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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Deferred taxes related to GILTI, global intangible low-taxed income, are also recognized for the future tax effects of temporary differences. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position, based on its technical merits, will be sustained upon examination by the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution. In December 2017, the Tax Cuts and Job Act (the 2017 Tax Act) was signed into law. The 2017 Tax Act included significant changes to the U.S. corporate income tax system, such as the reduction in the corporate income tax rate from 35 percent to 21 percent, transition to a territorial tax system, changes to business related exclusions, deductions and credits, and modifications to international tax provisions, including a one-time repatriation transition tax (also known as the ‘Toll Tax’) on unremitted foreign earnings and GILTI, a new U.S. minimum tax on the earnings of our foreign subsidiaries. In 2018, we recorded $313.3 million of income tax benefit, mainly attributable to measurement period adjustments to the Toll Tax and GILTI. Following is the composition of income tax expense:
| 2020 |  | 2019 |  | 2018
Current: |  |  |  |  |
Federal(1) | $ | 567.6 |  |  | $ | 280.2 |  |  | $ | 169.6 |
Foreign | 650.4 |  |  | 299.8 |  |  | 106.8 |
State | (47.3) |  |  | (14.4) |  |  | 4.7 |
Total current tax expense | 1,170.7 |  |  | 565.6 |  |  | 281.1 |
Deferred: |  |  |  |  |
Federal(2) | (97.4) |  |  | 141.3 |  |  | (3.7) |
Foreign | (16.6) |  |  | (24.1) |  |  | 248.7 |
State | (20.5) |  |  | (54.8) |  |  | 3.4 |
Total deferred tax (benefit) expense | (134.5) |  |  | 62.4 |  |  | 248.4 |
Income taxes | $ | 1,036.2 |  |  | $ | 628.0 |  |  | $ | 529.5 |
(1) The 2020 and 2019 current tax expense includes $144.4 million and $153.1 million of tax benefit, respectively, from utilization of net operating loss and tax credit carryforwards. The 2018 current tax expense includes $201.5 million of tax expense related to effects of the 2017 Tax Act. (2) The 2018 deferred tax benefit includes $26.2 million of tax benefit related to effects of the 2017 Tax Act. Significant components of our deferred tax assets and liabilities as of December 31 were as follows:
| 2020 |  | 2019
Deferred tax assets: |  |  |
Purchases of intangible assets | $ | 2,560.6 |  |  | $ | 2,512.4 |
Compensation and benefits | 1,045.6 |  |  | 934.3 |
Tax credit carryforwards and carrybacks | 523.5 |  |  | 455.8 |
Tax loss carryforwards and carrybacks | 488.3 |  |  | 318.8 |
Sales rebates and discounts | 461.3 |  |  | 197.3 |
Correlative tax adjustments | 404.2 |  |  | 219.1 |
Foreign tax redeterminations | 242.8 |  |  | 156.8 |
Operating lease liabilities | 150.7 |  |  | 140.6 |
Capitalized research and development | 135.2 |  |  | 75.7 |
Other | 605.8 |  |  | 595.7 |
Total gross deferred tax assets | 6,618.0 |  |  | 5,606.5 |
Valuation allowances | (816.3) |  |  | (616.5) |
Total deferred tax assets | 5,801.7 |  |  | 4,990.0 |
Deferred tax liabilities: |  |  |
Earnings of foreign subsidiaries | (1,905.3) |  |  | (1,776.4) |
Intangibles | (1,465.7) |  |  | (1,298.0) |
Inventories | (623.7) |  |  | (686.4) |
Prepaid employee benefits | (410.1) |  |  | (305.9) |
Property and equipment | (315.2) |  |  | (274.1) |
Financial instruments | (216.9) |  |  | (139.4) |
Operating lease assets | (134.3) |  |  | (124.7) |
Total deferred tax liabilities | (5,071.2) |  |  | (4,604.9) |
Deferred tax assets - net | $ | 730.5 |  |  | $ | 385.1 |
The deferred tax asset and related valuation allowance amounts for U.S. federal, international, and state net operating losses and tax credits shown above have been reduced for differences between financial reporting and tax return filings. At December 31, 2020, based on filed tax returns we have tax credit carryforwards and carrybacks of $887.3 million available to reduce future income taxes; $148.8 million, if unused, will expire by 2026, and $16.1 million, if unused, will expire between 2029 and 2039. The remaining portion of the tax credit carryforwards is related to federal tax credits of $84.8 million, international tax credits of $121.9 million, and state tax credits of $515.7 million, all of which are fully reserved. At December 31, 2020, based on filed tax returns we had net operating losses and other carryforwards for international and U.S. federal income tax purposes of $1.52 billion: $162.6 million will expire by 2025; $781.7 million will expire between 2026 and 2040; and $576.3 million of the carryforwards will never expire. Net operating losses and other carryforwards for international and U.S. federal income tax purposes are partially reserved. Deferred tax assets related to state net operating losses and other carryforwards of $175.6 million are fully