Income Taxes

12 Months Ended

Dec. 31, 2022

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)	2022		2021		2020
Income before income taxes:
U.S.	$	1,468	$	1,590	$	1,075
Other	2,614		2,618		1,718
	$	4,082	$	4,208	$	2,793
The expense (benefit) for income taxes is comprised of:
Current –
U.S. Federal	$	262	$	251	$	172
Other national governments	653		714		456
U.S. state and local	123		132		79
	1,038		1,097		707
Deferred –
U.S. Federal	38		(40)		40
Other national governments	(91)		(12)		(14)
U.S. state and local	10		(11)		14
	(43)		(63)		40
Total income taxes	$	995	$	1,034	$	747

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

December 31,
(In millions)	2022		2021
Deferred tax assets:
Accrued expenses not currently deductible (a)	$	670	$	647
Differences related to non-U.S. operations (b)	275		293
Accrued U.S. retirement benefits	172		293
Net operating losses (c)	285		183
Income currently recognized for tax	34		29
Other	25		32
	$	1,461	$	1,477

Deferred tax liabilities:
Differences related to non-U.S. operations	$	543	$	624
Depreciation and amortization	510		506
Accrued retirement & postretirement benefits - non-U.S. operations	408		403
Capitalized expenses currently recognized for tax	107		98
Other	57		32
	$	1,625	$	1,663

(a) Net of valuation allowances of $5 million in 2022 and $2 million in 2021.

(b) Net of valuation allowances of $160 million in 2022 and $144 million in 2021.

(c) Net of valuation allowances of $69 million in 2022 and $88 million in 2021.

December 31,
(In millions)	2022		2021
Balance sheet classifications:
Deferred tax assets	$	358	$	551
Other liabilities	$	522	$	737

The amount of cumulative undistributed earnings that are indefinitely reinvested in non-U.S. subsidiaries is approximately $830 million as of December 31, 2022. 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 $80 million.

Future U.S. federal tax costs related to basis differences in non-U.S. subsidiaries would primarily be realized through the U.S. Global Intangible Low-Taxed Income ("GILTI") minimum tax regime. The Company elected to recognize GILTI tax costs as a period cost and 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,	2022		2021		2020
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	2.7		2.3		2.5
Differences related to non-U.S. operations	0.7		0.1		2.3
U.K. statutory rate change	—		2.6		—
Gain on consolidation of business	—		(1.5)		—
Equity compensation	(0.7)		(0.7)		(1.4)
Uncertain tax positions	0.1		0.1		1.1
Other	0.6		0.7		1.2
Effective tax rate	24.4	%	24.6	%	26.7	%

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 rates in all periods include a valuation allowance for certain tax credits, the impact of uncertain tax positions, and certain tax planning benefits. The tax rate in 2021 also included the effect of a statutory rate change in the U.K. and 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%. The Company does not intend to dispose the business and has indefinitely reinvested this gain.

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 a net decrease of $1 million in 2022 and increases of $36 million and $72 million in 2021, and 2020, respectively. Adjustments of the beginning of the year balances of valuation allowances decreased income tax expense by $5 million in 2022. Adjustments of the beginning of the year valuation allowances increased tax expense by $2 million in 2021 and decreased income tax expense by $14 million in 2020. Approximately 14% of the Company’s net operating loss carryforwards expire from 2023 through 2038, and others are unlimited. The potential tax benefit from net operating loss carryforwards at the end of 2022 comprised of federal, state and local, and non-U.S. tax benefits of $5 million, $13 million, and $342 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, 2022, 2021 and 2020:

(In millions)	2022		2021		2020
Balance at January 1,	$	94	$	98	$	86
Additions, based on tax positions related to current year	1		2		9
Additions for tax positions of prior years	15		11		25
Reductions for tax positions of prior years	(2)		(1)		(9)
Settlements	(2)		(1)		(4)
Lapses in statutes of limitations	(9)		(15)		(9)
Balance at December 31,	$	97	$	94	$	98

Of the total unrecognized tax benefits at December 31, 2022, 2021, and 2020, $94 million, $87 million and $90 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, 2022, 2021 and 2020, before any applicable federal benefit, was $48 million, $45 million, and $40 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. In 2021, the IRS concluded its examination of the Company’s 2017, 2018, and 2019 tax returns. The Company was accepted into the Bridge phase of the CAP program for tax years 2020 and 2021, and generally will not be audited by the IRS for those years. In 2022, the IRS began its pre-filing examination of the Company's 2022 tax year.

New York is a significant tax jurisdiction for the Company. New York State and New York City have continuing examinations underway in 2022 and 2021 for various entities covering the years 2010 through 2018. The New York State audits for 2010-2012 were finalized in 2022.

We conduct business through multiple legal entities in significant jurisdictions outside the U.S. 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 U.S. are summarized in the table below:

Tax Audit (Years)
Jurisdiction:	Initiated in 2022	Ongoing	Concluded
France			2017, 2018 during 2022
Germany		2013-2016	2017-2018 during 2022
Hong Kong			2019 during 2022
Italy		2015-2016	2017 during 2022
Singapore	2018-2021	2017-2021	2018-2020 during 2022
United Kingdom	2020	2016-2020

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 could decrease up to approximately $42 million within the next 12 months due to settlement of audits and expiration of statutes of limitations.