Investor Presentaiton
Unrecognized Income Tax Benefits
A summary
(In millions)
of
gross unrecognized income tax benefits is as follows:
Balance at January 1
Increases and decreases as a result of positions taken during prior years
Transfers from valuation allowances
Other increases, including currency translation
2022
2021
2020
$
1,120 $
1,036 $
1,001
Other decreases, including currency translation
Increases related to acquired businesses
Increases as a result of positions taken during the current year
Decreases relating to settlements with tax authorities
Decreases as a result of a lapse of the applicable statute of limitations
Balance at December 31
$
6
36
22
10
(16)
(10)
(10)
10
12
7
97
75
58
(11)
(26)
(12)
(10)
1,235 $
1,120 $
1,036
Eaton recognizes an income tax benefit from an uncertain tax position only if it is more likely than not that the benefit would
be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company evaluates and
adjusts the amount of unrecognized income tax benefits based on changes in facts and circumstances. The Company does not
enter into any of the United States Internal Revenue Service (IRS) Listed Transactions as set forth in Treasury Regulation
1.6011-4.
If all unrecognized income tax benefits were recognized, the net impact on the provision for income tax expense would be
$833 million.
As of December 31, 2022 and 2021, Eaton had accrued approximately $137 million and $128 million, respectively, for the
payment of worldwide interest and penalties, which are not included in the table of unrecognized income tax benefits above.
Eaton recognizes interest and penalties related to unrecognized income tax benefits in the provision for income tax expense.
The resolution of the majority of Eaton's unrecognized income tax benefits is dependent upon uncontrollable factors such as
the timing of finalizing resolutions of audit disputes through reaching settlement agreements or concluding litigation, or
changes in law. Therefore, for the majority of Eaton's unrecognized income tax benefits, it is not reasonably possible to
estimate the increase or decrease in the next 12 months. For each of the unrecognized income tax benefits where it is possible to
estimate the increase or decrease in the balance within the next 12 months, the Company does not anticipate any significant
change.
The Company believes that the final resolution of all the assessments discussed below will not have a material impact on its
consolidated financial statements. The ultimate outcome of these matters cannot be predicted with certainty given the complex
nature of tax controversies. Should the ultimate outcome of any one of these matters deviate from our reasonable expectations,
final resolution may have a material adverse impact on the Company's consolidated financial statements. However, Eaton
believes that its interpretations of tax laws and application of tax laws to its facts are correct, and that its accrual of
unrecognized income tax benefits is appropriate with respect to these matters.
Eaton or its subsidiaries file income tax returns in Ireland and many countries around the world. With only a few exceptions,
Eaton and its subsidiaries are no longer subject to examinations for years before 2014.
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