XML 39 R23.htm IDEA: XBRL DOCUMENT v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
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 global intangible low-taxed income (GILTI) 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.
Following is the composition of income tax expense:
202220212020
Current:
Federal(1)
$2,153.6 $938.5 $567.6 
Foreign547.7 466.0 650.4 
State45.5 (28.4)(47.3)
Total current tax expense2,746.8 1,376.1 1,170.7 
Deferred:
Federal(1,992.4)(977.5)(97.4)
Foreign(78.2)174.6 (16.6)
State(114.6)0.6 (20.5)
Total deferred tax benefit(2,185.2)(802.3)(134.5)
Income taxes$561.6 $573.8 $1,036.2 
(1) The 2022, 2021, and 2020 current tax expense includes $189.5 million, $64.7 million, and $144.4 million of tax benefit, respectively, from utilization of net operating loss and other tax carryforwards.
Significant components of our deferred tax assets and liabilities as of December 31 were as follows:
20222021
Deferred tax assets:
Purchases of intangible assets$2,071.3 $2,347.4 
Compensation and benefits427.9 634.7 
Tax credit carryforwards477.6 463.7 
Tax loss and other tax carryforwards and carrybacks626.0 645.4 
Sales rebates and discounts1,312.9 832.3 
Correlative tax adjustments752.5 560.8 
Foreign tax redeterminations267.8 274.9 
Operating lease liabilities147.5 150.0 
Capitalized research and development1,615.4 275.1 
Other361.0 477.9 
Total gross deferred tax assets8,059.9 6,662.2 
Valuation allowances(775.1)(875.6)
Total deferred tax assets7,284.8 5,786.6 
Deferred tax liabilities:
Earnings of foreign subsidiaries(1,226.0)(1,583.3)
Intangibles(1,387.9)(1,516.1)
Inventories(639.5)(596.4)
Prepaid employee benefits(546.5)(560.6)
Property and equipment(433.5)(338.7)
Financial instruments(215.0)(303.0)
Operating lease assets(130.7)(132.6)
Total deferred tax liabilities(4,579.1)(5,030.7)
Deferred tax assets - net$2,705.7 $755.9 
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, 2022, based on filed tax returns we have tax credit carryforwards and carrybacks of $873.6 million available to reduce future income taxes; $148.8 million, if unused, will expire by 2026, and $27.1 million, if unused, will expire between 2028 and 2042. The remaining portion of the tax credit carryforwards is related to federal tax credits of $68.6 million, international tax credits of $118.6 million, and state tax credits of $510.5 million, all of which are fully reserved.
At December 31, 2022, based on filed tax returns we had net operating losses and other carryforwards for international and U.S. federal income tax purposes of $2.52 billion: $319.1 million will expire by 2027; $1.44 billion will expire between 2028 and 2042; and $762.0 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 $246.2 million are fully reserved as of December 31, 2022.
At December 31, 2022 and 2021, prepaid expenses and other current assets included prepaid taxes of $2.37 billion and $1.98 billion, respectively.
Domestic and Puerto Rican companies contributed approximately 33 percent, 28 percent, and 39 percent for the years ended December 31, 2022, 2021, and 2020, 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, which was amended in 2022 to apply the alternate tax regime established by recently enacted Puerto Rico legislation starting in 2023.
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, 2022 and 2021, 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:
202220212020
Cash payments of income taxes$2,672.9 $1,598.8 $954.6 
In December 2017, the Tax Cuts and Job Act (2017 Tax Act) was signed into law. The 2017 Tax Act included significant changes to the U.S. corporate income tax system, including a one-time repatriation transition tax (also known as the 'Toll Tax') on unremitted foreign earnings. 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, 2022 are as follows:
TotalLess than 1 Year1-3 Years
2017 Tax Act Toll Tax$1,895.8 $475.7 $1,420.1 
As of December 31, 2022, we have additional noncurrent income tax payables of $2.28 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:
202220212020
Income tax at the U.S. federal statutory tax rate$1,429.3 $1,292.6 $1,518.3 
Add (deduct):
International operations, including Puerto Rico(1)
(299.5)(447.5)(297.2)
General business credits(155.0)(100.5)(97.9)
Foreign-derived intangible income deduction(287.5)(86.7)(71.5)
Valuation allowance release(116.4)(19.0)(10.0)
Other(9.3)(65.1)(5.5)
Income taxes$561.6 $573.8 $1,036.2 
(1) Includes the impact of Puerto Rico Excise Tax, GILTI tax, and other U.S. taxation of foreign income.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
202220212020
Beginning balance at January 1$2,798.3 $2,551.9 $2,108.6 
Additions based on tax positions related to the current year274.2 310.3 225.6 
Additions for tax positions of prior years34.6 98.6 310.8 
Reductions for tax positions of prior years(10.9)(8.1)(52.4)
Settlements(44.8)(38.5)(72.0)
Lapses of statutes of limitation(11.8)(49.7)(41.7)
Changes related to the impact of foreign currency translation(52.6)(66.2)73.0 
Ending balance at December 31$2,987.0 $2,798.3 $2,551.9 
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $1.70 billion at both December 31, 2022 and 2021.
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 2019 and remains ongoing. While it is reasonably possible that the Internal Revenue Service examination of these tax years could conclude within the next 12 months, final resolution of certain matters is dependent upon several factors, including the potential for formal administrative proceedings. As a result, an estimate of the range of reasonably possible changes in unrecognized tax benefits cannot be made.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense and were not material for the years ended December 31, 2022, 2021, and 2020. Our accrued interest and penalties related to unrecognized tax benefits were $271.5 million and $220.1 million at December 31, 2022 and 2021, respectively.