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Income Taxes | 12 Months Ended
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Dec. 26, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income before income taxes are as follows:
|  | 2020 |  | 2019 |  | 2018
United States |  | $ | 4,070 |  |  | $ | 4,123 |  |  | $ | 3,864 |
Foreign |  | 4,999 |  |  | 5,189 |  |  | 5,325 |
|  | $ | 9,069 |  |  | $ | 9,312 |  |  | $ | 9,189 |
The provision for/(benefit from) income taxes consisted of the following:
| 2020 |  | 2019 |  | 2018
Current: |  |  |  |  |
U.S. Federal | $ | 715 |  |  | $ | 652 |  |  | $ | 437 |
Foreign | 932 |  |  | 807 |  |  | 378 |
State | 110 |  |  | 196 |  |  | 63 |
| 1,757 |  |  | 1,655 |  |  | 878 |
Deferred: |  |  |  |  |
U.S. Federal | 273 |  |  | 325 |  |  | 140 |
Foreign | (167) |  |  | (31) |  |  | (4,379) |
State | 31 |  |  | 10 |  |  | (9) |
| 137 |  |  | 304 |  |  | (4,248) |
| $ | 1,894 |  |  | $ | 1,959 |  |  | $ | (3,370) |
A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:
| 2020 |  | 2019 |  | 2018
U.S. Federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income tax, net of U.S. Federal tax benefit | 1.2 |  |  | 1.6 |  |  | 0.5 |
Lower taxes on foreign results | (0.8) |  |  | (0.9) |  |  | (2.2) |
One-time mandatory transition tax - TCJ Act | — |  |  | (0.1) |  |  | 0.1 |
Remeasurement of deferred taxes - TCJ Act | — |  |  | — |  |  | (0.4) |
International reorganizations | — |  |  | — |  |  | (47.3) |
Tax settlements | — |  |  | — |  |  | (7.8) |
Other, net | (0.5) |  |  | (0.6) |  |  | (0.6) |
Annual tax rate | 20.9 | % |  | 21.0 | % |  | (36.7) | %
Tax Cuts and Jobs Act During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. In 2017, the SEC issued guidance related to the TCJ Act which allowed recording of provisional tax expense using a measurement period, not to exceed one year, when information necessary to complete the accounting for the effects of the TCJ Act is not available. We elected to apply the measurement period provisions of this guidance to certain income tax effects of the TCJ Act when it became effective in the fourth quarter of 2017. As a result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion ($1.70 per share) in the fourth quarter of 2017. The provisional measurement period allowed by the SEC ended in the fourth quarter of 2018. As a result, in 2018, we recognized a net tax benefit of $28 million ($0.02 per share) related to the TCJ Act. While our accounting for the recorded impact of the TCJ Act was deemed to be complete, additional guidance issued by the IRS impacted our recorded amounts after December 29, 2018. In 2019, we recognized a net tax benefit totaling $8 million ($0.01 per share) related to the TCJ Act. There were no tax amounts recognized in 2020 related to the TCJ Act. As of December 26, 2020, our mandatory transition tax liability was $3.2 billion, which must be paid through 2026 under the provisions of the TCJ Act. We reduced our liability through cash payments and application of tax overpayments by $78 million in 2020, $663 million in 2019 and $150 million in 2018. We currently expect to pay approximately $309 million of this liability in 2021. The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (GILTI), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. During the first quarter of 2018, we elected to treat the tax effect of GILTI as a current-period expense when incurred. Coronavirus Aid, Relief, and Economic Security Act The CARES Act was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, such as delaying certain payroll tax payments, mandatory transition tax payments under the TCJ Act and estimated income tax payments. The CARES Act did not have a material impact on our financial results in 2020, including on our annual estimated effective tax rate or on our liquidity. We will continue to monitor and assess the impact similar legislation in other countries may have on our business and financial results. Other Tax Matters On May 19, 2019, a public referendum held in Switzerland passed the TRAF, effective January 1, 2020. The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes. During 2020, we recorded a net tax benefit of $72 million related to the adoption of the TRAF in the Swiss Canton of Bern. During 2019, we recorded net tax expense of $24 million related to the impact of the TRAF. While the accounting for the impacts of the TRAF are deemed to be complete, further adjustments to our financial statements and related disclosures could be made in future quarters, including in connection with final tax return filings. In 2018, we reorganized certain of our international operations, including the intercompany transfer of certain intangible assets. As a result, we recognized other net tax benefits of $4.3 billion ($3.05 per share) in 2018. The related deferred tax asset of $4.4 billion is being amortized over a period of 15 years beginning in 2019. Additionally, the reorganization generated significant net operating loss carryforwards and related deferred tax assets that are not expected to be realized, resulting in the recording of a full valuation allowance. Deferred tax liabilities and assets are comprised of the following:
