Undistributed earnings of foreign subsidiaries

  
The components of income tax expense attributable to continuing operations are as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Year Ended December 31, |
| (in millions)  |  | 2021 |  | 2020 |  | 2019 |
| Current expense: |  |  |  |  |  |  |
| Federal and state |  | $ | 16 |  | $ | — |  | $ | 11  |  |
| Foreign |  | 293  |  |  | 244  |  |  | 248  |  |
|  |  | 309  |  |  | 244  |  |  | 259  |  |
| Deferred (benefit) expense: |  |  |  |  |  |  |
| Federal and state |  | (106) |  |  | (161) |  |  | (109) |  |
| Foreign |  | (40) |  |  | (11) |  |  | (34) |  |
|  |  | (146) |  |  | (172) |  |  | (143) |  |
|  |  | $ | 163  |  |  | $ | 72  |  |  | $ | 116  |  |

  
The differences between the Company’s consolidated income tax expense attributable to continuing operations and the expense computed at the United States statutory income tax rate of 21% were as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Year Ended December 31, |
| (in millions) |  | 2021 |  | 2020 |  | 2019 |
| Federal income tax expense at statutory rate |  | $ | 237  |  |  | $ | 78  |  |  | $ | 74  |  |
| State and local income taxes, net of federal effect |  | 2  |  |  | 19  |  |  | —  |  |
| Research and development |  | (14) |  |  | (14) |  |  | (21) |  |
|  |  |  |  |  |  |  |
| United States taxes recorded on foreign earnings(\*) |  | (29) |  |  | 2  |  |  | 9  |  |
| Tax contingencies |  | 3  |  |  | (5) |  |  | 27  |  |
| Foreign Derived Intangible Income (“FDII”) |  | (34) |  |  | (8) |  |  | 20  |  |
| Foreign rate differential |  | 17  |  |  | 25  |  |  | 26  |  |
| Equity compensation |  | (23) |  |  | (29) |  |  | (14) |  |
| Non-taxable gain on acquisition adjustment |  | —  |  |  | 6  |  |  | (5) |  |
| Non-controlling interest |  | —  |  |  | (5) |  |  | (6) |  |
| Other |  | 4  |  |  | 3  |  |  | 6  |  |
|  |  | $ | 163  |  |  | $ | 72  |  |  | $ | 116  |  |

(\*) Includes impact of GILTI, and other U.S. taxes on foreign earnings.  
In 2021, the Company recorded a benefit of $29 million related to a 2020 U.S. Federal tax return position associated with Foreign Derived Intangible Income (“FDII”) and GILTI tax credits. Also in 2021, the Company recorded a $9 million tax expense as a result of the U.S. Treasury Department issuing final regulations on Foreign Tax Credits.  
In 2020, the U.S. Treasury Department issued final regulations regarding FDII and GILTI. The Company has determined it will elect the GILTI high tax exception as allowed by the final regulations and has amended its 2018 U.S. Federal consolidated income tax returns and plans to amend its 2019 U.S. Federal consolidated income tax returns resulting in a favorable impact of $26 million, which the Company recorded in 2020.  
In 2019 the U.S. Treasury Department issued final regulations on the transition tax and proposed regulations on FDII, which was introduced by the Tax Act enacted by the U.S. government on December 22, 2017. The Tax Act is comprehensive legislation that includes provisions that lower the federal corporate income tax rate from 35% to 21% beginning in 2018 and imposes a one-time transition tax on undistributed foreign earnings. The final regulations related to the transition tax did not have a material impact on the Company. As a result of the proposed FDII guidance, which was subsequently finalized in 2020, the Company reversed the tax benefit originally recorded in 2018 by recording a tax expense of $25 million for this impact in 2019.   
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $4,260 million as of December 31, 2021. With the enactment of the Tax Act, the Company does not consider any of its foreign earnings as indefinitely reinvested.  
  
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