Income Taxes

12 Months Ended

Dec. 31, 2019

Income from continuing operations, before taxes for the years ended December 31 was as follows:


	2019		2018		2017
United States	$	(108.3)	$	39.3	$	(147.6)
Foreign	246.7		68.8		268.3
Total	$	138.4	$	108.1	$	120.7

The provision for income taxes for the years ended December 31 was as follows:


	2019		2018		2017
Federal:
Current	$	(9.0)	$	(6.1)	$	—
Deferred	8.5		3.7		(34.0)
Total Federal	(0.5)		(2.4)		(34.0)
Foreign:
Current	79.0		182.3		130.6
Deferred	28.9		(53.0)		3.8
Total Foreign	107.9		129.3		134.4
State and Local:
Current	(4.3)		3.0		.3
Deferred	—		—		—
Total State and other	(4.3)		3.0		.3
Total	$	103.1	$	129.9	$	100.7

The continuing operations effective tax rate for the years ended December 31 was as follows:


	2019		2018		2017
Statutory federal rate	21.0	%	21.0	%	35.0	%
State and local taxes, net of federal tax benefit	(2.7)		2.2		.2
U.S. Tax Reform	—		—		(24.7)
Tax on foreign income	62.1		(16.2)		6.0
Tax on uncertain tax positions - Brazil	8.1		67.4		—
Tax on uncertain tax positions - Rest of World	8.5		8.5		(3.6)
Reorganizations	185.6		(91.3)		—
Net change in valuation allowances	(208.0)		128.3		62.4
Imputed royalties and associated non-deductible expenses	—		.6		9.5
Research credits	(.9)		(1.3)		(1.3)
Other	.8		1.0		(.1)
Effective tax rate	74.5	%	120.2	%	83.4	%

In 2019, as a result of continued business model changes related to the move of the Company’s headquarters from the US to the UK, the Company recognized one time tax charges of $256.9 reflected in the "Reorganizations" line above associated primarily with the rationalization and re-alignment of the Company’s legal entity structure which resulted in the use of approximately $256.9 of Foreign Tax Credits, deferred tax assets and other tax attributes.

In 2019, the Net Change in Valuation Allowances line in the rate reconciliation above includes: 1) $232.5 of decreases to the Valuation Allowances primarily associated with the utilization of Foreign Tax Credits and deferred tax assets offsetting the one-time tax charges of $256.9 noted in the "Reorganizations" line above; and 2) $66.5 of decreases due to a tax rate change offsetting equivalent and associated write-offs of deferred tax assets reflected in the “Tax on Foreign Income” line above.

In 2018, as a result of continued business model changes related to the move of the Company’s headquarters from the US to the UK, the Company recognized one-time tax benefits of $98.7 reflected in the "Reorganizations" line above associated primarily with the: rationalization and re-alignment of the Company’s legal entity structure, the ownership transfer of certain operational assets within the consolidated group and the tax benefit associated with the Foreign Derived Intangible Income provisions of the Tax Cuts and Jobs Act in the U.S.

In 2018, the Net Change in Valuation Allowances line in the rate reconciliation above includes $138.6 of increases to the Valuation Allowances primarily associated with Deferred Tax Assets generated in 2018. Reductions to Valuation Allowances of $93.0 were reflected in other captions of the rate reconciliation net of the associated Deferred Tax Assets which were expensed or written off during 2018 as follows: $57.2 for excess tax basis in deconsolidated subsidiaries that was re-allocated against investments in consolidated subsidiaries, $15.3 for reduction of future tax benefits anticipated for state deferred tax assets, $11.7 of other Deferred Tax Assets and a reduction of $8.8 of Deferred Tax Assets associated with the repatriation of earnings from consolidated subsidiaries.

