FINANCIAL STATEMENTS
CONSOLIDATED EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (In millions) 2019 2018 2017
U.S. earnings $ 506 $ (9,861) $ (17,918)
Non-U.S. earnings 643 (11,126) 6,573
Total $ 1,149 $ (20,987) $ (11,345)
CONSOLIDATED (BENEFIT) PROVISION FOR INCOME TAXES (In millions) 2019 2018 2017 U.S. Federal
Current $ 146 $ 1,019 $ (734)
Deferred (1,266) (3,144) (3,625)
Non - U.S.
Current 2,008 1,132 1,820
Deferred 106 1,197 (429)
Other (267) (111) 160
Total $ 726 $ 93 $ (2,808)
INCOME TAXES PAID (RECOVERED) (In millions) 2019 2018 2017
GE $ 2,183 $ 1,803 $ 2,700
GE Capital 45 65 (264)
Total(a) $ 2,228 $ 1,868 $ 2,436
(a) Includes tax payments reported in discontinued operations.
RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE
Consolidated GE GE Capital
2019 2018 2017 2019 2018 2017 2019 2018 2017
U.S. federal statutory income tax rate 21.0% 21.0 % 35.0% 21.0% 21.0 % 35.0 % 21.0% 21.0% 35.0%
Increase (reduction) in rate resulting from inclusion of after-tax earnings of GE
Capital in before-tax earnings of GE — — — 8.8 (0.5) (43.2) — — —
Tax on global activities including exports 91.0 (5.0) 30.3 86.5 (5.0) 34.6 8.1 3.2 12.2
U.S. business credits(a) (22.5) 2.6 4.3 (9.1) 0.4 1.5 21.9 120.0 3.2
Goodwill impairments 26.0 (21.5) (7.8) 23.5 (21.4) (7.3) — — (3.8)
Tax Cuts and Jobs Act enactment 0.2 (0.2) (39.8) 7.9 0.5 (89.6) 15.2 (36.5) 3.1
All other – net(b)(c)(d) (52.5) 2.7 2.8 (35.6) 2.8 5.2 23.1 (8.0) 0.2
42.2 (21.4) (10.2) 82.0 (23.2) (98.8) 68.3 78.7 14.9
Actual income tax rate 63.2% (0.4)% 24.8% 103.0% (2.2)% (63.8)% 89.3% 99.7% 49.9%
(a) U.S. general business credits, primarily the credit for energy produced from renewable sources and the credit for research performed in the U.S.
(b) Included, for each period, the expense or benefit for Other taxes reported above in the consolidated (benefit) provision for income taxes, net of 21.0% federal effect for the years ended December 31, 2019 and 2018 and 35.0% federal effect for the year ended December 31, 2017.
(c) For the year ended December 31, 2019, included (12.5)% and (11.3)% in consolidated and GE, respectively, related to the disposition of the Digital ServiceMax business. For the year ended December 31, 2018, included 2.8% and 2.8% in consolidated and GE, respectively, related to deductible stock losses. Included in 2017 is 5.6% and 11.7% in consolidated and GE, respectively, related to the disposition of the Water business. Also included in 2017 is (3.1)% and (6.4)% in consolidated and GE, respectively, related to losses on planned dispositions.
(d) For the year ended December 31, 2019, included (32.9)%, (27.9)% and 3.5% in consolidated, GE and GE Capital, respectively for the resolution of the IRS audit of our consolidated U.S. income tax returns for 2012-2013.
U.S. TAX REFORM. On December 22, 2017, the U.S. enacted legislation commonly known as the Tax Cuts and Jobs Act (U.S. tax reform) that lowered the statutory tax rate on U.S. earnings to 21%, taxes historic foreign earnings at a reduced rate of tax, establishes a territorial tax system and enacts new taxes associated with global operations.
The impact of enactment of U.S. tax reform was recorded in 2017 on a provisional basis as the legislation provided for additional guidance to be issued by the U.S. Department of the Treasury on several provisions including the computation of the transition tax. This amount was adjusted in both 2018 and 2019 based on guidance issued during each of these years. Additional guidance may be issued after 2019 and any resulting effects will be recorded in the quarter of issuance. Additionally, as part of U.S. tax reform, the U.S. has enacted a minimum tax on foreign earnings (global intangible low tax income). We have not made an accrual for the deferred tax aspects of this provision.
