8-KOther Events

Trane Technologies plc 8-K Report, Corporate Update (Jul 21, 2015)

Filed July 21, 2015For Securities:TT

Summary

Trane Technologies plc (TT), formerly Ingersoll-Rand plc, has reached an agreement with the Internal Revenue Service (IRS) to resolve a significant tax dispute concerning intercompany debt incurred during its 2001 reorganization and other related intercompany debt from 2002-2011. This resolution aims to settle all disputes previously disclosed in the company's filings, including issues related to recharacterized distributions, and covers matters before the U.S. Tax Court and IRS Appeals and Examination divisions. The financial implications for the company are substantial. Trane Technologies will pay $230 million in withholding tax, plus interest, for the 2002-2006 tax years. Importantly, no additional tax will be owed for the 2007-2011 period. This agreement avoids potentially much larger tax liabilities and penalties that the IRS had previously asserted, which could have amounted to approximately $774 million plus penalties and interest for the earlier period. The company will recognize a charge of approximately $227 million to income tax expense in the second quarter of 2015, with a total expected net cash outflow of approximately $375 million in the second half of 2015.

Key Highlights

  • 1Agreement reached with IRS to resolve disputes over intercompany debt from 2001 reorganization and 2002-2011 periods.
  • 2Resolution covers all related issues, including recharacterized distributions and matters in U.S. Tax Court.
  • 3No penalties will apply to the tax years 2002-2011.
  • 4Company to pay $230 million in withholding tax plus interest for 2002-2006.
  • 5No additional tax owed for the 2007-2011 period.
  • 6Agreement avoids significantly larger asserted tax liabilities and potential penalties.
  • 7Expected $227 million charge to income tax expense in Q2 2015 and $375 million net cash outflow in H2 2015.

Frequently Asked Questions

The company is resolving long-standing disputes with the IRS related to intercompany debt incurred during its 2001 reorganization and other intercompany debt outstanding between 2002 and 2011. This also includes related issues such as recharacterized distributions.

Trane Technologies will pay $230 million in withholding tax plus interest for the 2002-2006 tax years. The company expects a total net cash outflow of approximately $375 million in the second half of 2015 and will recognize a $227 million charge to income tax expense in the second quarter of 2015.

The IRS had previously asserted approximately $774 million in taxes plus penalties and interest for the 2002-2006 tax years, with similar claims expected for 2007-2011. This resolution avoids those larger potential liabilities and includes no penalties.

Yes, the resolution must be reported to the Congressional Joint Committee on Taxation (JCT) for review. The IRS will consider any views expressed by the JCT before the resolution can be finalized.