v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes [Abstract]  
Income Taxes Income Taxes
The components of income before income taxes were (in millions):
Year Ended December 31,
202220212020
Domestic$789.3 $845.9 $711.1 
International1,156.1 1,142.9 698.2 
 $1,945.4 $1,988.8 $1,409.3 
Income tax expense (benefit) was (in millions):
Year Ended December 31,
202220212020
Current:   
U.S. federal$180.1 $144.0 $172.2 
U.S. state and local57.0 16.5 39.5 
International287.4 303.9 189.1 
 524.5 464.4 400.8 
Deferred:   
U.S. federal11.1 40.0 (17.4)
U.S. state and local(0.3)(11.6)(6.1)
International11.5 (4.1)4.4 
 22.3 24.3 (19.1)
 $546.8 $488.7 $381.7 
The reconciliation from the statutory U.S. federal income tax rate to our effective tax rate is:
Year Ended December 31,
202220212020
Statutory U.S. federal income tax rate21.0 %21.0 %21.0 %
U.S. state and local income taxes, net of U.S. federal income tax benefit2.3 0.2 2.2 
Impact of foreign operations3.5 3.6 3.4 
Impact of war in Ukraine and other1.3 (0.2)0.5 
Effective tax rate28.1 %24.6 %27.1 %
Our effective tax rate for 2022 increased year-over-year to 28.1% from 24.6%. The higher effective tax rate for 2022 was predominantly the result of the non-deductibility of the $113.4 million charges recorded in the first quarter of 2022, arising from the effects of the war in Ukraine, as well as an additional increase in income tax expense of $4.8 million related to the disposition of our businesses in Russia. These charges were partially offset by the tax benefit arising from our share-based compensation awards. The effective tax rate for 2021 reflects a nominal tax applied to the book gain on the disposition in the Advertising & Media discipline resulting from the excess of tax over book basis and a reduction in income tax expense of $32.8 million, primarily related to the favorable settlements of uncertain tax positions in certain jurisdictions.
On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA imposes a 15% corporate alternative minimum tax for tax years beginning after December 31, 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. Historically, we have made discretionary share repurchases. Beginning in 2023, these purchases would be subject to the excise tax. Based on the historical net repurchase activity, the excise tax and the other provisions of the IRA are not expected to have a material impact on our results of operations or financial position.
The Tax Cuts and Jobs Act of 2017, or the Tax Act, imposed a one-time tax, the transition tax, on the accumulated earnings of foreign subsidiaries. At December 31, 2022 and 2021, the remaining transition tax liability was $88.8 million and $100.4 million, respectively. The transition tax is expected to be fully paid by 2026. The Tax Act also implemented a territorial tax system that allows us to repatriate earnings of our foreign subsidiaries without incurring additional U.S. tax by providing a 100% dividend exemption. While a territorial tax system limits U.S. federal income tax to domestic source income, foreign source income is subject to tax in the appropriate foreign jurisdiction at the local rate, which in certain jurisdictions may be higher than the U.S. federal statutory income tax rate of 21%. Therefore, the foreign tax rate differential will cause our effective tax rate to be higher than the U.S. federal statutory income tax rate. The international tax rate differentials in 2022 and 2021 are primarily attributed to our earnings in Germany, Australia, France, Japan and Canada being taxed at higher rates than the U.S. statutory tax rate.
We have elected to account for any tax on the global intangible low-taxed income, or GILTI, in the period in which it is incurred. We provided $10.9 million and $8.8 million in 2022 and 2021, respectively, for tax impact of GILTI.
The components of deferred tax assets and liabilities and balance sheet classification were (in millions):
December 31,
20222021
Deferred tax assets:  
Compensation$197.6 $223.8 
Tax loss and credit carryforwards77.1 81.4 
Basis differences from acquisitions31.0 29.9 
Basis differences from short-term assets and liabilities20.5 15.5 
Other, net(18.6)(14.2)
Deferred tax assets307.6 336.4 
Valuation allowance(21.1)(18.0)
Net deferred tax assets$286.5 $318.4 
Deferred tax liabilities:  
Goodwill and intangible assets$653.3 $640.1 
Unremitted foreign earnings34.9 76.6 
Basis differences from investments6.9 6.5 
Financial instruments0.3 0.8 
Deferred tax liabilities$695.4 $724.0 
Long-term deferred tax assets$66.8 $71.7 
Long-term deferred tax liabilities$475.7 $477.3 
We have concluded that it is more likely than not that we will be able to realize our net deferred tax assets in future periods because results of future operations are expected to generate sufficient taxable income. The valuation allowance of $21.1 million and $18.0 million at December 31, 2022 and 2021, respectively, relates to tax losses and tax credit carryforwards in the U.S. and in international jurisdictions. Tax loss and credit carryforwards for which there is no valuation allowance are available for periods ranging from 2023 to 2042, which is longer than the forecasted utilization of such carryforwards.
A reconciliation of our unrecognized tax benefits is (in millions):
December 31,
20222021
January 1$162.8 $182.9 
Additions:  
Current year tax positions2.7 4.4 
Prior year tax positions4.7 1.7 
Reduction of prior year tax positions(1.5)(12.1)
Settlements(0.9)(13.6)
Foreign currency translation(0.2)(0.5)
December 31$167.6 $162.8 
Substantially all the liability for uncertain tax positions is recorded in long-term liabilities. At December 31, 2022 and 2021, approximately $161.8 million and $157.3 million, respectively, of the liability for uncertain tax positions would affect our effective tax rate upon resolution of the uncertain tax positions.
Income tax expense in 2022, 2021 and 2020 includes $4.3 million, $2.1 million and $3.8 million, respectively, of interest, net of tax benefit, and penalties related to tax positions taken on our tax returns that have not been settled as of December 31, 2021. At December 31, 2022 and 2021, accrued interest and penalties were $15.9 million and $10.7 million, respectively.
We file a consolidated U.S. federal income tax return and income tax returns in various state and local jurisdictions. Our subsidiaries file tax returns in various foreign jurisdictions. Our principal foreign jurisdictions include the United Kingdom, France and Germany. The Internal Revenue Service has completed its examination of our U.S. federal tax returns through 2017. Tax returns in the United Kingdom, France and Germany have been examined through 2020, 2018 and 2015, respectively.