Income Taxes (Notes)

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

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

We account for U.S. tax on global intangible low-taxed 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.

NOTE 7. INCOME TAXES (Continued)

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:

	2019			2020			2021
Income/(Loss) before income taxes (in millions)
U.S.	$	2,656		$	(231)		$	10,043
Non-U.S.	(3,296)			(885)			7,737
Total	$	(640)		$	(1,116)		$	17,780
Provision for/(Benefit from) income taxes (in millions)
Current
Federal	$	(101)		$	(23)		$	102
Non-U.S.	738			554			598
State and local	33			(45)			26
Total current	670			486			726
Deferred
Federal	(1,190)			(523)			2,290
Non-U.S.	(70)			168			(3,254)
State and local	(134)			29			108
Total deferred	(1,394)			(326)			(856)
Total	$	(724)		$	160		$	(130)
Reconciliation of effective tax rate
U.S. statutory rate	21.0		%	21.0		%	21.0		%
Non-U.S. tax rates under U.S. rates	46.9			(2.6)			1.3
State and local income taxes	12.4			8.9			0.5
General business credits	67.0			35.1			(2.3)
Dispositions and restructurings (a)	45.5			(0.4)			(18.8)
U.S. tax on non-U.S. earnings	(49.2)			27.0			2.4
Prior year settlements and claims	(5.0)			8.3			(0.3)
Tax incentives	20.7			(6.0)			(0.6)
Enacted change in tax laws	(12.5)			1.5			1.1
Valuation allowances	(18.7)			(108.8)			(4.7)
Other	(15.0)			1.7			(0.3)
Effective rate	113.1		%	(14.3)		%	(0.7)		%

__________

(a)Includes a benefit of $2.9 billion to recognize deferred tax assets resulting from changes in our global tax structure in 2021.

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. For the year ended December 31, 2019, our tax provision includes additional expense of $95 million related to the impact of the act and subsequently issued Treasury regulations on our global operations.

During 2020, based on all available evidence, we established U.S. valuation allowances of $1.3 billion, primarily against tax credits as it was deemed more likely than not that these deferred tax assets would not be realized. In assessing the realizability of deferred tax assets, we consider the trade-offs between cash preservation and cash outlays to preserve tax credits. In 2021, we reversed $918 million of the previously established U.S. valuation allowances. The reversal primarily reflects a change in our intent to pursue planning actions involving cash outlays to preserve tax credits.

At December 31, 2021, $16.7 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.

NOTE 7. INCOME TAXES (Continued)

Components of Deferred Tax Assets and Liabilities

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

	2020		2021
Deferred tax assets
Employee benefit plans	$	4,760	$	2,320
Net operating loss carryforwards	1,584		4,163
Tax credit carryforwards	11,037		10,437
Research expenditures	1,321		1,117
Dealer and dealers’ customer allowances and claims	2,145		1,944
Other foreign deferred tax assets	729		2,005
All other	2,335		2,353
Total gross deferred tax assets	23,911		24,339
Less: Valuation allowances	(1,981)		(1,067)
Total net deferred tax assets	21,930		23,272
Deferred tax liabilities
Leasing transactions	3,299		2,103
Depreciation and amortization (excluding leasing transactions)	3,218		2,881
Finance receivables	574		756
Carrying value of investments	144		2,149
Other foreign deferred tax liabilities	839		893
All other	1,971		2,275
Total deferred tax liabilities	10,045		11,057
Net deferred tax assets/(liabilities)	$	11,885	$	12,215

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. During 2021, we restructured a significant portion of these operations resulting in recognition of $2.9 billion of net deferred tax assets. Reversal of the remaining elections would result in the recognition of $4.3 billion of deferred tax assets, subject to valuation allowance testing.

Operating loss carryforwards for tax purposes were $11.4 billion at December 31, 2021, resulting in a deferred tax asset of $4.2 billion.  There is no expiration date for $3.2 billion of these losses. A substantial portion of the remaining losses will expire beyond 2024. Tax credits available to offset future tax liabilities are $10.4 billion. The majority of these credits have a remaining carryforward period of five 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):

	2020		2021
Beginning balance	$	1,943	$	1,913
Increase – tax positions in prior periods	137		1,054
Increase – tax positions in current period	25		25
Decrease – tax positions in prior periods	(131)		(54)
Settlements	(61)		1
Lapse of statute of limitations	—		(7)
Foreign currency translation adjustment	—		(22)
Ending balance	$	1,913	$	2,910

The amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $1.9 billion and $2.9 billion as of December 31, 2020 and 2021, respectively.

Examinations by tax authorities have been completed through the following years: 2004 in India, 2006 in Mexico, 2008 in Germany, 2010 in Spain, 2011 in Canada, 2014 in the United States and the United Kingdom, and 2016 in China.  

Net interest on income taxes was $29 million of expense, $2 million of expense, and $7 million of income for the years ended December 31, 2019, 2020, and 2021, respectively. These were reported in Other income/(loss), net in our consolidated income statements. Net payables for tax related interest were $36 million and $32 million as of December 31, 2020 and 2021, respectively.

Cash paid for income taxes was $599 million, $421 million, and $568 million in 2019, 2020, and 2021, respectively.