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Income taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
Income before income taxes included the following (in millions):
Years ended December 31,
202220212020
Domestic$3,026 $1,850 $4,087 
Foreign4,320 4,851 4,046 
Total income before income taxes$7,346 $6,701 $8,133 
The provision for income taxes included the following (in millions):
Years ended December 31,
202220212020
Current provision:
Federal$1,721 $865 $921 
State44 18 34 
Foreign304 359 277 
Total current provision2,069 1,242 1,232 
Deferred benefit:
Federal(1,185)(308)(321)
State(27)(9)9 
Foreign(63)(117)(51)
Total deferred benefit(1,275)(434)(363)
Total provision for income taxes$794 $808 $869 
Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax credit carryforwards and the tax effects of NOL carryforwards. As of December 31, 2022, we elected to establish deferred taxes with respect to the U.S. minimum tax on the earnings of our foreign subsidiaries for the reversal of temporary items in future years. Significant components of our deferred tax assets and liabilities were as follows (in millions):
December 31,
20222021
Deferred income tax assets:
NOL and credit carryforwards$1,344 $1,065 
Accrued expenses584 600 
Capitalized research and development expenses515 — 
Investments270 — 
Expenses capitalized for tax211 244 
Earnings of foreign subsidiaries192 — 
Stock-based compensation104 96 
Other317 326 
Total deferred income tax assets3,537 2,331 
Valuation allowance(718)(663)
Net deferred income tax assets2,819 1,668 
Deferred income tax liabilities:
Acquired intangible assets(1,238)(824)
Debt(272)(275)
Fixed assets(112)(129)
Other(254)(221)
Total deferred income tax liabilities(1,876)(1,449)
Total deferred income taxes, net$943 $219 
Valuation allowances are provided to reduce the amounts of our deferred tax assets to an amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts.
The valuation allowance increased in 2022, primarily driven by the Company’s expectation that certain state R&D credits will expire unused.
As of December 31, 2022, we had $170 million of federal tax credit carryforwards available to reduce future federal income taxes and have provided a valuation allowance for $6 million of those federal tax credit carryforwards. The federal tax credit carryforwards expire between 2023 and 2042. We had $896 million of state tax credit carryforwards available to reduce future state income taxes and have provided a valuation allowance for $813 million of those state tax credit carryforwards. We had $51 million of tax credit carryforwards related to our foreign jurisdictions available to offset future foreign income taxes for which we have provided no valuation allowance.
As of December 31, 2022, we had $1.3 billion of federal NOL carryforwards available to reduce future federal income taxes and have provided no valuation allowance on those federal NOL carryforwards. Additionally, $1.0 billion of those federal NOL carryforwards have no expiration; the remainder begin to expire between 2023 and 2037. We had $536 million of state NOL carryforwards available to reduce future state income taxes and have provided a valuation allowance for $415 million of those state NOL carryforwards. We had $1.9 billion of foreign NOL carryforwards available to reduce future foreign income taxes and have provided a valuation allowance for $186 million of those foreign NOL carryforwards. For the foreign NOLs with no valuation allowance provided, $640 million have no expiration; and the remainder will expire between 2023 and 2051.
The reconciliations of the total gross amounts of UTBs were as follows (in millions):
Years ended December 31,
202220212020
Beginning balance$3,546 $3,352 $3,287 
Additions based on tax positions related to the current year151 171 165 
Additions based on tax positions related to prior years90 35 3 
Reductions for tax positions of prior years(14)(4)(35)
Reductions for expiration of statute of limitations(3)— — 
Settlements — (8)(68)
Ending balance$3,770 $3,546 $3,352 
Substantially all of the UTBs as of December 31, 2022, if recognized, would affect our effective tax rate. During the year ended December 31, 2020, we effectively settled certain issues with the IRS. As a result, we remeasured our UTBs accordingly.
