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Income Taxes | 9 Months Ended
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Oct. 03, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES The worldwide effective income tax rates for the fiscal nine months of 2021 and 2020 were 10.0% an d 12.6%, respectively. In the second fiscal quarter of 2021, the Company reorganized the ownership structure of certain wholly-owned international subsidiaries. As part of this reorganization, the Company increased the tax basis of certain assets to fair value in accordance with applicable local regulations. Accordingly, the Company recorded a local deferred tax benefit of approximately $2.3 billion, which was partially offset by a related increase in the U.S. GILTI deferred tax liability of approximately $1.7 billion. The net impact of this restructuring was approximately $0.6 billion net benefit or 3.4% decrease to the 2021 year-to-date effective tax rate. In 2019, Switzerland enacted the Federal Act on Tax Reform and AHV Financing (TRAF), which became effective on January 1, 2020. More information on the provisions of TRAF can be found in the Company’s Annual Report on Form 10-K for the year ended January 3, 2021. During the first fiscal quarter of 2020, the final canton where the Company maintains significant operations enacted TRAF legislation and, accordingly, the Company recorded a deferred tax benefit of approximately $0.3 billion for the remeasurement of existing deferred tax liabilities offset by a related $0.2 billion increase in U.S. GILTI deferred taxes. During the second fiscal quarter of 2020, the Company received rulings from the Swiss Federal and cantonal tax authorities in the remaining jurisdictions where it has significant operations. These rulings resulted in the Company increasing the tax basis of certain assets to fair value. As a result, the Company recorded additional deferred tax benefits in the second fiscal quarter of 2020 to recognize this step-up. The total benefit recorded related to Swiss Tax reform in the fiscal nine months of 2020 was approximately $0.4 billion, or 2.7% net benefit to the Company’s year-to-date effective tax rate, inclusive of the impact of U.S. GILTI deferred taxes. Additionally the following items impacted the Company’s effective tax rate as compared to the same period in the prior fiscal year: •as a result of the recent filing of the 2020 U.S. tax return, as well as the impact of non-recurring favorable tax items, the Company recorded a 1.0% net benefit to the effective tax rate for the fiscal nine months of 2021. •in the third quarter of 2021 the Company accrued additional legal expenses, $1.4 billion for the Talc related litigation at an effective tax rate of 23.5% and $0.8 billion for the Risperdal settlement at an effective tax rate of 16.4% (See note 11 to the Consolidated Financial Statements for more details). •in the third quarter of 2021 the Company recorded a partial IPR&D charge of $0.9 billion for the Ottava intangible asset (acquired with the Auris Health acquisition in 2019) at an effective rate of 22.4% (See Notes 3 and 9 to the Consolidated Financial Statements for more details). •in the fiscal nine months of 2020, the Company reduced a contingent consideration liability related to the 2019 Auris Health acquisition that benefited the fiscal nine months of 2020 tax rate by approximately 1.0% (see Note 4 to the Consolidated Financial Statements for more details). •the Company had lower income in higher tax jurisdictions relative to lower tax jurisdictions as compared to the same period in the prior year. The Company also generated additional tax benefits from stock-based compensation that were either exercised or vested during the first three fiscal quarters of 2021 and 2020. Additionally the company has reversed unrecognized tax benefit liabilities in 2021 as a result of the completion of tax examinations in certain international jurisdictions. As of October 3, 2021, the Company had approximately $3.3 billion of liabilities from unrecognized tax benefits. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of jurisdictions. With respect to the United States, the IRS has completed its audit for the tax years through 2012 and is currently auditing tax years 2013 through 2016. In other major jurisdictions where the Company conducts business, the years that remain open to tax audit or are under appeal go back to the year 2008. The Company believes it is possible that tax audits may be completed over the next twelve months by taxing authorities in some jurisdictions outside of the United States. However, the Company is not able to provide a reasonably reliable estimate of the timing of any other future tax payments relating to uncertain tax positions.

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