Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income taxes Income TaxesIncome tax expense consisted of the following:
Years ended December 31,
(in millions) 2022 2021 2020
Current:
U.S. federal $ 159  329  187 
State and local 38  44  55 
Foreign jurisdictions 84  117  105 
Total 281  490  347 
Deferred:
U.S. federal (43) (67) (12)
State and local 1  (13) 21 
Foreign jurisdictions (19) (2) (11)
Total (61) (82) (2)
Total income tax expense $ 220  408  345 
Pre-tax income was as follows:
Years ended December 31,
(in millions) 2022 2021 2020
QxH $ (1,812) 883  931 
QVC-International 222  376  316 
Consolidated QVC $ (1,590) 1,259  1,247 
Total income tax expense differs from the amounts computed by applying the U.S. federal income tax rate of 21% in 2022, 2021 and 2020, as a result of the following:
Years ended December 31,
2022 2021 2020
Provision at statutory rate $ (334) 264 262
State income taxes, net of federal benefit 31 24 52
Foreign taxes (7) 18 25
Goodwill Impairment 508 —  — 
Valuation allowance (1) 12 5
Tax on foreign earnings, net of federal tax benefits
 (4) 64 (5)
Other permanent differences 24 29 4
Corporate restructuring —  —  19
Other, net 3 (3) (17)
Total income tax expense $ 220  408 345
For the year ended December 31, 2022, income tax expense differs from the U.S. statutory rate of 21% primarily due to an impairment of goodwill that is not deductible for tax purposes in addition to state income tax expense and foreign tax expense.

During the fourth quarter of 2021, the Company, through a wholly owned foreign subsidiary, recognized income related to the exchange and redemption of the outstanding MSI Exchangeables and the extinguishment of related hedges. The income is subject to tax under the U.S GILTI rules. The tax effect of this GILTI income including the federal tax benefit of related foreign tax credits, is treated by the Company as a period cost. In addition, the Company recorded a U.S. federal tax benefit for foreign derived intangible income deductions claimed on royalty income recognized by the Company in the U.S. during 2021. The tax effect of these items is included in Tax on foreign earnings, net of federal tax benefits in the above table.

During December of 2020, the Company effected a corporate restructuring transaction whereby a wholly-owned U.S. subsidiary, which owns the Company's foreign business units, became a wholly-owned foreign subsidiary. The corporate restructuring changed the manner in which the income of the foreign business units is subjected to tax in the U.S. As a result of the corporate restructuring, income tax expense of $19 million was recognized during the year ended December 31, 2020.
The tax effects of temporary differences that gave rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:
December 31,
(in millions) 2022 2021
Deferred tax assets:
Accounts receivable, principally due to the allowance for credit losses and related reserves for the uncollectible accounts $ 22  21 
Inventories, principally due to obsolescence reserves and additional costs of inventories for tax purposes pursuant to the Tax Reform Act of 1986
 31  32 
Allowance for sales returns
 16  30 
Deferred revenue
 80  99 
Deferred compensation
 10  10 
Unrecognized federal and state tax benefits
 16  15 
Net operating loss and other carryforwards 113  116 
Foreign tax credits carryforward
 54  54 
Lease obligations
 90  63 
Cumulative translation of foreign currencies
 5  8 
Accrued liabilities
 15  10 
Other
 25  19 
Subtotal
 477  477 
Valuation allowance
 (169) (171)
Total deferred tax assets
 308  306 
Deferred tax liabilities:
Depreciation and amortization
 (751) (835)
Lease assets
 (89) (57)
Other receivable —  (11)
Total deferred tax liabilities
 (840) (903)
Net deferred tax liability
 $ (532) (597)

In the above table, valuation allowances exist due to the uncertainty of whether or not the benefit of certain U.S. federal and foreign tax credits and losses will ultimately be utilized for income tax purposes. The 2022 net deferred tax liability above includes deferred tax assets of $45 million relating to foreign jurisdictions which are included within other noncurrent assets in the consolidated balance sheet and deferred tax liabilities of $577 million in domestic jurisdictions which are included within deferred income taxes in the consolidated balance sheet. The 2021 net deferred tax liability above includes deferred tax assets of $36 million relating to foreign jurisdictions which are included within other noncurrent assets in the consolidated balance sheet and deferred tax liabilities of $633 million in domestic jurisdictions which are included within deferred income taxes in the consolidated balance sheet.
The Company is party to the Tax Agreement with Qurate Retail. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Qurate Retail for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Qurate Retail an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Qurate Retail, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution. These differences are related primarily to foreign tax credits recognized by QVC that are creditable under the Tax Agreement when and if utilized in Qurate Retail’s consolidated tax return. The difference recorded during the year ended December 31, 2022 was a dividend of $1 million primarily related to foreign tax credits recognized by QVC and not utilized in Qurate's consolidated tax return. The difference recorded during the year ended December 31, 2021 was a capital contribution of $73 million, primarily related to foreign tax credit carryovers being utilized in Qurate's consolidated tax return in excess of those recognized by QVC during the 2021 tax year. There were no material differences recorded during the year-ended December 31, 2020. The amounts of the tax-related payable balance due to Qurate Retail as of December 31, 2022 and 2021 were $23 million and $85 million, respectively, and are included in accrued liabilities in the consolidated balance sheets.
A reconciliation of the 2021 and 2022 beginning and ending amount of the liability for unrecognized tax benefits is as follows:
(in millions)
Balance at January 1, 2021 $ 67 
Increases related to prior year tax positions 1 
Decreases related to prior year tax positions (5)
Decreases related to settlements with taxing authorities — 
Increases related to current year tax positions 10 
Balance at December 31, 2021 73 
Increases related to prior year tax positions 7 
Decreases related to prior year tax positions (7)
Decreases related to settlements with taxing authorities (4)
Increases related to current year tax positions 7 
Balance at December 31, 2022 $ 76 
Included in the balance of unrecognized tax benefits as of December 31, 2022 and 2021 are potential benefits of $60 million (net of a $16 million federal tax effect) and $58 million (net of a $15 million federal tax effect), respectively, that if recognized, would be reflected in income tax expense and affect the effective rate.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in interest expense in the consolidated statements of operations. The Company did not have a material amount of interest or tax penalties accrued related to unrecognized tax benefits for the years ended December 31, 2022, 2021 or 2020.
The Company has tax positions for which the amount of related unrecognized tax benefits could change during 2023. These consist of nonfederal transfer pricing and other nonfederal tax issues. It is reasonably possible that the amount of the Company’s gross unrecognized tax benefits may decrease within the next 12 months by up to $21 million.
The Company participates in a consolidated federal return filing with Qurate Retail. As of December 31, 2022, the Internal Revenue Service ("IRS") has completed its examination of Qurate Retail’s tax years through 2020. The Company's 2021 and 2022 tax years are being examined currently as part of the Qurate Retail consolidated return under the IRS's Compliance Assurance Process program. The Company files income tax returns in various states and foreign jurisdictions. As of December 31, 2022, the Company was under examination in Colorado, Florida, Maine, Minnesota, New Jersey, Pennsylvania, New York City, and the U.K.