ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾

19. INCOME TAXESÌý

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The following is a summary of U.S. and non-U.S. provisions for current and deferred income taxes from continuing operations (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 from continuing operations (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 2022, 2021Ìýand 2020, the average statutory rate for countries with pre-tax income (in 2022, primarily our operations in China (25% statutory rate), Germany (30% 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 $8Ìýmillion, $16Ìýmillion and $16Ìýmillion, respectively, as compared to the 21% U.S. statutory rate reflected in the reconciliation above.Ìý

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During 2021, Albemarle agreed to waive any appeal in connection with an arbitration award we won and pay us $665 millionÌý(approximately $465 million, net of related legalÌýfees). Of the $465 million income recorded, $237 million was capital gain for tax purposes. The realization of capital gains allowed us to release the valuation allowance of $237 million ($57 million tax-effected) related to the capital loss carryover and tax basis in our Venator investment, as further discussed below.

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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 2022, 2021Ìýand 2020, we have incurred a tax expense of $3Ìýmillion, tax benefit of $4Ìýmillion and tax expense of $7Ìýmillion, respectively, resulting from these expense allocations, net of other U.S. taxation on foreign operations.ÌýOur results for 2021 included a $15 million benefit from the Foreign Derived Intangible Income (“FDIIâ€�) provisions of the U.S. Tax Reform Act.

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The 2020 sale and related 2021 earnout provision of theÌýIndia-based DIY business created global taxable gains different than the gains 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 gains at the U.S. statutory tax rate benefit for 2021 and 2020 was $4 million and $35 million, respectively.

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The components of income 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 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 cumulative income or losses during the applicable three-year period. Cumulative losses incurred over the three-year period limits our ability to consider other 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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As a result of income tax accounting guidance to use a three-year cumulative loss and with the negative economic impacts of recent events, including the impacts of COVID-19 and economic challenges in Europe, we established a $49 million valuation allowance against the entire net deferred tax asset in The Netherlands as of December 31, 2022.

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We have gross net operating losses (“NOLsâ€�) of $828Ìýmillion ($211Ìýmillion tax-effected) in various non-U.S. jurisdictions. While the majority of the non-U.S. NOLs have no expiration date, $41Ìýmillion ($8Ìýmillion tax-effected) have a limited life (of which $8 million ($2Ìýmillion tax-effected) are subject to a valuation allowance), of which none are scheduled to expire in 2023. We had noÌýNOLs expire unused in 2022.Ìý

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We have gross U.S. federal NOLs of $43Ìýmillion ($9Ìýmillion tax-effected), which were primarily acquired through acquisitions subject to tax change of control limitations. We expect to be able to utilize all of these NOLs, and therefore they are not subject to a valuation allowance.

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Included in the $828Ìýmillion of gross non-U.S. NOLs is $339Ìýmillion ($85Ìýmillion tax-effected) attributable to our Luxembourg entities. As of DecemberÌý31, 2022, due to the uncertainty surrounding the realization of the benefits of these losses, there is a valuation allowance of $42Ìýmillion against these net tax-effected NOLs of $85Ìýmillion.

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We have $2Ìýmillion tax effected state capital loss carryovers, all of which are subject to a valuation allowance. Capital loss carryovers may only be utilized against capital gains and have a 5-year carryforward period.Ìý

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During 2021, we recognized $237 million ($57 million tax-effected) of capital gain from the Albemarle Settlement, of which we utilized $28Ìýmillion tax-effected of U.S. capital loss carryovers (which were subject to a valuation allowance) and released $29 million tax-effected valuation allowance against the tax basis greater than book basis in our Venator investment that will now be realizable. The deferred tax assets relating to the excess built-in capital loss in our remaining interest in Venator are subject to a full valuation allowance.

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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.Ìý

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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, 2022 and 2021, the amount of unrecognized tax benefits (not including interest and penalties) which, if recognized, would affect the effective tax rate is $7 million and $11Ìýmillion, respectively During 2021, we recorded a $31 million increase to our unrecognized tax benefits related to the timing of tax losses on our Venator investment. This increase was offset by an increase in net deferred tax assets and, therefore, did not affect income tax expense but represents additional cash taxes that could be due if the position is not sustained on audit. Upon the legal disposition of our remaining Venator investment and the filing of associated tax returns (which weÌýestimate is likely to occur before the position would be settled with tax authorities), the unrecognized tax benefit will be reversed with an offset to net deferred tax assets, and, therefore, no impact to income tax expense and cash taxes.Ìý

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During 2022, we concluded and settled tax examinations in the U.S. (federal and various states), China and Japan. During 2021, we concluded and settled tax examinations in the U.S. (federal and various states), Germany, Taiwan and Thailand. During 2020, we concluded and settled tax examinations in the U.S. (various states), Thailand andÌýKorea.Ìý

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During 2022, for unrecognized tax benefits that impact tax expense, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense (not including interest and penalties) of $3Ìýmillion. During 2021, for unrecognized tax benefits that impact tax expense, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense (not including interest and penalties) of $3Ìýmillion.ÌýDuring 2020, for unrecognized tax benefits that impact tax expense, we recorded a net increase in unrecognized tax benefits with a corresponding income tax benefit (not including interest and penalties) of $1 million.Ìý

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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 (dollars in millions).

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We conduct business globally, andÌýas 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 ourÌýunrecognized 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 $6Ìýmillion to $38Ìýmillion. For the 12-month period from the reporting date, we would expect that aÌýdecrease in our unrecognized tax benefits would result in noÌýcorresponding 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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