.

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	2021		2020
Deferred tax assets — non-current	766		724
Deferred tax liabilities — non-current	(401)		(262)
Net deferred tax asset	$	365	$	462

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and adjusts the valuation allowance accordingly. Considerations with respect to the realizability of deferred tax assets include the period of expiration of the deferred tax asset, historical earnings and projected future taxable income by jurisdiction as well as tax liabilities for the tax jurisdiction to which the tax asset relates. Significant management judgment is required in determining the assumptions and estimates related to the amount and timing of future taxable income. Valuation allowances have been established primarily with regard to the tax benefits of certain net operating loss, capital loss, and interest carryforwards. Valuation allowances increased by $25 million as of December 31, 2021, when compared to December 31, 2020. The change is primarily attributable to the increase in the UK tax rate offset by the release of valuation allowances related to certain net operating and capital loss carryforwards.

The Company generally intends to limit distributions from foreign subsidiaries in excess of U.S. tax earnings and profits (except where distributions would be limited by available cash) and to limit repatriations from certain other jurisdictions that would otherwise generate a U.S. tax liability. As of December 31, 2021, the Company has accrued $58 million for local country income taxes, withholding taxes and state income taxes on those undistributed earnings that are not indefinitely reinvested. The Company has not provided for deferred taxes on outside basis differences in our investments in our foreign subsidiaries that are unrelated to these accumulated undistributed earnings, as these outside basis differences are indefinitely reinvested. A determination of the unrecognized deferred taxes related to these other components of our outside basis differences is not practicable.

The Company had the following carryforwards (in millions):

As of December 31	2021		2020
U.K.
Operating loss carryforwards	$	41	$	266
Capital loss carryforwards	$	573	$	577
Interest carryforwards	$	—	$	121
U.S.
Federal operating loss carryforwards	$	25	$	49
Federal capital loss carryforwards	$	112	$	112
Federal interest carryforwards	$	1,140	$	1,220
State operating loss carryforwards	$	398	$	378
State capital loss carryforwards	$	123	$	123
State interest carryforwards	$	551	$	573
Other Non-U.S.
Operating loss carryforwards	$	301	$	400
Capital loss carryforwards	$	35	$	42
Interest carryforwards	$	26	$	34
Other carryforwards	$	5	$	—

The U.K. operating losses, capital losses, and interest carryforward each have an indefinite carryforward period. The federal operating loss carryforwards generated through December 31, 2017 expire at various dates between 2034 and 2036 while federal operating loss carryforwards generated after this date have indefinite carryforward periods. State net operating losses as of December 31, 2021 have various carryforward periods and will begin to expire in 2022. Federal and state capital losses can be carried forward until 2023. Federal and state interest carryforwards have indefinite carryforward periods. Operating, capital losses, and other carryforwards in other non-U.S. jurisdictions have various carryforward periods and will begin to expire in 2022. The interest carryforwards in other non-U.S. jurisdictions have an indefinite carryforward period.

During 2012, the Company was granted a tax holiday for the period from October 1, 2012 through September 30, 2022, with respect to withholding taxes and certain income derived from services in Singapore. This tax holiday and reduced withholding tax rate may be extended when certain conditions are met or may be terminated early if certain conditions are not met. The benefit realized was approximately $104 million, $97 million, and $90 million during the years ended December 31, 2021, 2020, and 2019, respectively. The impact of this tax holiday on diluted earnings per share was $0.46, $0.42, and $0.37 during the years ended December 31, 2021, 2020, and 2019, respectively.

Uncertain Tax Positions

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

	2021		2020
Balance at January 1	$	321	$	299
Additions based on tax positions related to the current year	33		25
Additions for tax positions of prior years	7		7
Reductions for tax positions of prior years	(4)		(3)
Settlements	—		—
Business combinations	—		—
Lapse of statute of limitations	(10)		(7)
Foreign currency translation	—		—
Balance at December 31	$	347	$	321

The Company’s liability for uncertain tax positions as of December 31, 2021, 2020, and 2019, includes $295 million, $270 million, and $248 million, respectively, related to amounts that would impact the effective tax rate if recognized. It is possible that the amount of unrecognized tax benefits may change in the next twelve months; however, the Company does not expect the change to have a significant impact on its consolidated statements of income or consolidated balance sheets. These changes may be the result of settlements of ongoing audits. At this time, an estimate of the range of the reasonably possible outcomes within the next twelve months cannot be made.

The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes. The Company accrued potential interest and penalties of $22 million, $21 million, and $24 million in 2021, 2020, and 2019, respectively. The Company recorded a liability for interest and penalties of $142 million, $120 million, and $99 million as of December 31, 2021, 2020, and 2019, respectively.

The Company and its subsidiaries file income tax returns in their respective jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2007. Material U.S. state and local income tax jurisdiction examinations have been concluded for years through 2012. The Company has concluded income tax examinations in its primary non-U.S. jurisdictions through 2008.