ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾

20. INCOME TAXES

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The following is a summary of U.S. and non-U.S. provisions for current and deferred income taxes (dollars in millions):

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

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The following schedule reconciles the differences between the U.S. federal income taxes at the U.S. statutory rate to our provision for income taxes (dollars in millions):

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

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During 2020, 2019 and 2018, the average statutory rate for countries with pre-tax income (in 2020, primarily our operations in China (25% statutory rate), the Netherlands (25% statutory rate), India (25% statutory rate) and Luxembourg (25% statutory rate), was higher than the average statutory rate for countries with pre-tax losses, resulting in a net expense of $16 million, $9 million and $27 million, respectively, as compared to the 21% U.S. statutory rate reflected in the reconciliation above.Ìý In certain non-U.S. tax jurisdictions, our U.S. GAAP functional currency is different than the local tax currency. As a result, foreign exchange gains and losses will impact our effective tax rate. For 2020, 2019 and 2018, this resulted in tax benefits of nil, a $5Ìýmillion and $10Ìýmillion, respectively.

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In 2019, we recorded $199 million of deferred tax assets in connection with our tax basis in our Venator investment being greater than our book basis, whichÌýdeferred tax asset was partially offset by a valuation allowance of $46Ìýmillion (for a net tax benefit of $153Ìýmillion), as further discussed below. Effective January 1, 2019, Switzerland reduced certain conditional income tax rates resulting in a decrease in our net deferred tax assets and a corresponding noncash income tax expense of $32Ìýmillion for the year ended December 31, 2019.

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Under the U.S. Tax Reform Act’s global intangible low-taxed income (“GILTIâ€�) provision, our non-U.S. operations are generally subject to U.S. tax. We have elected to treat the GILTI as a current-period expense when incurred. The stated purpose of the GILTI rules is to generate additional U.S. tax related to income in non-U.S. jurisdictions which incur less than a blended 13.125% non-U.S. tax rate. Our non-U.S. income is subject to a blended rate greater than 13.125%; however, in practice, the GILTI regulations result in additional tax liability as a result of expense allocations which limit our ability to utilize foreign tax credits against the GILTI inclusion. For 2020, 2019 and 2018 we have incurred $7Ìýmillion, $7 million and $16 million, respectively, of tax expense resulting from these expense allocations.

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In 2017, we booked provisional amounts for the remeasurements of U.S. deferred tax assets and liabilities and the transitional tax on deemed repatriation of deferred foreign income related to the enactment of the U.S. Tax Reform Act. During the remeasurement period in 2018, we recorded a net tax expense of $32 million. We did not make the election to reclassify the income tax effects of the U.S. Tax Reform Act from accumulated other comprehensive income to retained earnings.

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The 2020 sale of theÌýIndia-based DIY business created a global taxable gain different than the gain for U.S. GAAP purposes.ÌýBecause this transaction was the disposition of a legal entity in India, we paid only India capital gains tax on the transaction. The difference in the global taxation of this transaction and the U.S. GAAP gain at the U.S. statutory tax rate was $35 million.

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The components of income (loss) from continuing operations before income taxes were as follows (dollars in millions):

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

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Components of deferred income tax assets and liabilities were as follows (dollars in millions):

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

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We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of businesses and cumulative income or losses during the applicable period. Cumulative losses incurred over the period limits our ability to consider other subjective evidence such as our projections for the future. Our judgments regarding valuation allowances are also influenced by factors outside of business results, including the costs and risks associated with any tax planning idea associated with utilizing a deferred tax asset.

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We have gross net operating losses (“NOLsâ€�) of $1,037Ìýmillion ($240 million tax-effected) in various non-U.S. jurisdictions. While the majority of the non-U.S. NOLs have no expiration date, $119Ìýmillion ($20Ìýmillion tax-effected) have a limited life (of which $60Ìýmillion ($9Ìýmillion tax-effected) are subject to a valuation allowance) and $57Ìýmillion ($8 million tax-effected) are scheduled to expire in 2021, all of which are subject to a valuation allowance). We had $107 million ($17 million tax-effected) and $111 million ($16 million tax-effected) ofÌýNOLs expire unused in 2020 and 2019, respectively, all of which were subject to a valuation allowance.Ìý

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We have gross U.S. federal NOLs of $71 million ($15 million tax-effected), which were primarily acquired through acquisitions subject to tax change of control limitations. We expect to be able to utilize the all of these NOLs, and therefore they are not subject to a valuation allowance.

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Included in the $1,037Ìýmillion of gross non-U.S. NOLs is $472Ìýmillion ($118 million tax-effected) attributable to our Luxembourg entities. As of DecemberÌý31, 2020, due to the uncertainty surrounding the realization of the benefits of these losses, there is a valuation allowance of $63Ìýmillion against these net tax-effected NOLs of $118Ìýmillion.