With the enactment of U.S. tax reform, we recorded, for the year ended December 31, 2017, tax expense of $4,512 million to reflect our provisional estimate of both the transition tax on historic foreign earnings ($1,155 million including $2,925 million at GE and $(1,770) million at GE Capital) and the revaluation of deferred taxes ($3,357 million including $1,980 million at GE and $1,377 million at GE Capital). For the year ended December 31, 2018, we finalized our provisional estimate of the enactment of U.S. tax reform and
recorded an additional tax expense of $41 million. For the year ended December 31, 2019, we recorded an additional tax expense of $2 million based on the issuance in January 2019 of final regulations on the transition tax on historic foreign earnings. The cash impact of the transition tax on historic foreign earnings was largely offset by accelerated use of deductions and tax credits and was substantially incurred with the filing of the 2017 tax return with no amount subject to the deferred payment provision provided under law.
UNRECOGNIZED TAX POSITIONS. Annually, we file over 4,100 income tax returns in almost 300 global taxing jurisdictions. We are under examination or engaged in tax litigation in many of these jurisdictions. The Internal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2014-2015. In June 2019, the IRS completed the audit of our consolidated U.S. income tax returns for 2012-2013, which resulted in a decrease in our balance of unrecognized tax benefits (i.e., the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements). The Company recognized a resulting non-cash continuing operations tax benefit of $378 million plus an additional net interest benefit of $107 million. Of these amounts, GE recorded $355 million of tax benefits and $98 million of net interest benefits and GE Capital recorded $23 million of tax benefits and $9 million of net interest benefits. GE Capital recorded an additional non-cash benefit in discontinued operations of $332 million of tax benefits and $46 million of net interest benefits. See Note 2 for further information. As previously disclosed, the United Kingdom tax authorities disallowed interest deductions claimed by GE Capital for the years 2007-2015 that could result in a potential impact of approximately $1 billion, which includes a possible assessment of tax and reduction of deferred tax assets, not including interest and penalties. We are contesting the disallowance. We comply with all applicable tax laws and judicial doctrines of the United Kingdom and believe that the entire benefit is more likely than not to be sustained on its technical merits. We believe that there are no other
jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.
The balance of unrecognized tax benefits, the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months were:
UNRECOGNIZED TAX BENEFITS December 31 (Dollars in millions) 2019 2018
Unrecognized tax benefits $ 4,169 $ 5,563
Portion that, if recognized, would reduce tax expense and effective tax rate(a) 2,701 4,265
Accrued interest on unrecognized tax benefits 722 934
Accrued penalties on unrecognized tax benefits 195 182
Reasonably possible reduction to the balance of unrecognized tax benefits
in succeeding 12 months 0-700 0-1,300
Portion that, if recognized, would reduce tax expense and effective tax rate(a) 0-650 0-1,200 (a) Some portion of such reduction may be reported as discontinued operations.
UNRECOGNIZED TAX BENEFITS RECONCILIATION (In millions) 2019 2018
Balance at January 1 $ 5,563 $ 5,449
Additions for tax positions of the current year 403 300
Additions for tax positions of prior years 500 945
Reductions for tax positions of prior years(a) (1,927) (905)
Settlements with tax authorities (155) (64)
Expiration of the statute of limitations (214) (162)
Balance at December 31 $ 4,169 $ 5,563
(a) For 2019, reductions included $710 million related to the completion of the 2012-2013 IRS audit and $442 million related to the deconsolidation of Baker Hughes.
We classify interest on tax deficiencies as interest expense; we classify income tax penalties as provision for income taxes. For the years ended December 31, 2019, 2018 and 2017, $(93) million, $127 million and $143 million of interest expense (income),
respectively, and $20 million, $(7) million and $7 million of tax expense (income) related to penalties, respectively, were recognized in our consolidated Statement of Earnings (Loss).
DEFERRED INCOME TAXES. We have not provided deferred taxes on cumulative net earnings of non-U.S. affiliates and associated companies of approximately $40 billion that have been reinvested indefinitely. Given U.S. tax reform, substantially all of our prior unrepatriated earnings were subject to U.S. tax and accordingly we expect to have the ability to repatriate available non-U.S. cash without additional federal tax cost, and any foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit. However, because most of these earnings have been reinvested in active non-U.S. business operations, as of December 31, 2019, we have not decided to repatriate these earnings to the U.S. It is not practicable to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.
DEFERRED INCOME TAXES December 31 (In millions) 2019 2018
GE $ 12,807 $ 14,479
GE Capital 5,124 6,214
Total assets 17,931 20,693
GE (4,618) (4,302)
GE Capital (3,424) (4,278)
Eliminations — 4
Total liabilities (8,042) (8,576)
Net deferred income tax asset (liability) $ 9,889 $ 12,117