Interest and penalties related to UTBs are included in our provision for income taxes. During the years ended December 31, 2022, 2021 and 2020, we recognized $189 million, $98 million and $116 million, respectively, of interest and penalties through the income tax provision in the Consolidated Statements of Income. The increase in interest expense for the year ended December 31, 2022, was primarily due to higher interest rates during 2022. As of December 31, 2022 and 2021, accrued interest and penalties associated with UTBs were $1.1 billion and $881 million, respectively.
The reconciliations between the federal statutory tax rate applied to income before income taxes and our effective tax rate were as follows:
Years ended December 31,
202220212020
Federal statutory tax rate21.0 %21.0 %21.0 %
Foreign earnings(5.6)%(7.8)%(4.7)%
Foreign-derived intangible income(1.3)%(1.0)%(0.7)%
Credits, Puerto Rico excise tax(2.8)%(3.4)%(2.9)%
Interest on uncertain tax positions1.9 %1.1 %1.1 %
Credits, primarily federal R&D(2.0)%(2.1)%(1.4)%
Acquisition IPR&D— %4.9 %— %
Audit settlements— %— %(1.0)%
Other, net(0.4)%(0.6)%(0.7)%
Effective tax rate10.8 %12.1 %10.7 %
The effective tax rates for the years ended December 31, 2022, 2021 and 2020, differ from the federal statutory rate primarily due to impacts of the jurisdictional mix of income and expenses. Substantially all of the benefit to our effective tax rate from foreign earnings results from the Company’s operations in Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes. Our operations in Puerto Rico are subject to tax incentive grants through 2050. Additionally, the Company’s operations conducted in Singapore are subject to a tax incentive grant through 2034. Our foreign earnings are also subject to U.S. tax at a reduced rate of 10.5%.
The U.S. territory of Puerto Rico imposes a 4% excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico effective through December 31, 2022. For 2022, we account for the excise tax as a manufacturing cost that is capitalized in Inventories and expensed in Cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.
Income taxes paid during the years ended December 31, 2022, 2021 and 2020, were $2.4 billion, $1.9 billion and $1.4 billion, respectively.
One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely examined by tax authorities in those jurisdictions. Significant disputes can and have arisen with tax authorities involving issues regarding the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and relevant facts. Tax authorities, including the IRS, are becoming more aggressive and are particularly focused on such matters.
In 2017, we received an RAR and a modified RAR from the IRS for the years 2010–2012, proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2021, we filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for the years 2010–2012 that we received in May and July 2021, which seek to increase our U.S. taxable income for the years 2010–2012 by an amount that would result in additional federal tax of approximately $3.6 billion plus interest. Any additional tax that could be imposed for the years 2010–2012 would be reduced by up to approximately $900 million of repatriation tax previously accrued on our foreign earnings.
In 2020, we received an RAR and a modified RAR from the IRS for the years 2013–2015, also proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico similar to those proposed for the years 2010–2012. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2022, we filed a petition in the U.S. Tax Court to contest a Notice for the years 2013–2015 that we previously reported receiving in April 2022 that seeks to increase our U.S. taxable income for the years 2013–2015 by an amount that would result in additional federal tax of approximately $5.1 billion, plus interest. In addition, the Notice asserts penalties of approximately $2.0 billion. Any additional tax that could be imposed for the years 2013–2015 would be reduced by up to approximately $2.2 billion of repatriation tax previously accrued on our foreign earnings.
We firmly believe that the IRS positions set forth in the 2010–2012 and 2013–2015 Notices are without merit. We are contesting the 2010–2012 and 2013–2015 Notices through the judicial process. The two cases were consolidated in U.S. Tax Court on December 19, 2022.
We are currently under examination by the IRS for the years 2016–2018 with respect to issues similar to those for the 2010 through 2015 period. In addition, we are under examination by a number of state and foreign tax jurisdictions.
Final resolution of these complex matters is not likely within the next 12 months. We continue to believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, application of the tax law to our facts and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes and uncertain resolution of these matters, the ultimate outcome of any tax matters may result in payments substantially greater than amounts accrued and could have a material adverse impact on our consolidated financial statements.
We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009.