INCOME TAXES

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Our quarterly income tax provision is calculated using an estimated annual effective income tax approach. The quarterly effective tax rate can differ from our estimated annual effective tax rate as the Company cannot apply an effective tax rate approach for all of its operations. For those entities that can apply an effective tax rate approach, as of September 30, 2019, our annual effective tax rate, excluding discrete items, is 25.2% for 2019, as compared to 23.6% as of September 30, 2018. 

The remaining entities, which are operations that generate pre-tax losses which cannot be tax benefited and/or have an effective tax rate which cannot be reliably estimated, have to account for their income taxes on a discrete year-to-date basis as of the end of each quarter and are excluded from the effective tax rate approach. The estimated annual effective tax rate for 2019 also excludes the unfavorable impact of withholding taxes associated with certain intercompany payments, including royalties, service charges, interest and dividends, which in the aggregate are relatively consistent each year due to the need to repatriate funds to cover U.S. and U.K. based costs, such as interest on debt and corporate overhead. Withholding taxes associated with the relatively consistent intercompany payments are accounted for discretely and accrued in the provision for income taxes as they become due.

The provision for income taxes for the three months ended September 30, 2019 and 2018 was $31.5 and $68.3, respectively. Our effective tax rates for the three months ended September 30, 2019 and 2018 were 21.8% and 37.5%, respectively. The effective tax rates for the three months ended September 30, 2019 and 2018 were impacted by CTI restructuring charges which could not all be benefitted, country mix of earnings and withholding taxes. The effective tax rate for the three months ended September 30, 2019 was also favorably impacted by the accrual of miscellaneous income tax benefits of approximately $2.3. The effective tax rate for the three months ended September 30, 2018 was also favorably impacted by the accrual of tax benefits of approximately $14.0 associated with the initial recognition of tax benefits associated with Avon’s interpretation of case law, net releases of tax reserves of approximately $3.1 associated with our uncertain tax positions and other net benefits of approximately $1.9.

The provision for income taxes for the nine months ended September 30, 2019 and 2018 was $78.2 and $136.5, respectively. Our effective tax rates for the nine months ended September 30, 2019 and 2018 were 48.5% and 71.0%. The effective tax rates for the nine months ended September 30, 2019 and 2018 were impacted by CTI restructuring charges which could not all be benefitted, country mix of earnings and withholding taxes. The effective tax rate for the nine months ended September 30, 2019 was also favorably impacted by the accrual of net income tax benefits of approximately $5.2 associated with the release of income tax reserves of approximately $3.0 associated with our uncertain tax positions and other net, miscellaneous income tax benefits of approximately $2.2. The effective tax rate for the nine months ended September 30, 2018 was also favorably impacted by the accrual of tax benefits of approximately $14.0 associated with the initial recognition of tax benefits associated with Avon’s interpretation of recent case law, the recognition of approximately $4.1 of deferred tax assets that had previously been subject to a full valuation allowance and other net benefits of approximately $1.0 offset with a net increase of approximately $10.9 associated with our uncertain tax positions.

In its final analysis of the impacts of the Tax Cuts and Job Act (the "TCJA") during the fourth quarter of 2018, the Company elected to treat income taxes associated with Global Intangible Low-Taxed Income ("GILTI"), as a period cost. As a result, the 2019 provision for income taxes reflects this treatment. The 2018 provision for income taxes was also calculated treating GILTI as a period cost. For both periods, GILTI did not have a material effect. The TCJA has significant complexity. The Company has considered the published guidance provided by the various Federal and state regulatory authorities into the calculation of its income tax provisions available as of September 30, 2019 and September 30, 2018 for the respective periods ended September 30, 2019 and September 30, 2018.

In prior years, we had previously recorded valuation allowances against certain deferred tax assets associated with the U.S. and various foreign jurisdictions. We intend to continue maintaining these valuation allowances on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.