Income Taxes and Uncertain Income Tax Positions

9 Months Ended

Sep. 30, 2021

Income Taxes and Uncertain Tax Positions [Abstract]

Taxes on Income [Text Block]

Note 11 – Income Taxes and Uncertain Income Tax Positions

The Company’s effective tax rates for the three and nine months ended September 30, 2021 were an expense of

2.6

% and

21.8

%,

respectively, compared to an expense of

8.1

% and a benefit of

38.3

% for the three and nine months ended September 30, 2020,

respectively. The Company’s current year effective tax rates were largely impacted by changes in permanent reinvestment assertions,

changes in foreign tax credit valuation allowances, tax law changes in a foreign jurisdiction, deferred tax benefits related to an

intercompany intangible asset transfer and the income tax impacts of certain non-income tax credits recorded by the Company’s

Brazilian subsidiaries described in Note 19 of Notes to Condensed Consolidated Financial Statements. Comparatively, the prior year

effective tax rates were impacted by the tax effect of certain one-time pre-tax losses as well as certain tax charges and benefits in the

prior year period including those related to changes in tax regulations and other changes in foreign tax credit valuation allowances, tax

law changes in foreign jurisdictions and the tax impacts of the Company’s termination of its Legacy Quaker U.S. Pension Plan.

As of December 31, 2020, the Company had a deferred tax liability of $

5.9

 million, which primarily represents the Company’s

estimate of non-U.S. taxes it will incur to repatriate certain foreign earnings to the U.S. The balance as of September 30, 2021 was

$

5.8

 million. As of September 30, 2021, the Company’s cumulative liability for gross unrecognized tax benefits was $

24.0

 million, an

increase of $

1.9

 million from the cumulative liability accrued as of December 31, 2020. 

The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on

income (loss) before equity in net income of associated companies in its Condensed Consolidated Statements of Operations. The

Company recognized an expense for interest of approximately $

0.2

 million and $

0.4

 million and a benefit of less than $

0.1

 million and

$

0.2

 million for penalties in its Condensed Consolidated Statement of Operations for the three and nine months ended September 30,

2021, respectively, and recognized a credit for interest of $

0.2

 million and an expense of $

0.4

 million and an expense for penalties of

less than $

0.1

 million and $

0.5

 million in its Condensed Consolidated Statement of Operations for the three and nine months ended

September 30, 2020, respectively. As of September 30, 2021, the Company had accrued $

3.3

 million for cumulative interest and $

3.5

million for cumulative penalties in its Condensed Consolidated Balance Sheets, compared to $

3.0

 million for cumulative interest and

$

3.9

 million for cumulative penalties accrued at December 31, 2020. During the nine months ended September 30, 2021 and 2020,

the Company recognized decreases of $

1.2

 million and $

1.9

 million, respectively, in its cumulative liability for gross unrecognized tax

benefits due to the expiration of the applicable statutes of limitations for certain tax years.

The Company estimates that during the year ending December 31, 2021 it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

1.5

 million due to the expiration of the statute of limitations with regard to certain tax

positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability

for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits

with regard to new tax positions for the year ending December 31, 2021.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign

tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include Italy from

2006

, Brazil from

2011

,

the Netherlands and China from

2015

, Mexico, Spain, Germany and the United Kingdom from

2016

, Canada and the U.S. from

2018

,

India from fiscal year beginning April 1, 2018 and ending March 31,

2019

, and various U.S. state tax jurisdictions from

2011

. 

As previously reported, the Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia

S.r.l., relating to the tax years 2007 through 2015. The Company has filed for competent authority relief from these assessments under

the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except

2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP

proceedings which the Company has accepted.

 As of September 30, 2021, the Company has received $

1.6

 million in refunds from the

Netherlands and Spain and currently expects to pay $

2.6

 million due to Italy in the fourth quarter of 2021. As of September 30, 2021,

the Company believes it has adequate reserves for the remaining uncertain tax positions related to 2007.

Houghton Italia, S.r.l is also involved in a corporate income tax audit with the Italian tax authorities covering tax years

2014

through

2018

. As of September 30, 2021, the Company has a $

6.0

 million reserve for uncertain tax positions relating to matters

related to this audit. Because the reserve relates to the tax periods prior to August 1, 2019, the tax liability was established through

purchase accounting related to the Combination. The Company has also submitted an indemnification claim against funds held in

escrow by Houghton’s former owners and as a result, a corresponding $

5.4

 million indemnification receivable has also been

established through purchase accounting. In October 2021, the Company settled a portion of the Houghton Italia S.r.l corporate

income tax audit with the Italian tax authorities for the tax year 2015. The Company remains under audit for tax years 2014 and 2016

through 2018 and believes it has adequate reserves for the remaining uncertain tax positions.

Houghton Deutschland GmbH is also under audit by the German tax authorities for the tax years

2015

 through

2017

. Based on

preliminary audit findings, primarily related to transfer pricing, the Company has recorded reserves for $

0.9

 million as of September

30, 2021. Of this amount, $

0.8

 million relates to tax periods prior to the Combination and therefore the Company has submitted an

indemnification claim with Houghton’s former owners for any tax liabilities arising pre-Combination. As a result, a corresponding

$

0.8

 million indemnification receivable has also been established to offset the $

0.8

 million tax liability. In October 2021 the

Company received a settlement proposal from the German tax authorities and is currently reviewing the proposal with Houghton’s

former owners.