Income Taxes (Notes)

12 Months Ended

Dec. 31, 2022

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.

NOTE 7. INCOME TAXES (Continued)

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/(loss), and equity in net results of affiliated companies accounted for after-tax for the years ended December 31 were as follows:

	2020			2021			2022
Income/(Loss) before income taxes (in millions)
U.S.	$	(231)		$	10,043		$	(6,548)
Non-U.S.	(885)			7,737			3,532
Total	$	(1,116)		$	17,780		$	(3,016)
Provision for/(Benefit from) income taxes (in millions)
Current
Federal	$	(23)		$	102		$	68
Non-U.S.	554			598			781
State and local	(45)			26			123
Total current	486			726			972
Deferred
Federal	(523)			2,290			(2,292)
Non-U.S.	168			(3,254)			688
State and local	29			108			(232)
Total deferred	(326)			(856)			(1,836)
Total	$	160		$	(130)		$	(864)
Reconciliation of effective tax rate
U.S. statutory tax rate	21.0		%	21.0		%	21.0		%
Non-U.S. tax rate differential	(2.6)			1.3			(8.7)
State and local income taxes	8.9			0.5			2.3
General business credits	35.1			(2.3)			13.0
Nontaxable foreign currency gains and losses	(1.1)			—			(4.2)
Dispositions and restructurings (a)	(0.4)			(18.8)			(7.0)
U.S. tax on non-U.S. earnings	28.1			2.4			2.8
Prior year settlements and claims	8.3			(0.3)			1.5
Tax incentives	(6.0)			(0.6)			2.0
Enacted change in tax laws	1.5			1.1			(2.0)
Valuation allowances	(108.8)			(4.7)			6.2
Other	1.7			(0.3)			1.7
Effective tax rate	(14.3)		%	(0.7)		%	28.6		%

__________

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

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 reflected a change in our intent to pursue planning actions involving cash outlays to preserve tax credits. During 2022, we reversed an additional $405 million of U.S. valuation allowances, primarily as a result of planning actions.

At December 31, 2022, $14.8 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):

	2021		2022
Deferred tax assets
Employee benefit plans	$	2,320	$	1,960
Net operating loss carryforwards	4,163		3,978
Tax credit carryforwards	10,437		9,354
Research expenditures	1,117		3,240
Dealer and dealers’ customer allowances and claims	1,944		2,192
Other foreign deferred tax assets	2,005		1,854
All other	2,353		2,201
Total gross deferred tax assets	24,339		24,779
Less: Valuation allowances	(1,067)		(822)
Total net deferred tax assets	23,272		23,957
Deferred tax liabilities
Leasing transactions	2,103		2,992
Depreciation and amortization (excluding leasing transactions)	2,881		3,116
Finance receivables	756		792
Carrying value of investments	2,149		487
Other foreign deferred tax liabilities	893		1,196
All other	2,275		1,371
Total deferred tax liabilities	11,057		9,954
Net deferred tax assets/(liabilities)	$	12,215	$	14,003

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 and $4.2 billion of deferred tax assets, subject to valuation allowance testing, as of December 31, 2021 and 2022, respectively.

Operating loss carryforwards for tax purposes were $11.4 billion at December 31, 2022, resulting in a deferred tax asset of $4.0 billion.  There is no expiration date for $3.1 billion of these losses. A substantial portion of the remaining losses will expire beyond 2025. Tax credits available to offset future tax liabilities are $9.4 billion. The majority of these credits have a remaining carryforward period of six 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):

	2021		2022
Beginning balance	$	1,913	$	2,910
Increase – tax positions in prior periods	1,054		338
Increase – tax positions in current period	25		17
Decrease – tax positions in prior periods	(54)		(236)
Settlements	1		(2)
Lapse of statute of limitations	(7)		(1)
Foreign currency translation adjustment	(22)		(87)
Ending balance	$	2,910	$	2,939

The amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $2.9 billion as of December 31, 2021 and 2022.

Examinations by tax authorities have been completed through 2008 in Germany, 2014 in the United States, 2015 in Mexico, 2017 in Canada and China, 2018 in Spain and India, and 2019 in the United Kingdom.  

Net interest on income taxes was $2 million of expense, $7 million of income, and $23 million of expense for the years ended December 31, 2020, 2021, and 2022, respectively. These were reported in Other income/(loss), net on our consolidated income statements. Net payables for tax related interest were $32 million and $17 million as of December 31, 2021 and 2022, respectively.

Cash paid for income taxes was $421 million, $568 million, and $801 million in 2020, 2021, and 2022, respectively.