Income Taxes (Notes)

12 Months Ended

Dec. 31, 2019

We recognize income tax-related penalties in Provision for/(Benefit from) income taxes on our consolidated income statement. We recognize income tax-related interest income and interest expense in Other income/(loss), net on our consolidated income statement.

We account for U.S. tax on global intangible low-tax income in the period incurred.

Valuation of Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid.

Our accounting for deferred tax consequences represents our best estimate of the likely future tax consequences of events that have been recognized on our consolidated financial statements or tax returns and their future probability. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.

Components of Income Taxes

Components of income taxes excluding cumulative effects of changes in accounting principles, other comprehensive income, and equity in net results of affiliated companies accounted for after-tax, for the years ended December 31 were as follows:



	2017			2018			2019
Income/(Loss) before income taxes (in millions)
U.S.	$	4,861		$	2,051		$	2,656
Non-U.S.	3,298			2,294			(3,296		)
Total	$	8,159		$	4,345		$	(640	)
Provision for/(Benefit from) income taxes (in millions)
Current
Federal	$	(125	)	$	75		$	(101	)
Non-U.S.	868			690			738
State and local	85			(6		)	33
Total current	828			759			670
Deferred
Federal	(1,214		)	(360		)	(1,190		)
Non-U.S.	593			239			(70		)
State and local	195			12			(134		)
Total deferred	(426		)	(109		)	(1,394		)
Total	$	402		$	650		$	(724	)
Reconciliation of effective tax rate
U.S. statutory rate	35.0		%	21.0		%	21.0		%
Non-U.S. tax rates under U.S. rates	(4.9		)	(1.2		)	46.9
State and local income taxes	2.2			2.0			12.4
General business credits	(3.6		)	(9.2		)	67.0
Dispositions and restructurings	(11.7		)	4.6			45.5
U.S. tax on non-U.S. earnings	(7.0		)	8.1			(49.2		)
Prior year settlements and claims	(0.2		)	1.1			(5.0		)
Tax incentives	—			—			20.7
Enacted change in tax laws	(8.2		)	(3.0		)	(12.5		)
Valuation allowances	5.6			(9.6		)	(18.7		)
Other	(2.3		)	1.2			(15.0		)
Effective rate	4.9		%	15.0		%	113.1		%

NOTE 7. INCOME TAXES (Continued)

On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) was signed into law. This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, and requires immediate taxation of accumulated, unremitted non-U.S. earnings. As a result, at December 31, 2017, we recognized a tax benefit of $739 million from revaluing U.S. net deferred tax liabilities and tax expense of $219 million to record U.S. tax on unremitted non-U.S. earnings. For the years ended December 31, 2018 and 2019, our tax provision includes additional benefit of $123 million and additional expense of $95 million, respectively, related to the impact of the act and subsequently issued Treasury regulations on our global operations.

At December 31, 2019, $8.1 billion of non-U.S. earnings are considered indefinitely reinvested in operations outside the United States, for which deferred taxes have not been provided. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.

Components of Deferred Tax Assets and Liabilities

The components of deferred tax assets and liabilities at December 31 were as follows (in millions):



	2018			2019
Deferred tax assets
Employee benefit plans	$	4,039		$	4,125
Net operating loss carryforwards	1,825			1,726
Tax credit carryforwards	9,199			9,335
Research expenditures	437			619
Dealer and dealers’ customer allowances and claims	1,552			1,724
Other foreign deferred tax assets	648			799
All other	1,765			1,781
Total gross deferred tax assets	19,465			20,109
Less: Valuation allowances	(973		)	(843		)
Total net deferred tax assets	18,492			19,266
Deferred tax liabilities
Leasing transactions	3,215			2,694
Depreciation and amortization (excluding leasing transactions)	2,865			3,094
Finance receivables	639			584
Other foreign deferred tax liabilities	948			608
All other	1,010			913
Total deferred tax liabilities	8,677			7,893
Net deferred tax assets/(liabilities)	$	9,815		$	11,373

At December 31, 2019, we have a valuation allowance of $843 million primarily related to deferred tax assets in various non-U.S. operations.

Deferred tax assets for net operating losses and other temporary differences related to certain non-U.S. operations have not been recorded as a result of elections to tax these operations simultaneously in U.S. tax returns. Reversal of these elections would result in the recognition of $9.5 billion of deferred tax assets, subject to valuation allowance testing.

Operating loss carryforwards for tax purposes were $4.3 billion at December 31, 2019, resulting in a deferred tax asset of $1.7 billion. There is no expiration date for $2.5 billion of these losses. A substantial portion of the remaining losses will expire beyond 2023. Tax credits available to offset future tax liabilities are $9.3 billion. Approximately half of these credits have a remaining carryforward period of seven years or more. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and available tax planning strategies. In our evaluation, we anticipate making tax elections that change the order of tax credit carryforward utilization on U.S. tax returns.

NOTE 7. INCOME TAXES (Continued)

Other

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 were as follows (in millions):



	2018			2019
Beginning balance	$	2,063		$	2,047
Increase – tax positions in prior periods	90			169
Increase – tax positions in current period	45			24
Decrease – tax positions in prior periods	(133		)	(239		)
Settlements	—			(57		)
Lapse of statute of limitations	—			—
Foreign currency translation adjustment	(18		)	(1		)
Ending balance	$	2,047		$	1,943

The amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $2 billion and $1.9 billion at December 31, 2018 and 2019, respectively.

Examinations by tax authorities have been completed through 2004 in Germany, 2011 in Canada, 2011 in the United States, and 2014 in China and the United Kingdom. Although examinations have been completed in these jurisdictions, limited transfer pricing disputes exist for years dating back to 2005.

Net interest on income taxes was $2 million and $33 million of income and $29 million of expense for the years ended December 31, 2017, 2018, and 2019, respectively. These were reported in Other income/(loss), net in our consolidated income statement. Net payables for tax related interest were $29 million and $58 million as of December 31, 2018 and 2019, respectively.

Cash paid for income taxes was $586 million, $821 million, and $599 million in 2017, 2018, and 2019, respectively.