Income Taxes |
6 Months Ended |
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Jun. 30, 2025 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | INCOME TAXES The Company uses a full-year projected effective tax rate approach to calculate year-to-date taxes. The projected effective tax rate is the ratio of projected “Total income tax expense” divided by projected “Income before income taxes and equity in earnings of joint ventures and other operating entities.” In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. In determining the year-to-date income tax provision, the Company considers the realizability of deferred tax assets, including those associated with unrealized investment losses, and has determined based upon the weight of available evidence that no valuation allowance is necessary related to unrealized investment losses. The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year. Taxes attributable to joint ventures and other operating entities are recorded within “Equity in earnings of joint ventures and other operating entities, net of taxes.” The Company’s income tax provision, on a consolidated basis, amounted to an income tax expense of $402 million, or 24.2% of income (loss) before income taxes and equity in earnings of joint ventures and other operating entities, in the first six months of 2025, compared to an income tax expense of $553 million, or 19.7%, in the first six months of 2024. The Company’s current and prior effective tax rates differ from the U.S. statutory rate of 21% primarily due to non-taxable investment income, tax credits, foreign earnings taxed at higher rates than the U.S. statutory rate, and the items discussed below. Foreign Tax Credit Regulations. The Treasury Department and the IRS published Final Regulations in the Federal Register (Treasury Decision 9959) on January 4, 2022, which affect the creditability of certain foreign taxes for U.S. federal income tax purposes. The Final Regulations created uncertainty as to whether a U.S. foreign tax credit could be claimed for taxes the Company paid to Brazil. The ability to claim a foreign tax credit for taxes paid to Brazil impacted the benefit of the election made pursuant to Internal Revenue Code Section 952 to subject earnings from the Company’s insurance operations in Brazil to tax in the U.S. in the tax year earned, net of related foreign tax credits. The Company continues to assume that the election does not apply in tax years post 2021. On August 7, 2023, the IRS issued Notice 2023-55 which provides temporary relief to taxpayers in determining whether a foreign tax is eligible for a U.S. foreign tax credit for tax years 2022 and 2023. Subsequently, on December 11, 2023 the IRS issued Notice 2023-80 which extended that relief to taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued and abolished certain changes that the Final Regulations had made to the creditability of a tax paid in lieu of a generally imposed foreign income tax. As a result of this guidance, the Company claimed a U.S. foreign tax credit in 2024 for taxes paid to Brazil related to the 2023 tax year and will continue to claim a U.S. foreign tax credit for taxes paid to Brazil in future tax years. This contributed to the Company’s Brazil operations not being subject to Global Intangible Low Taxed Income (GILTI) in 2024. GILTI. The GILTI provision applies a minimum U.S. tax to earnings of consolidated foreign subsidiaries in excess of a 10% deemed return on tangible assets of foreign subsidiaries by imposing the U.S. tax rate to 50% of earnings of such foreign affiliates and provides for a partial foreign tax credit for foreign income taxes. In years that the PFI consolidated federal income tax return reports a net operating loss or has a loss attributable to U.S. sources of operations, including as a result of loss carrybacks, the GILTI provision would limit the amount of deductions or credits permissible against GILTI. These limitations did not have a material impact in 2023 or 2024. On July 20, 2020, the U.S. Treasury and the Internal Revenue Service issued Final Regulations (Treasury Decision 9902) pursuant to Internal Revenue Code Section 951A which allow an annual election to exclude from the U.S. tax return certain GILTI amounts when the taxes paid by a foreign affiliate exceed 18.9% (90% of U.S. statutory rate of 21%) of the GILTI amount for that foreign affiliate (the “high-tax exception”). These regulations are effective for the 2021 taxable year with an election to apply to any taxable year beginning after 2017. In many of the countries in which the Company operates, including Japan and Brazil, there are differences between local tax rules used to determine the tax base and the U.S. tax principles used to determine GILTI. Also, the Company’s Japan affiliates have a different tax year than the U.S. calendar tax year used to determine GILTI. Therefore, while many of the countries, including Japan and Brazil, have a statutory tax rate above the 18.9% threshold, separate affiliates may not meet the 18.9% threshold each year and, as such, may not qualify for this annual exclusion. The Company made the high-tax exception election for the 2024 tax year and anticipates to make the high-tax exception election for the 2025 tax year for its foreign affiliates that meet the 18.9% threshold. The Company reflected the impact of the election in its full year projected effective tax rate used to calculate year-to-date taxes for the first six months of 2024 and 2025, respectively. Tax Law Change. H.R.1, also referred to as the “One Big Beautiful Bill Act” (the “Tax Act of 2025”), was enacted into law on July 4, 2025. The legislation introduces changes to the U.S. international tax regime, including a reduction in the Section 250 deduction for GILTI (now referred to as Net CFC Tested Income (“NCFCTI”)) from 50% to 40% beginning in 2026, resulting in an increase to the corporate tax rate on NCFCTI from 10.5% to 12.6%. The legislation also reduces the foreign tax credit haircut related to NCFCTI from 20% to 10% and makes changes to the related expense allocation. While the Company is currently evaluating the impact of the Tax Act of 2025 on its future consolidated financial statements and related disclosures, the Company does not anticipate that the provisions of the Tax Act of 2025 will have a material impact on its effective tax rate and deferred tax positions beginning in the third quarter of 2025. In March 2025, Japan enacted a 4% Special Defense Corporation Tax, effective for tax years beginning on or after April 1, 2026, that raises the corporate income tax rate for the Company’s Japan insurance companies from 28.00% to 28.93%. As a result, a tax expense of approximately $36 million was reflected in the financial statements for the first quarter of 2025. Tax Audit and Unrecognized Tax Benefits. It is possible the Company will pay the unrecognized tax benefit attributable to the Section 952 election of approximately $122 million for prior period audit cycles within the next 12 months as it pursues resolution of the matter. The payment will have no impact on the effective tax rate. The Company cannot predict with reasonable accuracy whether there will be any significant changes within the next twelve months to its total unrecognized tax benefits related to tax years for which the statute of limitations has not expired.
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