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Taxes on Income
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Taxes on Income Taxes on Income
A reconciliation between the effective tax rate for income from continuing operations and the U.S. statutory rate is as follows:
 202320222021
  AmountTax RateAmountTax RateAmountTax Rate
U.S. statutory rate applied to income from continuing operations before taxes$397 21.0 %$3,453 21.0 %$2,915 21.0 %
Differential arising from:
Acquisition of Prometheus
2,139 113.3 — — — — 
Acquisition of Imago
253 13.4 — — — — 
Valuation allowances70 3.7 108 0.7 102 0.7 
Acquisition-related costs, including amortization
42 2.2 (3)— 8 0.1 
Restructuring41 2.2 11 0.1 61 0.4 
Foreign earnings(941)(49.8)(1,821)(11.1)(1,456)(10.5)
GILTI and the foreign-derived intangible income deduction(80)(4.3)462 2.8 (75)(0.5)
R&D tax credit(214)(11.3)(117)(0.7)(113)(0.8)
State taxes(117)(6.2)(110)(0.7)2 — 
Inventory donations
(65)(3.5)(52)(0.3)(41)(0.3)
Tax settlements
— — (10)(0.1)(275)(2.0)
Acquisition of Pandion— — — — 356 2.6 
Other(13)(0.7)(3)— 37 0.3 
 $1,512 80.0 %$1,918 11.7 %$1,521 11.0 %
Where applicable, the impact of changes in uncertain tax positions is reflected in the reconciling items above.
The Company’s remaining transition tax liability under the Tax Cuts and Jobs Act (TCJA) of 2017, which has been reduced by payments and the expected utilization of foreign tax credits, was $1.5 billion at December 31, 2023, of which $976 million is included in Income taxes payable and the remainder of $518 million is included in Other Noncurrent Liabilities. As a result of the transition tax under the TCJA, the Company is no longer indefinitely reinvested with respect to its undistributed earnings from foreign subsidiaries and has provided a deferred tax liability for foreign withholding taxes that would apply. The Company remains indefinitely reinvested with respect to its
financial statement basis in excess of tax basis of its foreign subsidiaries. A determination of the deferred tax liability with respect to this basis difference is not practicable.
The foreign earnings tax rate differentials in the tax rate reconciliation above primarily reflect the impacts of operations in jurisdictions with different tax rates than the U.S., particularly Ireland and Switzerland, as well as Singapore and Puerto Rico which operate under tax incentive grants (which begin to expire in 2025), thereby yielding a favorable impact on the effective tax rate compared with the U.S. statutory rate of 21%. The Company has an additional Cantonal tax holiday in Switzerland that provides for a tax rate reduction and is effective through 2032.
Income from continuing operations before taxes consisted of:
Years Ended December 31202320222021
Domestic$(15,622)$1,011 $1,854 
Foreign17,511 15,433 12,025 
 $1,889 $16,444 $13,879 
Taxes on income from continuing operations consisted of:
Years Ended December 31202320222021
Current provision
Federal$928 $2,265 $74 
Foreign2,435 1,164 1,273 
State48 57 (13)
 3,411 3,486 1,334 
Deferred provision
Federal(1,559)(1,510)240 
Foreign(233)71 (77)
State(107)(129)24 
 (1,899)(1,568)187 
 $1,512 $1,918 $1,521 
Deferred income taxes at December 31 consisted of:
 20232022
  AssetsLiabilitiesAssetsLiabilities
Product intangibles and licenses$— $1,308 $— $2,575 
R&D capitalization2,099 — 1,341 — 
Inventory related86 370 43 423 
Accelerated depreciation— 626 — 666 
Equity investments— 73 — 92 
Pensions and other postretirement benefits323 249 372 284 
Compensation related357 — 335 — 
Unrecognized tax benefits147 — 91 — 
Net operating losses and other tax credit carryforwards868 — 912 — 
Other713 214 520 267 
Subtotal4,593 2,840 3,614 4,307 
Valuation allowance(656) (599) 
Total deferred taxes$3,937 $2,840 $3,015 $4,307 
Net deferred income taxes$1,097  $1,292 
Recognized as:
Other Assets$1,968 $503 
Deferred Income Taxes $871  $1,795 
The Company has net operating loss (NOL) carryforwards in several jurisdictions. As of December 31, 2023, $292 million of deferred tax assets on NOL carryforwards relate to foreign jurisdictions. Valuation allowances of $266 million have been established on these foreign NOL carryforwards and other foreign deferred tax assets. In addition, the Company has $575 million of deferred tax assets relating to various U.S. tax credit carryforwards and NOL carryforwards. Valuation allowances of $379 million have been established on these U.S. tax credit carryforwards and NOL carryforwards.
Income taxes paid in 2023, 2022 and 2021 (including amounts attributable to discontinued operations in 2021) consisted of:
Years Ended December 31202320222021
Domestic (1)
$2,258 $1,891 $1,211 
Foreign2,080 1,348 1,201 
 $4,338 $3,239 $2,412 
(1)    Includes TCJA transition tax payments.
Tax benefits relating to stock option exercises were $12 million in 2023, $45 million in 2022 and $21 million in 2021.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
202320222021
Balance January 1$1,835 $1,529 $1,537 
Additions related to current year positions553 344 306 
Additions related to prior year positions91 48 63 
Reductions for tax positions of prior years (1)
(20)(40)(230)
Settlements (1)
(23)(6)(46)
Lapse of statute of limitations(52)(40)(58)
Spin-off of Organon— — (43)
Balance December 31$2,384 $1,835 $1,529 
(1)    Amount in 2021 reflects a settlement with the IRS discussed below.
If the Company were to recognize the unrecognized tax benefits of $2.4 billion at December 31, 2023, the income tax provision would reflect a favorable net impact of $2.3 billion.
The Company is under examination by numerous tax authorities in various jurisdictions globally. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits as of December 31, 2023 could decrease by up to approximately $25 million in the next 12 months as a result of various audit closures, settlements or the expiration of the statute of limitations. The ultimate finalization of the Company’s examinations with relevant taxing authorities can include formal administrative and legal proceedings, which could have a significant impact on the timing of the reversal of unrecognized tax benefits. The Company believes that its reserves for uncertain tax positions are adequate to cover existing risks or exposures.
Interest and penalties associated with uncertain tax positions amounted to an expense (benefit) of $131 million in 2023, $54 million in 2022 and $(37) million in 2021. These amounts reflect the beneficial impacts of various tax settlements, including the settlement discussed below. Liabilities for accrued interest and penalties were $388 million and $256 million as of December 31, 2023 and 2022, respectively.
In 2021, the Internal Revenue Service (IRS) concluded its examinations of Merck’s 2015-2016 U.S. federal income tax returns. As a result, the Company was required to make a payment of $190 million (of which $172 million related to continuing operations and $18 million related to discontinued operations). The Company’s reserves for unrecognized tax benefits for the years under examination exceeded the adjustments relating to this examination period and therefore the Company recorded a $236 million net tax benefit in 2021 (of which $207 million related to continuing operations and $29 million related to discontinued operations). This net benefit reflects reductions in reserves for unrecognized tax benefits and other related liabilities for tax positions relating to the years that were under examination.
The IRS is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the TCJA. If the IRS disagrees with the Company’s transition tax position, it may result in a significant tax liability. In addition, various state and foreign tax examinations are in progress and for these jurisdictions, the Company’s income tax returns are open for examination for the period 2003 through 2023.