| 2020 |  | 2019
Deferred tax liabilities |  |  |
Debt guarantee of wholly-owned subsidiary | $ | 578 |  |  | $ | 578 |
Property, plant and equipment | 1,851 |  |  | 1,583 |
Recapture of net operating losses | 504 |  |  | 335 |
Right-of-use assets | 371 |  |  | 345 |
Other | 159 |  |  | 167 |
Gross deferred tax liabilities | 3,463 |  |  | 3,008 |
Deferred tax assets |  |  |
Net carryforwards | 5,008 |  |  | 4,168 |
Intangible assets other than nondeductible goodwill | 1,146 |  |  | 793 |
Share-based compensation | 90 |  |  | 94 |
Retiree medical benefits | 153 |  |  | 154 |
Other employee-related benefits | 373 |  |  | 350 |
Pension benefits | 80 |  |  | 104 |
Deductible state tax and interest benefits | 150 |  |  | 126 |
Lease liabilities | 371 |  |  | 345 |
Other | 866 |  |  | 741 |
Gross deferred tax assets | 8,237 |  |  | 6,875 |
Valuation allowances | (4,686) |  |  | (3,599) |
Deferred tax assets, net | 3,551 |  |  | 3,276 |
Net deferred tax assets | $ | (88) |  |  | $ | (268) |
A summary of our valuation allowance activity is as follows:
| 2020 |  | 2019 |  | 2018
Balance, beginning of year | $ | 3,599 |  |  | $ | 3,753 |  |  | $ | 1,163 |
Provision | 1,082 |  |  | (124) |  |  | 2,639 |
Other additions/(deductions) | 5 |  |  | (30) |  |  | (49) |
Balance, end of year | $ | 4,686 |  |  | $ | 3,599 |  |  | $ | 3,753 |
Reserves A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:
Jurisdiction |  | Years Open to Audit |  | Years Currently Under Audit
United States |  | 2014-2019 |  | 2014-2016
Mexico |  | 2014-2019 |  | 2014-2016
United Kingdom |  | 2017-2019 |  | None
Canada (Domestic) |  | 2016-2019 |  | 2016-2017
Canada (International) |  | 2010-2019 |  | 2010-2017
Russia |  | 2017-2019 |  | None
In 2018, we recognized a non-cash tax benefit of $364 million ($0.26 per share) resulting from the conclusion of certain international tax audits. Additionally, in 2018, we recognized non-cash tax benefits of $353 million ($0.24 per share) as a result of our agreement with the IRS resolving all open matters related to the audits of taxable years 2012 and 2013, including the associated state impact. The conclusion of certain international tax audits and the resolution with the IRS, collectively, resulted in non-cash tax benefits totaling $717 million ($0.50 per share) in 2018. Our annual tax rate is based on our income, statutory tax rates and tax planning strategies and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are subject to challenge and that we likely will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances, such as the progress of a tax audit, new tax laws, relevant court cases or tax authority settlements. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. As of December 26, 2020, the total gross amount of reserves for income taxes, reported in other liabilities, was $1.6 billion. We accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $338 million as of December 26, 2020, of which $93 million of tax expense was recognized in 2020. The gross amount of interest accrued, reported in other liabilities, was $250 million as of December 28, 2019, of which $84 million of tax expense was recognized in 2019. A reconciliation of unrecognized tax benefits is as follows:
| 2020 |  | 2019
Balance, beginning of year | $ | 1,395 |  |  | $ | 1,440 |
Additions for tax positions related to the current year | 128 |  |  | 179 |
Additions for tax positions from prior years | 153 |  |  | 93 |
Reductions for tax positions from prior years | (22) |  |  | (201) |
Settlement payments | (13) |  |  | (74) |
Statutes of limitations expiration | (23) |  |  | (47) |
Translation and other | 3 |  |  | 5 |
Balance, end of year | $ | 1,621 |  |  | $ | 1,395 |
Carryforwards and Allowances Operating loss carryforwards totaling $28.3 billion as of December 26, 2020 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire as follows: $0.2 billion in 2021, $25.2 billion between 2022 and 2040 and $2.9 billion may be carried forward indefinitely. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Undistributed International Earnings In 2018, we repatriated $20.4 billion of cash, cash equivalents and short-term investments held in our foreign subsidiaries without such funds being subject to further U.S. federal income tax liability, related to the TCJ Act. As of December 26, 2020, we had approximately $6 billion of undistributed international earnings. We intend to continue to reinvest $6 billion of earnings outside the United States for the foreseeable future and while future distribution of these earnings would not be subject to U.S. federal tax expense, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.

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