
	Year Ended December 31,
(in millions)	2020		2019		2018
Earnings before income taxes:
U.S.	$	437	$	310	$	220
Non-U.S.	527		955		976
Total	$	964	$	1,265	$	1,196
Provision for income taxes:
Current:
Federal	$	19	$	32	$	17
State	2		4		5
Foreign	252		245		259
Total current	273		281		281
Deferred:
Federal	70		150		(40)
State	11		23		(8)
Foreign	43		14		(22)
Total deferred	124		187		(70)
Total provision for income taxes	$	397	$	468	$	211


	Year Ended December 31,
(in millions)	2020		2019		2018
Income taxes at U.S. statutory rate of 21% for 2020, 2019 and 2018	$	203	$	266	$	251
Increases (decreases) resulting from:
Net tax on remittance of foreign earnings	93		22		(22)
Valuation allowance adjustments	53		(2)		(11)
Reserve adjustments, settlements and claims	45		46		32
Foreign rate differentials	21		35		28
State taxes, net of federal benefit	12		3		6
U.S. tax on non-U.S. earnings	11		15		37
Other foreign taxes	9		10		8
Non-deductible transaction costs	8		3		3
Impact of transactions	3		124		(1)
Impact of foreign derived intangible income	(1)		(1)		(15)
Affiliates' earnings	(4)		(7)		(10)
Tax credits	(12)		(17)		(26)
Changes in accounting methods and filing positions	(18)		(7)		(30)

Tax holidays	(36)		(26)		(28)
Revaluation of U.S. deferred taxes	—		—		(4)
Other	10		4		(7)
Provision for income taxes, as reported	$	397	$	468	$	211

The effective tax rate was approximately 41% for the year ended December 31, 2020. Unfavorably impacting the effective tax rate in 2020 was income tax expense related to the final U.S. Department of the Treasury regulations issued in the third quarter of 2020, that impacted the net tax on remittance of foreign earnings, and certain tax law changes in India effective in the first quarter of 2020. In addition, we recognized incremental valuation allowances of $53 million in 2020. Also, unfavorably impacting the effective tax rate were certain restructuring expenses and merger and acquisition related transaction costs that were non-deductible for tax purposes.

The effective tax rate was 37% for the year ended December 31, 2019. The effective tax rate for 2019 includes an increase in income tax expense of $173 million related to the derecognition of the Morse TEC asbestos-related deferred tax assets and $22 million due to the U.S. Department of the Treasury’s issuance of the final regulations in the first quarter of 2019 related to the calculation of the one-time transition tax. The 2019 effective tax rate also includes reductions of income tax expense of $19 million

The effective tax rate was approximately 18% for the year ended December 31, 2018. The effective tax rate for 2018 includes reductions of income tax expense of $15 million related to restructuring expense, $6 million related to the asbestos-related adjustments, and $8 million related to asset impairment expense, offset by increases to tax expense of $1 million and $6 million related to a gain on commercial settlement and a gain on the sale of a building.

For the year ended December 31, 2018, the Company completed its accounting for the tax effects of the Tax Cuts and Jobs Act of 2019 (the Tax Act). The final SAB 118 adjustments resulted in: (i) an increase in the Company’s existing deferred tax asset balances of $13 million, including $9 million for executive compensation (ii) a tax charge of $8 million for the one-time transition tax, and (iii) a decrease

in the deferred tax liability associated with its indefinite reinvestment assertion of $7 million. The total impact to tax expense from these adjustments was a net tax benefit of $13 million. Compared to the year ended December 31, 2017, this additional tax benefit from the final adjustments was a result of further analysis performed by the Company and the issuance of additional regulatory guidance.


(in millions)	2020		2019		2018
Balance, January 1	$	146	$	120	$	92
Delphi Technologies acquisition	54		—		—
Additions based on tax positions related to current year	14		7		24
Additions for tax positions of prior years	9		26		18
Reductions for closure of tax audits and settlements	—		—		(8)
Reductions for lapse in statute of limitations	(5)		(6)		—
Translation adjustment	13		(1)		(6)
Balance, December 31	$	231	$	146	$	120

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The amounts recognized in income tax expense for 2020 and 2019 are $21 million and $15 million, respectively. The Company has an accrual of approximately $69 million and $46 million for the payment of interest and penalties at December 31, 2020 and 2019, respectively. As of December 31, 2020, approximately $263 million represents the amount that, if recognized, would affect the Company's effective income tax rate in future periods. This amount includes a decrease in U.S. federal income taxes that would occur upon recognition of the state tax benefits and U.S. foreign tax credits included therein. The Company estimates that that it is reasonably possible there could be a decrease of approximately $66 million in unrecognized tax benefits and interest in the next 12 months related to the closure of an audit and the lapse in statute of limitations subsequent to the reporting period from certain taxing jurisdictions.