In 2017, as a result of the enactment of the Tax Cuts and Jobs Act in the U.S., the Company recognized a net income tax benefit of $29.9 associated with the following items which are reflected in the "U.S. Tax Reform" line above: $33.5 for a valuation allowance release associated with minimum tax credits which can be utilized and/or refunded in the future and $3.6 for an uncertain tax position for potential withholding taxes on the repatriation of unremitted earnings. In addition, there was no impact on our financial position or results associated with each of the following: a write-off of deferred tax assets and their associated valuation allowance of $161.4 due to the rate change from 35% to 21%; a reversal of deferred tax liabilities and recording of a valuation allowance of $66.7 associated with unremitted earnings; establishment of deferred tax assets for other miscellaneous withholding tax items and their associated valuation allowance of $5.5; and a one-time tax on offshore earnings and the associated utilization of foreign tax credits of $2.9.

Included in the net change in valuation allowance noted above for 2017, we released valuation allowances of $25.5 associated with a number of markets in Europe, Middle East & Africa as a result of a business model change related to the move of the Company's headquarters from the U.S. to the UK.

Given the timing of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, the SEC issued guidance under SAB 118 directing taxpayers to consider the impact of the new legislation as "provisional" when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effects resulting from the change in law. As of December 22, 2017, except for the impact of remeasuring our deferred tax assets at the 21% rate, we accounted for all other impacts of the new legislation, including but not limited to effects on existing deferred taxes and valuation allowances, a one-time tax on offshore earnings, potential changes to and impact of our indefinite reinvestment assertion, and the measurement of deferred taxes on foreign unremitted earnings, on a provisional basis on our financial statements. The amounts reported at that time represented our best estimate given the data we had available and based on our interpretation of the U.S. legislation. During 2018, the U.S. Treasury issued various guidance on the application of certain provisions that may impact our calculations. As of December 31, 2018, the Company completed its accounting for the impact of the Tax Cuts and Jobs Act including any necessary adjustments to the "provisional" amounts previously recorded. The recording of the additional adjustments had no material impact on our financial position or results.

Deferred tax assets (liabilities) at December 31 consisted of the following:


	2019		2018
Deferred tax assets:
Tax loss and deduction carryforwards	$	2,111.5	$	2,144.3
Tax credit carryforwards	658.3		830.5
All other future deductions	485.5		560.8
Valuation allowance	(2,960.0)		(3,257.5)
Total deferred tax assets	295.3		278.1
Deferred tax liabilities	$	(142.2)	$	(85.1)
Net deferred tax assets	$	153.1	$	193.0

Deferred tax assets (liabilities) at December 31 were classified as follows:


	2019		2018
Deferred tax assets:

Other assets	$	161.2	$	212.6
Total deferred tax assets	161.2		212.6
Deferred tax liabilities:

Long-term income taxes	$	(8.1)	$	(19.6)
Total deferred tax liabilities	(8.1)		(19.6)
Net deferred tax assets	$	153.1	$	193.0

During 2019, the Company recorded a net decrease to its valuation allowance of $297.5 primarily related to the usage of certain tax credits and other tax attributes associated with rationalization and re-alignment of the Company’s legal entity structure, change in applicable tax rates and the expiration of other tax attribute carryforwards, both credit and loss carryforwards. In the future, the Company will continue to evaluate whether its financial results will allow for the valuation allowances to be released. Release of the valuation allowance in the future would occur when the deferred tax assets associated with the valuation allowance are determined to be more likely than not of being realized.

At December 31, 2019, the valuation allowance primarily represents amounts for substantially all U.S. deferred tax assets, certain foreign tax loss carryforwards and certain other foreign deferred tax assets. The recognition of deferred tax assets was based on the evaluation of current and estimated future profitability of the operations, reversal of deferred tax liabilities and the likelihood of utilizing tax credit and/or loss carryforwards. Tax planning strategies were also considered and evaluated as support for the realization of deferred tax assets. Where these sources of income existed along with sufficient positive evidence that indicated it was more likely than not that such sources of income could be relied upon, then the deferred tax assets were not reduced by a valuation allowance.