reserved as of December 31, 2020. Domestic and Puerto Rican companies contributed approximately 39 percent, 44 percent, and 15 percent for the years ended December 31, 2020, 2019, and 2018, respectively, to consolidated income before income taxes. We have a subsidiary operating in Puerto Rico under a tax incentive grant effective through the end of 2031. Substantially all of the unremitted earnings of our foreign subsidiaries are considered not to be indefinitely reinvested for continued use in our foreign operations. At December 31, 2020 and December 31, 2019, we accrued an immaterial amount of foreign withholding taxes and state income taxes that would be owed upon future distributions of unremitted earnings of our foreign subsidiaries that are not indefinitely reinvested. For the amount considered to be indefinitely reinvested, it is not practicable to determine the amount of the related deferred income tax liability due to the complexities in the tax laws and assumptions we would have to make. Cash payments of U.S. federal, state, and foreign income taxes, net of refunds, were as follows:
| 2020 |  | 2019 |  | 2018
Cash payments of income taxes | $ | 954.6 |  |  | $ | 1,180.5 |  |  | $ | 1,076.7 |
The 2017 Tax Act provided an election to taxpayers subject to the Toll Tax to make payments over an eight year period beginning in 2018 through 2025. Having made this election, our future cash payments relating to the Toll Tax as of December 31, 2020 are as follows:
| Total | Less than 1 Year | 1-3 Years | 3-5 Years
2017 Tax Act Toll Tax | $2,403.1 | $253.7 | $729.3 | $1,420.1
We have additional noncurrent income tax payables of $1.69 billion unrelated to the Toll Tax; we cannot reasonably estimate the timing of future cash outflows associated with these liabilities. Following is a reconciliation of the consolidated income tax expense applying the U.S. federal statutory rate to income before income taxes to reported consolidated income tax expense:
| 2020 |  | 2019 |  | 2018
Income tax at the U.S. federal statutory tax rate | $ | 1,518.3 |  |  | $ | 1,105.8 |  |  | $ | 772.8 |
Add (deduct): |  |  |  |  |
International operations, including Puerto Rico | (297.1) |  |  | (242.0) |  |  | (627.1) |
General business credits | (97.9) |  |  | (108.8) |  |  | (87.4) |
Non-deductible acquired IPR&D(1) | 63.2 |  |  | — |  |  | 309.9 |
2017 Tax Act | — |  |  | — |  |  | 175.3 |
Other | (150.3) |  |  | (127.0) |  |  | (14.0) |
Income taxes | $ | 1,036.2 |  |  | $ | 628.0 |  |  | $ | 529.5 |
(1) Non-deductible acquired IPR&D was related to the acquisitions of Disarm and a pre-clinical stage company in 2020 and ARMO in 2018. See Note 3 for additional information related to acquisitions. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
| 2020 |  | 2019 |  | 2018
Beginning balance at January 1 | $ | 2,108.6 |  |  | $ | 2,034.6 |  |  | $ | 1,000.8 |
Additions based on tax positions related to the current year | 225.6 |  |  | 187.2 |  |  | 798.2 |
Additions for tax positions of prior years | 310.8 |  |  | 425.3 |  |  | 410.9 |
Reductions for tax positions of prior years | (52.4) |  |  | (100.3) |  |  | (115.4) |
Settlements | (72.0) |  |  | (260.5) |  |  | (33.2) |
Lapses of statutes of limitation | (41.7) |  |  | (161.5) |  |  | (20.5) |
Changes related to the impact of foreign currency translation | 73.0 |  |  | (16.2) |  |  | (6.2) |
Ending balance at December 31 | $ | 2,551.9 |  |  | $ | 2,108.6 |  |  | $ | 2,034.6 |
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $1.67 billion and $1.53 billion at December 31, 2020 and 2019, respectively. We file U.S. federal, foreign, and various state and local income tax returns. We are no longer subject to U.S. federal income tax examination for years before 2016. In most major foreign and state jurisdictions, we are no longer subject to income tax examination for years before 2012. The U.S. examination of tax years 2016-2018 began in the fourth quarter of 2019 and remains ongoing; therefore, the resolution of this audit period will likely extend beyond the next 12 months. For tax years 2013-2015, all matters were effectively settled in 2019. As a result, our gross uncertain tax positions were reduced by approximately $200 million, we made a cash payment of approximately $125 million, and our consolidated results were benefited by an immaterial reduction in tax expense. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized income tax (benefit) expense related to interest and penalties as follows:
| 2020 |  | 2019 |  | 2018
Income tax (benefit) expense | $ | 34.0 |  |  | $ | (26.4) |  |  | $ | 25.1 |
At December 31, 2020 and 2019, our accruals for the payment of interest and penalties totaled $196.7 million and $150.8 million, respectively.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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