Income Taxes and Uncertain Income Tax Positions

9 Months Ended

Sep. 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 nine months ended September 30, 2022 were

28.1

% and

19.2

%, respectively,

compared to

2.6

% and

21.8

% for the three and nine months ended September 30, 2021, respectively. The Company’s effective tax

rate for the nine months ended September 30, 2022 was impacted by various items including a decline in forecasted profits and

earnings mix, foreign tax inclusions, changes in the valuation allowance for foreign tax credits, the impact of audit settlements reached

with Italian tax authorities, a reduction in reserves for uncertain tax positions and withholding taxes. In addition, the Company

incurred higher tax expense during the three and nine months ended September 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 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.

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 September 30, 2022 this deferred tax liability balance was $

6.9

 million. As of September 30, 2022, the

Company’s cumulative liability for gross unrecognized tax benefits was $

16.2

 million, a decrease of approximately $

6.3

 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 an expense for interest of $

0.1

 million and a benefit for interest of $

0.2

 million and a benefit of less than $

0.1

 million and

$

1.6

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

2022, respectively, and 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 Income for the three and nine months ended

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

2.6

 million for cumulative interest and $

1.4

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 nine months ended September 30, 2022 and 2021, the Company recognized decreases of $

3.8

 million and $

1.2

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 $

4.1

 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

,

the Netherlands from

2016

, Canada, China, Mexico and the U.S. from

2017

, Germany, Spain and 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 September 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 September 30, 2022, the Company has paid the full settlement amount, of which approximately $

0.2

 million was

confirmed to be refundable. 

Houghton Italia, S.r.l was 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 nine months ended September 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 $

1.9

 million during the first nine months

of 2022. The Company has an indemnification receivable of approximately $

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 well as other audit settlements.