At December 31, 2019, exclusive of ASU 2013-11 reductions, we had recognized deferred tax assets of $670.3 relating to tax credit carryforwards (U.S. foreign tax credits, minimum tax credits, research and experimentation credits and other tax credits) for which a valuation allowance of $649.5 has been provided and for which $11.9 has also been offset in accordance with ASU2013-11. The tax credit carryforwards consist of U.S. foreign tax credits of $629.5 which are subject to expiration between 2022 and 2027; U.S. research and experimentation credits of $21.6 which are subject to expiration between 2027 and 2039 U.S. minimum tax credits of $8.9 which are not subject to expiration; and other tax credits of $10.3 which are subject to expiration between 2020 and 2034.

At December 31, 2019, exclusive of ASU 2013-11 reductions, we had recognized deferred tax assets of $2,136.5 relating to foreign and state tax loss carryforwards for which a valuation allowance of $2,018.6 has been provided and for which $25.0 has also been offset in accordance with ASU2013-11. The deferred tax assets relating to tax loss carryforwards consist of $2,011.5 of foreign tax loss carryforwards, for which a valuation allowance of $1,918.5 has been provided, and $100.0 of state tax loss carryforwards, for which a valuation allowance of $100.0 has been provided.

At December 31, 2019 we had foreign tax loss carryforwards of $9,553.3, of which $7,611.6 are not subject to expiration and $1,941.5 are subject to expiration between 2020 and 2049. At December 31, 2019, we had state tax loss carryforwards, after taking into consideration the estimated effects of pre-apportionment states, of $1,443.7 which are subject to expiration between 2020 and 2039.

At December 31, 2019, as a result of our U.S. liquidity profile, we continue to assert that substantially all of our foreign earnings are not indefinitely reinvested. Accordingly, we adjusted our deferred tax liability as of December 31, 2019 to account for undistributed earnings of foreign subsidiaries outstanding at year-end and for the tax effect of earnings that were actually repatriated to the U.S. during the year. The net impact on the deferred tax liability associated with the Company’s undistributed earnings is a decrease of $12.5, resulting in a deferred tax liability balance of $6.1 related to the incremental tax cost on approximately $1.2 billion of undistributed foreign earnings at December 31, 2019.

Uncertain Tax Positions

At December 31, 2019, we had $331.7 of total gross unrecognized tax benefits of which approximately $130.9 would favorably impact the provision for income taxes, if recognized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



Balance at December 31, 2016	$	58.7
Additions based on tax positions related to the current year	1.3
Additions for tax positions of prior years	17.6
Reductions for tax positions of prior years	(7.9)
Reductions due to lapse of statute of limitations	(3.1)
Reductions due to settlements with tax authorities	(18.0)
Balance at December 31, 2017	48.6
Additions based on tax positions related to the current year	43.5
Additions for tax positions of prior years	65.5
Reductions for tax positions of prior years	(3.7)
Reductions due to lapse of statute of limitations	(.9)
Reductions due to settlements with tax authorities	(15.4)
Balance at December 31, 2018	137.6
Additions based on tax positions related to the current year	13.3
Additions for tax positions of prior years	186.6
Reductions for tax positions of prior years	(3.0)
Reductions due to lapse of statute of limitations	(.6)
Reductions due to settlements with tax authorities	(2.2)
Balance at December 31, 2019	$	331.7

We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. We reversed previously recorded expenses for interest and penalties, net of taxes by $1.0, net of taxes during the years ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019 and 2018 we had $6.3 and $7.4, respectively, recorded for interest and penalties, net of tax benefit. The unrecognized tax benefits, including interest and penalties, were classified within long-term income taxes in our Consolidated Balance Sheets.

We file income tax returns in the U.S. and foreign jurisdictions. As of December 31, 2019, the tax years that remained subject to examination by major tax jurisdiction for our most significant subsidiaries were as follows:


Jurisdiction						Open Years
Brazil						2014-2019
Mexico						2014-2019
Philippines						2016-2019
Poland						2014-2019
Russia						2017-2019
United Kingdom						2017-2019
United States (Federal)						2017-2019

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits will not change materially within the next twelve months.