Income Taxes and Uncertain Income Tax Positions

6 Months Ended

Jun. 30, 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 and six months ended June 30, 2022 were

8.1

% and

10.9

%, respectively,

compared to

32.2

% and

28.4

% for the three and six months ended June 30, 2021, respectively. The Company’s effective tax rate for

the six months ended June 30, 2022 was largely driven by state tax benefits, changes in the valuation allowance for foreign tax credits

due to recently issued legislative guidance, the impact of audit settlements reached with German and Italian tax authorities, a deferred

tax benefit associated with an intercompany asset transfer, a reduction in reserves for uncertain tax positions relating to management

fees, withholding taxes for increased forecasted dividends and the effects of lower pre-tax earnings and the mix of such earnings. In

addition, the Company incurred higher tax expense during the three and six months ended June 30, 2022 at one of its subsidiaries as it

accrued taxes 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 effective tax rates were largely impacted by the sale of a subsidiary which

included certain held-for-sale real property assets related to the Combination , changes in foreign tax credit valuation allowances, tax

law changes in a foreign jurisdiction and the income tax impacts of certain non-income tax credits recorded by the Company’s

Brazilian subsidiaries.

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. As of June 30, 2022 this deferred tax liability balance was $

7.4

 million. As of June 30, 2022, the Company’s

cumulative liability for gross unrecognized tax benefits was $

17.8

 million, a decrease of approximately $

4.7

 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 for interest of less than $

0.1

 million and $

0.3

 million and an expense of less than of $

0.1

 million and a benefit of

$

1.5

 million for penalties in its Condensed Consolidated Statement of Income for the three and six months ended June 30, 2022,

respectively, and recognized an expense for interest of approximately $

0.2

 million and $

0.2

 million and a benefit of less than $

0.1

million and $

0.2

 million for penalties in its Condensed Consolidated Statement of Income for the three and six months ended June 30,

2021, respectively. As of June 30, 2022, the Company had accrued $

2.6

 million for cumulative interest and $

1.5

 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 six months ended June 30, 2022 and 2021, the Company recognized decreases of $

3.5

 million and $

0.8

 million,

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

Italian and German 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 and Mexico from

2016

, Canada, China, 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 had accepted.

 As of June 30, 2022, the Company 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 of June 30, 2022, the Company has paid the full settlement amount, of which approximately $

0.1

 million may be

refundable. 

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 six months ended June 30, 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 $

2.0

 million during the first six months of

2022. The Company has an indemnification receivable of $

3.6

 million in connection with its claim against the former owners of

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

As previously reported, Houghton Deutschland GmbH is also under audit by the German tax authorities for the tax years

2015

through

2017

. In the second quarter of 2022 the Company settled the corporate tax audit for the tax years 2015-2017 with the German

tax authorities for a total of $

0.1

 million. The Company has an indemnification receivable of $

0.3

 million in connection with its claim

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