INCOME TAXES |
9 Months Ended |
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Sep. 30, 2024 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | INCOME TAXES The effective income tax rate for the third quarter of 2024 was expense of 16.1% compared to expense of 17.3% for the third quarter of 2023. The decrease in the effective tax rate in the third quarter of 2024 was due to the reduction of a valuation allowance on a foreign tax attribute, partially offset by greater levels of income in higher tax jurisdictions. The effective income tax rate for the first nine months of 2024 was expense of 16.8% compared to expense of 16.9% for the first nine months of 2023. The decrease in the effective tax rate in the first nine months of 2024 was due to a larger impact from the excess tax benefits recognized for employee share-based payments and the reduction of valuation allowances on foreign tax attributes, partially offset by greater levels of income in higher tax jurisdictions. Brazil Tax Years 2005-2012 The Company has two Brazilian tax cases primarily relating to the amortization of certain goodwill generated from the acquisition of third-party businesses and corporate reorganizations. One case involves tax years 2005-2008 (Case 1), and the other involves tax years 2009-2012 (Case 2). Case 2 is proceeding on a more accelerated timeline than Case 1. For Case 2, the Company received a tax assessment in 2014 that included interest and penalties. In November 2019, the Company received an unfavorable result at the final tax administrative appeals level, resulting in an alleged tax deficiency of $24 million plus $112 million of interest and penalties (translated at the September 30, 2024 exchange rate). The Company is challenging this assessment in the judicial system and, on April 18, 2022, received an unfavorable decision at the first judicial level. On April 27, 2022, the Company filed a motion for clarification relating to that decision. On May 20, 2022, the court largely upheld its prior decision without further clarification. On June 9, 2022, the Company filed its notice of appeal to the second level court. On July 11, 2024, the court published a favorable decision resulting in the cancellation of an additional 75% penalty imposed by the tax authorities. As a result of the favorable decision, the alleged interest and penalties was reduced from $112 million to $79 million (translated at the September 30, 2024 exchange rate). The Company intends to continue its challenge of the assessment in the judicial system. As previously disclosed for Case 1, the Company received a separate tax assessment alleging a tax deficiency of $30 million plus $113 million of interest and penalties (translated at the September 30, 2024 exchange rate), which the Company is challenging in the judicial system. On April 4, 2024, the court published a favorable decision resulting in a reduction to the Case 1 assessment for the goodwill generated from the acquisition of a third-party business. In the same decision, the court confirmed the cancellation of an additional 75% penalty imposed by the tax authorities. As a result of the favorable decision, the alleged tax deficiency was reduced to $30 million plus $92 million of interest and penalties (translated at the September 30, 2024 exchange rate). The remainder of Case 1 is still pending resolution at the first judicial level. Both cases are expected to take several years to resolve through the Brazilian judicial system and require provision of certain assets as security for the alleged deficiencies. As of September 30, 2024, the Company pledged Brazilian real estate assets with net book value of $18 million and provided additional security in the form of bank secured bonds and insurance bonds totaling $127 million and a cash deposit of $25 million (translated at the September 30, 2024 exchange rate). The Company believes that the final resolution of both of the assessments will not have a material impact on its condensed 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 these matters deviate from our reasonable expectations, they may have a material adverse impact on the Company’s condensed consolidated financial statements. However, Eaton believes that its interpretations of tax laws and application of tax laws to its facts are correct.
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