Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s effective income tax rate for the three and nine months ended September 30, 2019 was 39.1% and 42.1% compared to 15.4% and 15.8% for the three and nine months ended September 30, 2018, respectively. The Company’s effective income tax rate fluctuates based on, among other factors, the geographic mix of income.

The difference between the U.S. federal statutory income tax rate of 21.0% and the Company’s effective income tax rate for the three and nine months ended September 30, 2019 and September 30, 2018 was impacted by a variety of factors, primarily resulting from the geographic mix of where the income was earned as well as certain taxable income inclusion items in the U.S. based on foreign earnings.

The three and nine months ended September 30, 2019 were also impacted by certain discrete tax items. The three months ended includes a tax benefit of $(202) million related to the impairment of certain intangible assets of the Company, $(73.5) million for the expiration of uncertain tax positions and $(29.0) million related to certain Federal return to provision adjustments. In addition, the nine months ended September 30, 2019 included discrete tax benefits of $(13.2) million for a withholding tax refund received from Switzerland by the Company, $(10.1) million for certain state tax return to provision adjustments and $(14.4) million related to change in tax status of certain entities in various non-U.S. jurisdictions, offset by discrete tax expense of $14.7 million for excess book deductions for equity-based compensation and $12.7 million for additional interest related to the Company’s uncertain tax liabilities.

As compared to the period ended September 30, 2019, the three and nine months ended September 30, 2018 were also impacted by the generation of excess foreign tax credits and certain discrete tax items. The three months ended September 30, 2018 included a benefit of $(1.1) billion related to the impairment of certain intangibles of the Company and $(67.9) million for the reduction of certain income tax contingencies. In addition, the nine months ended September 30, 2018 included discrete tax adjustments of ($69.4) million for a reduction in valuation allowance related to our operations in France, offset by $9.0 million of interest related to uncertain tax liabilities.

On June 18, 2019, the U.S. Treasury and the Internal Revenue Service released temporary regulations under IRC Section 245A (“Section 245A”) as enacted by the 2017 U.S. Tax Reform Legislation (“2017 Tax Reform”) and IRC Section 954(c)(6) (the “Temporary Regulations”) to apply retroactively to the date the 2017 Tax Reform was enacted. The Temporary Regulations seek to limit the 100% dividends received deduction permitted by Section 245A for certain dividends received from controlled foreign corporations and to limit the applicability of the look-through exception to foreign personal holding company income for certain dividends received from controlled foreign corporations. Before the retroactive application of the Temporary Regulations, the Company benefited in 2018 from both the 100% dividends received deduction and the look-through exception to foreign personal holding company income. The Company has analyzed the Temporary Regulations and concluded that the relevant Temporary Regulations were not validly issued. Therefore, the Company has not accounted for the effects of the Temporary Regulations in its Condensed Consolidated Financial Statements for the period ending September 30, 2019. The Company believes it has strong arguments in favor of its position and believes it has met the more likely than not recognition threshold that its position will be sustained. However, due to the inherent uncertainty involved in challenging the validity of regulations as well as a potential litigation process, there can be no assurances that the relevant Temporary Regulations will be invalidated or that a court of law will rule in favor of the Company. If the Company’s position on the Temporary Regulations is not sustained, the Company would be required to recognize an income tax expense of approximately $180 million to $220 million related to an income tax benefit from fiscal year 2018 that was recorded based on regulations in existence at the time. In addition, the Company may be required to pay any applicable interest and penalties. The Company intends to vigorously defend its position.