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We have $30 million tax-effected U.S. capital loss carryovers generated in 2020.ÌýCapital loss carryovers may only be utilized against capital gains and have a 5-year carryforward period.ÌýWe have placed a full valuation allowance against all of these capital loss carryovers.

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During 2019, based on our expectation that our remaining interest in Venator would be sold on or before December 31, 2023, we recorded $153 million of deferred tax benefit relating to the portion of the $199 million tax basis greater than book basis in our Venator investment. We expected to be able to utilize such future capital losses on our Venator investment against capital gains anticipated on the sale of our Chemical Intermediates Businesses. We established a valuation allowance of $46 million on the excess unrealizable built-in capital loss deferred tax asset. We also recognized $18 million of tax benefit relating to realized tax losses on our Venator investment.ÌýDuring 2020, we sold approximately 42.4 million ordinary shares of our remaining interest in Venator, which allowed us to utilize the expected portion of the losses against the gains on the sale of the Chemical Intermediates Businesses. Incremental changes to the deferred tax assets relating to the excess capital loss carryover and excess built-in capital loss in our remaining interest in Venator, as a result of the U.S. GAAP fair value adjustments to the Venator investment and related loss on disposal,Ìýare offset by a full valuation allowance.

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During 2019, we also established $11 million of valuation allowances on the remaining Australia NOLs that are no longer more-likely-than-not realizable following the sale of the Australia portion of our Chemical Intermediates Businesses.

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During 2018, we released valuation allowances of $132 million. We released significant valuation allowances on certain net deferred tax assets in Switzerland based upon the increased and sustained profitability in our Advanced Materials and Textile Effects businesses. Given Switzerland’s limited seven-year carryover of NOLs, we expect that some of our NOLs will expire unused. Therefore, we recorded a partial release of the valuation allowance of $80 million in the second quarter of 2018. In addition, based upon the separation of Venator from our U.K. combined group and the increased and sustained profitability in our Polyurethanes business in the U.K., we released significant valuation allowances on certain net deferred tax assets in the U.K. Because the U.K. places limitations on the utilization of certain NOLs and limitations on other deferred tax assets, we recorded a partial valuation allowance release of $15 million in the second quarter of 2018. We also released $24 million of valuation allowances on certain net deferred tax assets in Luxembourg in the third quarter of 2018Ìýas a result of changes in estimated future taxable income resulting from increased intercompany receivables and, therefore, increased income in Luxembourg, our primary treasury center outside of the U.S.

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Uncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions and result in additional valuation allowances in future periods, or, in the case of unexpected pre-tax earnings, the release of valuation allowances in future periods.

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The following is a summary of changes in the valuation allowance (dollars in millions):

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

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ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

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The following is a reconciliation of our unrecognized tax benefits (dollars in millions):

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As of December 31, 2020 and 2019, the amount of unrecognized tax benefits (not including interest and penalty expense) which, if recognized, would affect the effective tax rate is $16Ìýmillion and $15Ìýmillion, respectively.

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During 2020, we concluded and settled tax examinations in the U.S. (various states), Thailand andÌýKorea.ÌýDuring 2019, we concluded and settled tax examinations in the U.S. (federal and various states). During 2018, we concluded and settled tax examinations in various jurisdictions, including but not limited to, Egypt and the U.S. (federal and various states).

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During 2020, for unrecognized tax benefits that impact tax expense, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expenses (not including interest and penalty expense) of $1 million.ÌýDuring 2019, for unrecognized tax benefits that impacted tax expense, we recorded a net decrease in unrecognized tax benefits with a corresponding income tax benefit (not including interest and penalty expense) of $10 million. DuringÌý2018, for unrecognized tax benefits that impact tax expense, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expenses (not including interest and penalty expense) of $5Ìýmillion.

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In accordance with our accounting policy, we continue to recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.

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We conduct business globally and, as a result, we file income tax returns in U.S. federal, various U.S. state and various non-U.S. jurisdictions. The following table summarizes the tax years that remain subject to examination by major tax jurisdictions:

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Certain of our U.S. and non-U.S. income tax returns are currently under various stages of audit by applicable tax authorities and the amounts ultimately agreed upon in resolution of the issues raised may differ materially from the amounts accrued.

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We estimate that it is reasonably possible that certain of our non-U.S. unrecognized tax benefits could change within 12 months of the reporting date with a resulting decrease in the unrecognized tax benefits within a reasonably possible range of $0 million to $2 million. For the 12-month period from the reporting date, we would expect that aÌýdecrease in our unrecognized tax benefits would result in a corresponding benefit to our income tax expense.

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In connection with the provisions of U.S. Tax Reform, all non-U.S. earnings have generally been subject to U.S. tax and may be repatriated without incurring additional U.S. tax liability. Such repatriation may potentially be subject to limited foreign withholding taxes.ÌýWe intend to continue to invest most of these earnings indefinitely within the local countries and do not expect to incur any significant additional taxes. There are certain countries where we do intend to repatriate some of our earnings, and we have accrued all withholding taxes for such amounts.

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