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Income Taxes | 12 Months Ended
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Sep. 29, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes U.S. Tax Cuts and Jobs Act On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings. The impact of the Act increased the Company’s provision for income taxes by $1.5 billion during 2018. This increase was composed of $2.0 billion related to the remeasurement of net deferred tax assets and liabilities and $1.2 billion associated with the deemed repatriation tax, partially offset by a $1.7 billion impact the deemed repatriation tax had on the Company’s unrecognized tax benefits. Deferred Tax Balances As a result of the Act, the Company remeasured certain deferred tax assets and liabilities based on the revised rates at which they are expected to reverse, including items for which the related income tax effects were originally recognized in OCI. In addition, the Company elected to record certain deferred tax assets and liabilities related to the new minimum tax on certain future foreign earnings. Of the $2.0 billion recognized related to the remeasurement of net deferred tax assets and liabilities, $1.2 billion is a provisional estimate that incorporates assumptions based upon the most recent interpretations of the Act and may change as the Company continues to analyze the impact of additional implementation guidance. The Company’s provisional estimates are in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118. Deemed Repatriation Tax As of September 30, 2017, the Company had a U.S. deferred tax liability of $36.4 billion for deferred foreign income. During 2018, the Company replaced $36.1 billion of its U.S. deferred tax liability with a deemed repatriation tax payable of $37.3 billion, which was based on the Company’s cumulative post-1986 deferred foreign income. The deemed repatriation tax payable is a provisional estimate that may change as the Company continues to analyze the impact of additional implementation guidance. The Company plans to pay the tax in installments in accordance with the Act. Adoption of ASU No. 2018-02 During the second quarter of 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 allows an entity to elect to reclassify the income tax effects of the Act on items within AOCI to retained earnings. The Company elected to apply the provision of ASU 2018-02 in 2018 with a reclassification of net tax benefits related to cumulative foreign currency translation and unrealized gains/losses on derivative instruments and marketable securities, resulting in a $278 million decrease in AOCI and a corresponding increase in retained earnings in the Consolidated Balance Sheet and Consolidated Statement of Shareholders’ Equity. Provision for Income Taxes and Effective Tax Rate The provision for income taxes for 2018, 2017 and 2016, consisted of the following (in millions):
| 2018 |  | 2017 |  | 2016
Federal: |  |  |  |  |
Current | $ | 41,425 |  |  | $ | 7,842 |  |  | $ | 7,652 |
Deferred | (33,819 | ) |  | 5,980 |  |  | 5,043 |
Total | 7,606 |  |  | 13,822 |  |  | 12,695 |
State: |  |  |  |  |
Current | 551 |  |  | 259 |  |  | 990 |
Deferred | 48 |  |  | 2 |  |  | (138 | )
Total | 599 |  |  | 261 |  |  | 852 |
Foreign: |  |  |  |  |
Current | 3,986 |  |  | 1,671 |  |  | 2,105 |
Deferred | 1,181 |  |  | (16 | ) |  | 33 |
Total | 5,167 |  |  | 1,655 |  |  | 2,138 |
Provision for income taxes | $ | 13,372 |  |  | $ | 15,738 |  |  | $ | 15,685 |
The foreign provision for income taxes is based on foreign pre-tax earnings of $48.0 billion, $44.7 billion and $41.1 billion in 2018, 2017 and 2016, respectively. A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (24.5% in 2018; 35% in 2017 and 2016) to income before provision for income taxes for 2018, 2017 and 2016, is as follows (dollars in millions):
| 2018 |  | 2017 |  | 2016
Computed expected tax | $ | 17,890 |  |  | $ | 22,431 |  |  | $ | 21,480 |
State taxes, net of federal effect | 271 |  |  | 185 |  |  | 553 |
Impacts of the Act | 1,515 |  |  | — |  |  | — |
Earnings of foreign subsidiaries | (5,606 | ) |  | (6,135 | ) |  | (5,582 | )
Domestic production activities deduction | (195 | ) |  | (209 | ) |  | (382 | )
Research and development credit, net | (560 | ) |  | (678 | ) |  | (371 | )
Other | 57 |  |  | 144 |  |  | (13 | )
Provision for income taxes | $ | 13,372 |  |  | $ | 15,738 |  |  | $ | 15,685 |
Effective tax rate | 18.3 | % |  | 24.6 | % |  | 25.6 | %
