SEC Filings


8-K
CUMMINS INC filed this Form 8-K on 02/06/2018
Entire Document
 

INCOME TAXES
 
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (Tax Legislation).  Among other things, the Tax Legislation changed the U.S. statutory rate to 21 percent effective January 1, 2018.  The impact of the Tax Legislation resulted in a net incremental charge to our Condensed Consolidated Statements of Income of $777 million.  The components of the 2017 charge were as follows:
In millions
Impact of Tax Legislation
Increase in income tax expense
$
781

Decrease in equity, royalty and other income from investees
39

Increase in income attributable to noncontrolling interests
(43
)
Net impact of Tax Legislation
$
777

The $781 million increase in tax expense is composed of three elements - the remeasurement of deferred taxes, a one-time transitional tax on unrepatriated earnings and withholding taxes on foreign earnings.
We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. We are still analyzing certain aspects of the Tax Legislation and refining our calculations, which could potentially affect the measurement of these balances. The provisional amount related to the remeasurement of our deferred tax balance is an incremental tax expense of $152 million.
The one-time transition tax is based on our total post-1986 unrepatriated earnings and profits not previously subject to U.S. income tax. The recorded provisional amount for our one-time transition tax is a tax expense of $298 million.
Withholding tax is an additional cost associated with the distribution of earnings from some jurisdictions. As a result of the Tax Legislation, we reconsidered previous assertions regarding earnings that were considered permanently reinvested, which requires us to record withholding taxes on earnings likely to be distributed in the foreseeable future. The assertion as to which earnings are permanently reinvested for purposes of calculating withholding tax is provisional as we refine the underlying calculations of the amount of earnings subject to the tax and the rate at which it will be taxed. The recorded provisional amount for the withholding tax resulted in an incremental tax expense of $331 million.
 
 
Our unconsolidated equity investees were also unfavorably impacted by the new tax legislation by $39 million, due to $32 million of withholding taxes on foreign earnings and $7 million due to the remeasurement of deferred taxes. In addition, our noncontrolling interests included a $43 million credit related to the withholding taxes on foreign earnings.
Our income tax rates are generally less than the 35 percent U.S. statutory income tax rate, primarily because of lower taxes on foreign earnings and research tax credits. Our effective tax rate for 2017 was 151.8 percent and 58.0 percent for the fourth quarter and full year, respectively, compared to 22.0 percent and 24.6 percent for the fourth quarter and full year in 2016. Our 2017 effective tax rate excluding the Tax Legislation was 19.5 percent and 24.5 percent for the fourth quarter and full year, respectively.
We expect our 2018 effective tax rate to be 23 percent, excluding any discrete items (including adjustments to provisional estimates) that may arise.

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