Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Uncertain Tax Positions

As of September 30, 2019, the Company had $61.7 million of unrecognized tax benefits recorded in Other liabilities. The balance has been updated for $12.3 million associated with Frutarom uncertain tax positions recorded within the purchase accounting measurement period ending in the third quarter of 2019. If these unrecognized tax benefits were recognized, the effective tax rate would be affected.

At September 30, 2019, the Company had accrued interest and penalties of $11.2 million classified in Other liabilities. The balance has been updated for $6.6 million associated with Frutarom uncertain tax positions recorded within the purchase accounting measurement period ending in the third quarter of 2019.

As of September 30, 2019, the Company’s aggregate provisions for uncertain tax positions, including interest and penalties, was $72.9 million associated with tax positions asserted in various jurisdictions, none of which is individually material. The balance has been updated for $18.9 million associated with Frutarom uncertain tax positions recorded within the purchase accounting measurement period ending in the third quarter of 2019.

The Company regularly repatriates earnings from non-U.S. subsidiaries. In the fourth quarter of 2018, the Company changed its assertion as part of its final analysis under SAB 118, consistent with the Company’s need to repatriate funds for debt repayment purposes. As the Company repatriates these funds to the U.S., they will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as of September 30, 2019, the Company had a deferred tax liability of $43.9 million for the effect of repatriating the funds to the U.S. This balance consisted of $43.9 million attributable to IFF non-U.S. subsidiaries. We reversed the $43.7 million associated with Frutarom in the purchase accounting measurement period as we intend to indefinitely reinvest the earnings in the Frutarom subsidiaries to fund local operations and/or capital projects.

The Company has ongoing income tax audits and legal proceedings which are at various stages of administrative or judicial review. In addition, the Company has open tax years with various taxing jurisdictions that range primarily from 2009 to 2018. Based on currently available information, the Company does not believe the outcome of any of these tax audits and other tax positions related to open tax years, when finalized, will have a material impact on its results of operations.

The Company also has other ongoing tax audits and legal proceedings that relate to indirect taxes, such as value-added taxes, sales and use taxes and property taxes, which are discussed in Note 15.

Effective Tax Rate

The effective tax rate for the three months ended September 30, 2019 was 17.2% compared with 5.0% for the three months ended September 30, 2018. The quarter-over-quarter increase was largely due to higher repatriation costs, the absence of the release of a state valuation allowance which benefited 2018 and an $8.0 million benefit recorded in the third quarter of 2018 to adjust the provisional “toll charge” associated with the transition to the new territorial tax system under U.S. tax reform, partially offset by a more favorable mix of earnings (including the impact of acquisition related costs).

The effective tax rate for the nine months ended September 30, 2019 was 17.6% compared with 15.0% for the nine months ended September 30, 2018. The year-over-year increase was largely due to higher repatriation costs, the absence of the remeasurement of loss provisions which benefited 2018 and an $8.0 million benefit recorded in the third quarter of 2018 to adjust the provisional “toll charge” associated with the transition to the new territorial tax system under U.S. tax reform, partially offset by a more favorable mix of earnings (including the impact of integration relates costs, restructuring charges and acquisition related costs).