Income Taxes and Uncertain Income Tax Positions

3 Months Ended

Mar. 31, 2022

Income Taxes and Uncertain Tax Positions [Abstract]

Income Taxes and Uncertain Income Tax Positions [Text Block]

Note 11 – Income Taxes and Uncertain Income Tax Positions

The Company’s effective tax rates for the three months ended March 31, 2022 and 2021 were

13.1

% and

24.2

%, respectively. 

The Company’s effective tax rate for the three months ended March 31, 2022 was largely driven by changes in the valuation

allowance for foreign tax credits due to recently issued legislative guidance and audit settlements reached with Italian tax authorities. 

In addition, the Company incurred higher tax expense during the three months ended March 31, 2022 related to the Company

recording earnings in one of its subsidiaries at a statutory tax rate of

25

% while it awaits recertification of a concessionary

15

% tax

rate, which was available to the Company during all of 2021. Comparatively, the prior year first quarter effective tax rate was

impacted by the sale of a subsidiary which included certain held-for-sale real property assets related to the Combination. 

As of December 31, 2021, the Company had a deferred tax liability of $

8.4

 million on certain undistributed foreign earnings,

which primarily represents the Company’s estimate of non-U.S. income taxes the Company will incur to ultimately remit certain

earnings to the U.S. The balance as of March 31, 2022 was $

8.0

 million.

As of March 31, 2022, the Company’s cumulative liability for gross unrecognized tax benefits was $

20.1

 million, a decrease of

approximately $

2.4

 million from the cumulative liability accrued as of December 31, 2021. 

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

income before equity in net income of associated companies in its Condensed Consolidated Statements of Income. The Company

recognized a benefit of $

0.3

 million for interest and a benefit of $

1.6

 million for penalties in its Condensed Consolidated Statements of

Income for the three months ended March 31, 2022, and recognized an expense of less than $

0.1

 million for interest and a benefit of

$

0.1

 million for penalties in its Condensed Consolidated Statements of Income for the three months ended March 31, 2021. As of

March 31, 2022, the Company had accrued $

2.7

 million for cumulative interest and $

1.6

 million for cumulative penalties in its

Condensed Consolidated Balance Sheets, compared to $

3.1

 million for cumulative interest and $

3.1

 million for cumulative penalties

accrued at December 31, 2021.

During the three months ended March 31, 2022 and 2021, the Company recognized decreases of $

2.8

 million and $

0.3

 million,

respectively, in its cumulative liability for gross unrecognized tax benefits due to the settlement of income tax audits with the Italian

tax authorities, as well as the expiration of the applicable statutes of limitations for certain tax years.

The Company estimates that during the year ending December 31, 202 2 it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

4.2

 million due to the settlement of income tax audits and 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, 2022.

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

2007

, Brazil from

2011

,

Germany from

2015

, the Netherlands, Mexico and China from

2016

, Canada, Spain, and the U.S. from

2017

, the United Kingdom

from

2018

, India from fiscal year beginning April 1, 2017 and ending March 31,

2018

, 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 March 31, 2022, the Company has received $

1.6

 million in refunds from the

Netherlands and Spain. In February 2022, the Company received a settlement notice from the Italian taxing authorities confirming the

amount due of $

2.6

 million, having granted the Company’s request to utilize its remaining net operating losses to partially offset the

liability. As a result of the settlement the Company recognized tax expense of $

0.8

 million for the quarter ended March 31, 2022.

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

. During the fourth quarter of 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 years

2014

 and

2015

. During the three months ended March 31, 2022 the Company

settled tax years 2016 through 2018 for a total of $

2.1

 million. In total, the Company has now settled all years 2014 through 2018 for

$

3.7

 million. Accordingly, the Company has released all reserves relating to this audit for the settled tax years. As a result of the

settlement and reserve release the Company recognized a net benefit to the tax provision of $

2.1

 million during the first quarter of

2022. The Company has established an indemnification receivable of $

3.8

 million in connection with its claim against the former

owners of Houghton for any pre-Combination tax liabilities arising from this matter.

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 $

0.3

 million as of March 31,

2022. Of this amount, $

0.3

 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

indemnification receivable has also been established.