The Company’s income taxes payable have been reduced by the tax benefits from employee stock plan awards. For restricted stock units (“RSUs”), the Company receives an income tax benefit upon the award’s vesting equal to the tax effect of the underlying stock’s fair market value. Prior to adopting ASU 2016-09 in the first quarter of 2018, the Company reflected net excess tax benefits from equity awards as increases to additional paid-in capital, which amounted to $620 million and $379 million in 2017 and 2016, respectively. Refer to Note 1, “Summary of Significant Accounting Policies” for more information. Deferred Tax Assets and Liabilities As of September 29, 2018 and September 30, 2017, the significant components of the Company’s deferred tax assets and liabilities were (in millions):
| 2018 |  | 2017
Deferred tax assets: |  |  |
Accrued liabilities and other reserves | $ | 3,151 |  |  | $ | 4,019 |
Basis of capital assets | 137 |  |  | 1,230 |
Deferred revenue | 1,141 |  |  | 1,521 |
Deferred cost sharing | — |  |  | 667 |
Share-based compensation | 513 |  |  | 703 |
Unrealized losses | 871 |  |  | — |
Other | 797 |  |  | 834 |
Total deferred tax assets | 6,610 |  |  | 8,974 |
Deferred tax liabilities: |  |  |
Earnings of foreign subsidiaries | 275 |  |  | 36,355 |
Other | 501 |  |  | 207 |
Total deferred tax liabilities | 776 |  |  | 36,562 |
Net deferred tax assets/(liabilities) | $ | 5,834 |  |  | $ | (27,588 | )
Deferred tax assets and liabilities reflect the effects of tax losses, credits and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Uncertain Tax Positions As of September 29, 2018, the total amount of gross unrecognized tax benefits was $9.7 billion, of which $7.4 billion, if recognized, would impact the Company’s effective tax rate. As of September 30, 2017, the total amount of gross unrecognized tax benefits was $8.4 billion, of which $2.5 billion, if recognized, would have impacted the Company’s effective tax rate. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for 2018, 2017 and 2016, is as follows (in millions):
| 2018 |  | 2017 |  | 2016
Beginning balances | $ | 8,407 |  |  | $ | 7,724 |  |  | $ | 6,900 |
Increases related to tax positions taken during a prior year | 2,431 |  |  | 333 |  |  | 1,121 |
Decreases related to tax positions taken during a prior year | (2,212 | ) |  | (952 | ) |  | (257 | )
Increases related to tax positions taken during the current year | 1,824 |  |  | 1,880 |  |  | 1,578 |
Decreases related to settlements with taxing authorities | (756 | ) |  | (539 | ) |  | (1,618 | )
Decreases related to expiration of statute of limitations | — |  |  | (39 | ) |  | — |
Ending balances | $ | 9,694 |  |  | $ | 8,407 |  |  | $ | 7,724 |
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of September 29, 2018 and September 30, 2017, the total amount of gross interest and penalties accrued was $1.4 billion and $1.2 billion, respectively. Both the unrecognized tax benefits and the associated interest and penalties that are not expected to result in payment or receipt of cash within one year are classified as other non-current liabilities in the Consolidated Balance Sheets. In connection with tax matters, the Company recognized interest and penalty expense in 2018, 2017 and 2016 of $236 million, $165 million and $295 million, respectively. The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The U.S. Internal Revenue Service (the “IRS”) concluded its review of the years 2013 through 2015 in 2018, and all years prior to 2016 are closed. Tax years subsequent to 2006 in certain major U.S. states and subsequent to 2007 in certain major foreign jurisdictions remain open, and could be subject to examination by the taxing authorities. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease (either by payment, release or a combination of both) in the next 12 months by as much as $800 million. European Commission State Aid Decision On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”). The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014. The recovery amount was calculated to be €13.1 billion, plus interest of €1.2 billion. Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward. The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union. Ireland has also appealed the State Aid Decision. The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the Act. As of September 29, 2018, the entire recovery amount plus interest was funded into escrow, where it will remain restricted from general use pending conclusion of all appeals. Refer to Note 2, “Financial Instruments” for more information.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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