NOTE 7 – INCOME TAXES A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:
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(in millions) |
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Unrecognized
Tax Benefits |
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Interest and
Penalties |
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Total |
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Opening balance at January 1, 2024 |
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$ |
10.5 |
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$ |
4.3 |
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$ |
14.8 |
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Increase for tax positions of prior periods |
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— |
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0.8 |
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0.8 |
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Decrease for settlement of tax positions |
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(3.3 |
) |
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(1.3 |
) |
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(4.6 |
) |
Closing balance at September 30, 2024 |
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7.2 |
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3.8 |
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11.0 |
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Current |
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— |
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— |
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— |
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Non-current |
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$ |
7.2 |
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$ |
3.8 |
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$ |
11.0 |
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All of the $11.0 million of unrecognized tax benefits, interest and penalties would impact our effective tax rate if recognized. In 2021 a non-U.S. subsidiary, Innospec Limited, entered into a review by the U.K. tax authorities under the U.K.’s Profit Diversion Compliance Facility (“PDCF”) in relation to the period 2017 to 2020 inclusive. The Company has determined that additional tax, interest and penalties totaling $1.2 million will arise as a consequence of the review. During the quarter ended September 30, 2024, the Company and the U.K. tax authorities reached agreement on this position, and the liability was settled. The liability which was agreed on ultimate settlement was consistent with the amount recorded as a liability, and this item has been released from unrecognized tax benefits and recognized in income taxes. In 2018 the Company recorded an unrecognized tax benefit in relation to a potential adjustment that could arise as a consequence of the Tax Cuts and Jobs Act of 2017 (“Tax Act”), but for which retrospective adjustment to the filed 2017 U.S. federal income tax returns was not permissible. The Company has determined that additional tax, interest and penalties totaling $11.0 million may arise in relation to this item. This includes an increase in interest accrued of $0.8 million in the nine months to September 30, 2024. The Company believes that it is reasonably possible that there will be a decrease of $11.0 million unrecognized tax benefits during the fourth quarter of 2024 in relation to this item due to a lapse of the statute of limitations. A non-U.S. subsidiary, Innospec Performance Chemicals Italia Srl, has been subject to an ongoing tax audit in relation to the period 2011 to 2014 inclusive. The Company had determined that additional tax, interest and penalties totaling $3.4 million will arise as a consequence of the tax audit. As any additional tax arising as a consequence of the tax audit is to be reimbursed by the previous owner under the terms of the sale and purchase agreement, an indemnification asset of the same amount is recorded in the financial statements to reflect this arrangement. During the quarter ended June 30, 2024, the Company submitted documentation to the tax authorities confirming its acceptance of the previously disputed position, and due to imminent settlement, this item was released from unrecognized tax benefits and recognized in accrued income taxes in that quarter. As of September 30, 2024, the Company and its U.S. subsidiaries remain open to examination by the IRS for certain elements of 2017 year and for years 2020 onwards under the statute of limitations. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Brazil (2019 onwards), Germany (2019 onwards), and the U.K. (2022 onwards).
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