The Company and/or one of its subsidiaries files income tax returns in the U.S. federal, various state jurisdictions and various foreign jurisdictions. In certain tax jurisdictions, the Company may have more than one taxpayer. The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:

Tax jurisdiction

Years no longer subject to audit

Tax jurisdiction

Years no longer subject to audit

U.S. Federal

2015 and prior

Japan

2018 and prior

Barbados

2017 and prior

Luxembourg

2013 and prior

China

2012 and prior

Mexico

2013 and prior

France

2015 and prior

Poland

2013 and prior

Germany

2011 and prior

South Korea

2013 and prior

Hungary

2013 and prior

United Kingdom

2015 and prior

In the U.S., certain tax attributes created in years prior to 2015 were subsequently utilized. Even though the U.S. federal statute of limitations has expired for years prior to 2015, the years in which these tax attributes were created could still be subject to examination, limited to only the examination of the creation of the tax attribute.


	December 31,
(in millions)	2020		2019
Deferred tax assets:
Net operating loss and capital loss carryforwards*	$	656	$	70
Interest limitation carryforwards*	111		—
Other comprehensive loss	106		53
Pension and other postretirement benefits*	93		25
Research and development capitalization	57		74
Unrecognized tax benefits	47		49
Employee compensation	39		32
State tax credits	28		21
Warranty	27		15
Foreign tax credits	16		13
Other	161		97
Total deferred tax assets	$	1,341	$	449
Valuation allowance*	(529)		(71)
Net deferred tax asset	$	812	$	378
Deferred tax liabilities:
Goodwill and intangible assets*	(279)		(174)
Fixed assets*	(176)		(144)
Unremitted foreign earnings*	(156)		(56)
Unrealized gain on equity securities	(91)		—
Other	(95)		(50)
Total deferred tax liabilities	$	(797)	$	(424)
Net deferred taxes	$	15	$	(46)

*Balances include the impact from deferred tax assets and liabilities acquired or assumed from the acquisition of Delphi Technologies on October 1, 2020. Also includes the impact to deferred tax liabilities related to the recognition of intangible assets associated with the acquisition of Delphi Technologies.

At December 31, 2020, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $2.4 billion available to offset future taxable income. Of the total $2.4 billion, $1.9 billion expire at various dates from 2021 through 2040, and the remaining $522 million have no expiration date. The Company has a valuation allowance recorded of $505 million against the $2.4 billion of non-U.S. net operating loss carryforwards. Certain U.S. subsidiaries have state net operating loss carryforwards totaling $614 million, of which the Company has a valuation allowance of $17 million recorded against the carryforwards. The state net operating loss carryforwards expire at various dates from 2021 to 2040. Certain U.S. subsidiaries also have state tax credit carryforwards of $28 million, which are partially offset by a valuation allowance of $26 million. Certain non-U.S. subsidiaries located in China had tax exemptions or tax holidays, which reduced local tax expense approximately $36 million and $26 million in 2020 and 2019, respectively. The tax holidays for these subsidiaries are issued in three-year terms with expirations for certain subsidiaries ranging from 2020 to 2022.

The Company reviews the likelihood that we will realize the benefit of our deferred tax assets and, therefore, the need for valuation allowances on a quarterly basis. If based upon the weight of available evidence it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. Due to recent restructurings, we concluded that the weight of the negative evidence outweighs the positive evidence in certain foreign jurisdictions. As a result, the Company believes it is more likely than not that the net deferred tax assets in certain foreign jurisdictions that include entities in

As of December 31, 2020, the Company recorded deferred tax liabilities of $156 million with respect to foreign unremitted earnings. The Company did not provide deferred tax liabilities with respect to certain book versus tax basis differences not represented by undistributed earnings of approximately $1.1 billion as of December 31, 2020, because the Company continues to assert indefinite reinvestment of these basis differences. These basis differences would become taxable upon the sale or liquidation of the foreign subsidiaries. The Company’s best estimate of the unrecognized deferred tax liability on these basis differences is approximately $70 million as of December 31, 2020.