Income taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023			2022
Continuing operations
Provision (benefit) for income taxes (in millions)	$	37.3		8.5		$	81.0		(3.3)
Effective tax rate	43.0		%	27.3	%	44.2		%	(2.5	%)

2023 Compared to U.S. Statutory Rate

The effective income tax rate on continuing operations in the first nine months of 2023 was greater than the 21% U.S. statutory rate due to the geographical mix of earnings, the seasonality of book losses for which no tax benefit can be recorded, nondeductible expenses in Mexico, taxes on cross border payments and U.S. taxable income and credit limitations, the increase of valuation allowances on U.S. tax credits, and the characterization of a French business tax as an income tax.

2022 Compared to U.S. Statutory Rate

The effective income tax rate on continuing operations in the first nine months of 2022 was less than the 21% U.S. statutory rate primarily due to the release of valuation allowances on U.S. tax credits deemed realizable as a result of the issuance of U.S. final foreign tax credit regulations, offset by the geographical mix of earnings, the seasonality of book losses for which no tax benefit can be recorded, nondeductible expenses in Mexico, taxes on cross border payments and U.S. taxable income limitations, and the characterization of a French business tax as an income tax.

Valuation Allowance-Tax Credits

In the first quarter of 2022, we concluded that it is more-likely-than-not that a substantial amount of the U.S. deferred tax assets for U.S. foreign tax credit and general business credit carryforwards that previously required a valuation allowance would be realized. Our conclusion was based upon an analysis of the final foreign tax credit regulations that the U.S. Treasury published in the Federal Register on January 4, 2022. Based upon this analysis, we determined a significant amount of the post-2021 foreign withholding taxes will now be ineligible for U.S. foreign income tax credit treatment and therefore we forecasted that our U.S. operations would no longer annually be generating new foreign tax credits in excess of its annual foreign tax credit utilization limit. As a result, we expect to be able to utilize a substantial amount of our foreign tax credit and general business tax credit carryforwards to offset future tax prior to their expiration. Accordingly, we reversed a substantial amount of our valuation allowance on our net U.S. deferred tax assets, resulting in a $52.8 million benefit in our provision for income taxes for the period ended September 30, 2022.

In the second quarter of 2023, we concluded that changes in Brazilian tax law will allow Brazilian withholding taxes to be eligible for U.S. foreign tax credit treatment. Based on this conclusion, we expect to annually be generating more new foreign tax credits and utilizing fewer foreign tax carryforwards to offset taxes prior to their expiration. As a result, we recorded a $7.0 million tax expense in our provision for income taxes for the nine month period ended September 30, 2023. It is possible that further developments in foreign country or U.S. tax laws could occur and may require us to change our assessment of the ultimate amounts we consider more-likely-than-not to be realized.

On July 21, 2023, the U.S. Treasury issued Notice 2023-55 (the "Notice") announcing temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under the final foreign tax credit regulations mentioned above. The Notice will allow us to apply the pre-January 4, 2022 regulations in determining the creditability of foreign taxes for our 2022 and 2023 U.S. income tax filings. The impact in our provision for income taxes for the three and nine month periods ended September 30, 2023 is less than $1.0 million of tax expense.