Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was enacted in the United States. The Act significantly revised the U.S. corporate income tax structure resulting in changes to the Company’s expected U.S. corporate taxes due for 2017 and in future periods. Effective January 1, 2018, the Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, creates new provisions related to foreign sourced earnings, and eliminates the deduction for domestic production activities. The Act also requires companies to pay a one-time transition tax on the cumulative earnings and profits of certain foreign subsidiaries that were previously not repatriated and therefore not taxed for U.S. income tax purposes. Taxes due on the one-time transition tax are payable as of December 31, 2017 and may be paid to the tax authority over eight years.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses situations where the accounting is incomplete for the income tax effects of the Act. SAB 118 directs taxpayers to consider the impact of the Act as “provisional” when the Company does not have the necessary information available, prepared or analyzed (including computations) to finalize the accounting for the change in tax law. Companies are provided a measurement period of up to one year to obtain, prepare, and analyze information necessary to finalize the accounting for provisional amounts or amounts that cannot be estimated as of December 31, 2017. As of March 31, 2018, we had not completed our accounting for the tax effects of enactment of the Act, however, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. For the period ending December 31, 2017, we recognized a provisional amount of $315.9 million as our reasonable estimate of the impact of the provisions of the Act, which was included as a component of income tax expense in our consolidated financial statements. The $315.9 million is comprised of an increase to tax expense of $202.7 million for the net transition tax to be paid over eight years and $113.2 million of additional tax expense from the remeasurement of our U.S. net deferred tax assets.

During the three months ended March 31, 2018, we recorded an adjustment to our provisional tax expense of $0.8 million of income tax expense pertaining to a change in the estimated impact of the remeasurement of the Company’s U.S. net deferred tax assets. We will continue to refine our calculations as additional analysis is completed related to the Act. Additional information that may affect our provisional amounts would include further clarification and guidance on how the IRS will implement tax reform, including guidance with respect to executive compensation and transition tax, further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on our state income tax returns, completion of our 2017 tax return filings, and the potential for additional guidance from the SEC or the FASB related to tax reform. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.

We determine our interim tax provision using an Estimated Annual Effective Tax Rate methodology (“EAETR”) in accordance with GAAP. The EAETR is applied to the year-to-date ordinary income, exclusive of discrete items. The tax effects of discrete items are then included to arrive at the total reported interim tax provision.

The determination of the EAETR is based upon a number of estimates, including the estimated annual pretax ordinary income in each tax jurisdiction in which we operate. As our projections of ordinary income change throughout the year, the EAETR will change period-to-period. The tax effects of discrete items are recognized in the tax provision in the period they occur in accordance with GAAP. Depending on various factors, such as the item’s significance in relation to total income and the rate of tax applicable in the jurisdiction to which it relates, discrete items in any quarter can materially impact the reported effective tax rate. As a global enterprise, our tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors. As a result, there can be significant volatility in interim tax provisions.

The below chart provides a reconciliation between our reported effective tax rate and the EAETR of our continuing operations.



	Three Months Ended March 31,
	2018								2017
(in Millions)	Before Tax			Tax			Effective Tax Rate %		Before Tax		Tax			Effective Tax Rate %
Continuing operations	$	331.8		$	68.7		20.7	%	$	54.4	$	9.4		17.3	%
Discrete items:
Acquisition-related charges ⁽¹⁾	$	2.7		$	0.6				$	9.2	$	2.6
Currency remeasurement ⁽²⁾	0.5			0.9					5.1		2.6
Other discrete items ⁽³⁾	(51.5		)	(17.7		)			38.1		2.1
Tax only discrete items ⁽⁴⁾	—			(7.4		)			—		(4.0		)
Total discrete items	$	(48.3	)	$	(23.6	)			$	52.4	$	3.3
Continuing operations, before discrete items	$	283.5		$	45.1				$	106.8	$	12.7
Estimated Annualized Effective Tax Rate (EAETR) ⁽⁵⁾							15.9	%						11.9	%

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(1)	See Note 4 for more information on transaction-related charges.


(2)	Represents transaction gains or losses for currency remeasurement offset by associated hedge gains or losses, which are accounted for discretely in accordance with GAAP. Certain transaction gains or losses for currency remeasurement are not taxable, while offsetting hedge gains or losses are taxable.

(3)

GAAP generally requires subsidiaries for which a full valuation allowance has been provided to be excluded from the EAETR. For the three months ended March 31, 2018, other discrete items represent the gain attributable to the sale of a portion of FMC's European herbicide portfolio to Nufarm Limited partially offset by the discrete accounting for excluded pretax losses of subsidiaries for which a full valuation allowance has been provided. See Note 4 for additional information on the Company’s Nufarm divestment. For the three months ended March 31, 2017, the other discrete items component of the EAETR reconciliation primarily relates to the discrete accounting for the excluded pretax losses of subsidiaries for which a full valuation allowance has been provided.

(4)

For the three months ended March 31, 2018, tax only discrete items are comprised of the tax effect of currency remeasurement associated with foreign statutory operations, changes in realizability of certain deferred tax assets, and changes to our provisional income tax expense associated with the enactment of the Act. For the three months ended March 31, 2017, this component was comprised primarily of the tax effect of changes in valuation allowances of historical deferred tax assets.


(5)	The primary drivers for the increase in the first quarter effective tax rate for 2018 as compared to 2017 are shown in the table above. The remaining change was due to the integration of the DuPont Crop Protection Business into our global supply chain as well as the effect of the global intangible low-taxed income (GILTI) provisions of the Act.