Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For financial reporting purposes, income before income taxes includes the following components: 

For the Years Ended December 31,
(In millions)	2021		2020		2019
Income before income taxes:
U.S.	$	1,590	$	1,075	$	657
Other	2,618		1,718		1,782
	$	4,208	$	2,793	$	2,439
The expense (benefit) for income taxes is comprised of:
Current –
U.S. Federal	$	251	$	172	$	70
Other national governments	714		456		455
U.S. state and local	132		79		57
	1,097		707		582
Deferred –
U.S. Federal	(40)		40		69
Other national governments	(12)		(14)		(16)
U.S. state and local	(11)		14		31
	(63)		40		84
Total income taxes	$	1,034	$	747	$	666

The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:

December 31,
(In millions)	2021		2020
Deferred tax assets:
Accrued expenses not currently deductible(a)	$	647	$	547
Differences related to non-U.S. operations(b)	293		294
Accrued U.S. retirement benefits	293		494
Net operating losses(c)	183		60
Income currently recognized for tax	29		25
Other	32		43
	$	1,477	$	1,463

Deferred tax liabilities:
Differences related to non-U.S. operations	$	624	$	569
Depreciation and amortization	506		491
Accrued retirement & postretirement benefits - non-U.S. operations	403		143
Capitalized expenses currently recognized for tax	98		87
Other	32		32
	$	1,663	$	1,322

(a)Net of valuation allowances of $2 million in 2021 and none in 2020.

(b)Net of valuation allowances of $144 million in 2021 and $123 million in 2020.

(c)Net of valuation allowances of $88 million in 2021 and $75 million in 2020.

December 31,
(In millions)	2021		2020
Balance sheet classifications:
Deferred tax assets	$	551	$	702
Other liabilities	$	737	$	561

The amount of cumulative undistributed earnings that are indefinitely reinvested in non-U.S. subsidiaries is approximately $730 million as of December 31, 2021. While no additional U.S. federal income tax would be required if such earnings were repatriated, additional state and withholding taxes would apply. The amount of these additional taxes is estimated to be approximately $70 million.

Future U.S. federal tax costs related to basis differences in non-U.S. subsidiaries would primarily be realized through the U.S. GILTI tax regime. The Company elected to recognize GILTI tax costs as a period cost and therefore, has not provided deferred tax liabilities on these basis differences.

A reconciliation from the U.S. federal statutory income tax rate to the Company’s effective income tax rate is shown below:

For the Years Ended December 31,	2021		2020		2019
U.S. Federal statutory rate	21.0	%	21.0	%	21.0	%
U.S. state and local income taxes—net of U.S. Federal income tax benefit	2.3		2.5		3.0
Differences related to non-U.S. operations	0.1		2.3		3.0
U.K. statutory rate change	2.6		—		—
Gain on consolidation of business	(1.5)		—		—
Equity compensation	(0.7)		(1.4)		(1.3)
Uncertain tax positions	0.1		1.1		—
Other	0.7		1.2		1.6
Effective tax rate	24.6	%	26.7	%	27.3	%

The rates in all periods reflect the effects of tax planning and the ongoing impact of regulatory and other guidance as it became available. The tax rate in 2021 includes the effect of a statutory rate change in the U.K., the tax effect of a gain from the fair value re-measurement of the Company’s previously held equity method investment in Marsh India upon the Company increasing its ownership interest from 49% to 92%, which the Company has asserted will be indefinitely reinvested, and certain tax planning. The tax rate in 2020 includes a valuation allowance for certain tax credits, the impact of uncertain tax positions and certain tax planning benefits. The 2019 rate includes certain tax costs related to JLT integration and restructuring activity.

A valuation allowance was recorded to adjust deferred tax assets to the amount that the Company believes is more likely than not to be realized. Valuation allowances had net increases of $36 million, $72 million and $60 million in 2021, 2020, and 2019, respectively. Adjustments of the beginning of the year balances of valuation allowances increased income tax expense by $2 million during 2021. Adjustments of the beginning of the year valuation allowances in 2020 decreased income tax expense by $14 million, while in 2019 changes to the beginning of year valuation allowance had no impact on income tax expense. Approximately 29% of the Company’s net operating loss carryforwards expire from 2022 through 2038, and others are unlimited. The potential tax benefit from net operating loss carryforwards at the end of 2021 comprised federal, state and local, and non-U.S. tax benefits of $9 million, $24 million, and $246 million, respectively, before reduction for valuation allowances.

Following is a reconciliation of the Company’s total gross unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019:

(In millions)	2021		2020		2019
Balance at January 1,	$	98	$	86	$	78
Additions, based on tax positions related to current year	2		9		8
Additions for tax positions of prior years	11		25		15
Reductions for tax positions of prior years	(1)		(9)		(1)
Settlements	(1)		(4)		(1)
Lapses in statutes of limitation	(15)		(9)		(13)
Balance at December 31,	$	94	$	98	$	86

Of the total unrecognized tax benefits at December 31, 2021, 2020 and 2019, $87 million, $90 million and $75 million, respectively, represent the amount that, if recognized, would favorably affect the effective tax rate in any future periods. The total gross amount of accrued interest and penalties at December 31, 2021, 2020 and 2019, before any applicable federal benefit, was $45 million, $40 million and $31 million, respectively.

The Company is routinely examined by the jurisdictions in which it has significant operations. In the U.S. federal jurisdiction, the Company participates in the Internal Revenue Service’s ("IRS") Compliance Assurance Process ("CAP"), which is structured to be, in effect, a real-time audit. During 2021, the IRS concluded its examination of the Company’s 2017, 2018 and 2019 tax returns. Due to its status as a compliant taxpayer, the Company was accepted into the Bridge phase of the CAP program for tax years 2020 and 2021, and therefore, generally will not be audited by the IRS for those years.

New York is a significant tax jurisdiction for the Company. New York State and New York City have continuing examinations underway for various entities covering the years 2010 through 2018. During 2020, New York City initiated an audit for the tax years 2016 through 2018.

We conduct business through multiple legal entities in significant jurisdictions outside the United States. Separate audits for individual entities within a jurisdiction may open or close within a particular year.

The status of audits for significant jurisdictions outside the United States are summarized in the table below:

Tax Audit (Years)
Jurisdiction:	Initiated in 2021	Ongoing	Concluded
France		2017-2018	2011, 2012 during 2018
Germany		2013-2016	2009-2012 during 2018
Hong Kong	2019
Italy		2015-2017
Singapore	2017-2019	2018
United Kingdom	2019	2016-2018	2014, 2015 during 2018

The Company has established liabilities for uncertain tax positions in relation to potential assessments in the jurisdictions in which it operates. The Company believes the resolution of tax matters will not have a material effect on the consolidated financial position of the Company, although a resolution of tax matters could have a material impact on the Company's net income or cash flows and on its effective tax rate in a particular future period. It is reasonably possible that the total amount of unrecognized tax benefits will decrease between zero and approximately $47 million within the next twelve months due to settlement of audits and expiration of statutes of limitation.