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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE J – INCOME TAXES Our Income (loss) before income taxes consisted of the following:
| Year Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Domestic | $ | (648) |  |  | $ | (660) |  |  | $ | (1,145) |
Foreign | 1,724 |  |  | 581 |  |  | 1,832 |
| $ | 1,076 |  |  | $ | (79) |  |  | $ | 687 |
The related expense (benefit) for income taxes consisted of the following:
| Year Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Current |  |  |  |  |
Federal | $ | 18 |  |  | $ | (29) |  |  | $ | 120 |
State | 33 |  |  | (35) |  |  | 54 |
Foreign | 127 |  |  | 151 |  |  | 101 |
| 178 |  |  | 87 |  |  | 275 |
Deferred |  |  |  |  |
Federal | (256) |  |  | (26) |  |  | (146) |
State | (3) |  |  | (6) |  |  | (18) |
Foreign | 117 |  |  | (53) |  |  | (4,124) |
| (142) |  |  | (85) |  |  | (4,288) |
| $ | 36 |  |  | $ | 2 |  |  | $ | (4,013) |
The reconciliation of income taxes at the federal statutory rate to the actual expense (benefit) for income taxes is as follows:
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
U.S. federal statutory income tax rate | 21.0 | % |  | (21.0) | % |  | 21.0 | %
State income taxes, net of federal benefit | 2.5 | % |  | 16.6 | % |  | 6.7 | %
Domestic taxes on foreign earnings | 6.8 | % |  | 155.4 | % |  | 21.9 | %
Effect of foreign taxes | (14.3) | % |  | (40.7) | % |  | (47.6) | %
Acquisition-related | (8.1) | % |  | (16.7) | % |  | 12.2 | %
Research credit | (3.0) | % |  | (43.0) | % |  | (4.2) | %
Valuation allowance | 0.8 | % |  | (42.0) | % |  | 1.1 | %
Goodwill impairment charges | — | % |  | 3.7 | % |  | — | %
Compensation-related | (0.6) | % |  | (7.7) | % |  | (0.3) | %
Non-deductible expenses | 0.4 | % |  | 64.4 | % |  | 3.6 | %
Uncertain tax positions | 1.2 | % |  | (96.8) | % |  | 1.4 | %
Intra-entity asset transfers | — | % |  | 10.2 | % |  | (597.0) | %
Return to provision | (5.7) | % |  | (37.3) | % |  | (0.2) | %
Change in tax rates | 1.9 | % |  | 51.8 | % |  | (0.2) | %
Other, net | 0.4 | % |  | 6.0 | % |  | (2.4) | %
| 3.3 | % |  | 2.9 | % |  | (584.0) | %
Significant components of our deferred tax assets and liabilities are as follows:
| As of December 31,
(in millions) | 2021 |  | 2020
Deferred Tax Assets: |  |  | (reclassified)(1)
Inventory costs and related reserves | $ | 10 |  |  | $ | 10 |
Tax benefit of net operating losses and credits | 620 |  |  | 557 |
Reserves and accruals | 324 |  |  | 308 |
Restructuring-related charges | 14 |  |  | 23 |
Litigation and product liability reserves | 127 |  |  | 82 |
Investment write-down | 31 |  |  | — |
Compensation related | 130 |  |  | 134 |
Federal benefit of uncertain tax positions | 8 |  |  | 9 |
Intangible assets | 3,546 |  |  | 3,551 |
Capitalized R&D | 67 |  |  | 4 |
Property, plant and equipment | 14 |  |  | — |
Other | 35 |  |  | (10) |
| 4,926 |  |  | 4,668 |
Less: valuation allowance | (1,014) |  |  | (887) |
| 3,912 |  |  | 3,781 |
Deferred Tax Liabilities: |  |  |
Property, plant and equipment | — |  |  | 1 |
Unrealized gains and losses on derivative financial instruments | 79 |  |  | 12 |
Investment write-up | — |  |  | 34 |
| 79 |  |  | 47 |
Net Deferred Tax Assets | 3,833 |  |  | 3,734 |
Prepaid on intercompany profit | 205 |  |  | 194 |
Net Deferred Tax Assets and Prepaid on Intercompany Profit | $ | 4,038 |  |  | $ | 3,928 |
(1) Due to the disclosure of additional deferred items in 2021, we have reclassified select items in prior years to align with the new categories disclosed in the current year. Our deferred tax assets, deferred tax liabilities and prepaid on intercompany profit, are included in the following locations within our accompanying consolidated balance sheets (in millions):
| Location on Consolidated Balance Sheets | As of December 31,
Component | 2021 |  | 2020
Prepaid on intercompany profit | Prepaid income taxes | $ | 205 |  |  | $ | 194 |
Non-current deferred tax asset | Assets held for sale | — |  |  | 2 |
Non-current deferred tax asset | Deferred tax assets | 4,142 |  |  | 4,210 |
Deferred Tax Assets and Prepaid on Intercompany Profit |  | 4,348 |  |  | 4,406 |
Non-current deferred tax liability | Deferred tax liabilities | 310 |  |  | 330 |
Non-current deferred tax liability | Liabilities held for sale in Other current liabilities | — |  |  | 148 |
Deferred Tax Liabilities |  | 310 |  |  | 478 |
Net Deferred Tax Assets and Prepaid on Intercompany Profit | $ | 4,038 |  |  | $ | 3,928 |
As of December 31, 2021, we had U.S. federal and state tax net operating loss carryforwards and tax credits, the tax effect of which was $560 million. As of December 31, 2020, we had U.S. federal and state tax net operating loss carryforwards and tax credits, the tax effect of which was $474 million. In addition, we had foreign tax net operating loss carryforwards and tax credits, the tax effect of which was $60 million as of December 31, 2021, as compared to $83 million as of December 31, 2020. These tax attributes expire periodically beginning in 2022. During the fourth quarter of 2019, we completed intra-entity asset transfers of certain intellectual property rights among various wholly owned subsidiaries. These transactions occurred to more closely align the global economic ownership of our intellectual property rights with our current and future business operations. These transactions did not result in a taxable gain in any jurisdiction, however, some of the transactions did create a step-up in the tax-deductible basis in the transferred intellectual property rights in certain jurisdictions. As a result, we recorded deferred tax assets in the amount of $4.102 billion, which represents the book and tax basis differences measured at applicable statutory tax rates, net of a valuation allowance of $542 million. After consideration of all positive and negative evidence, we believe that it is more likely than not that a portion of our deferred tax assets will not be realized. As a result, we recorded a valuation allowance of $1,014 million as of December 31, 2021 and $887 million as of December 31, 2020, representing an increase of $127 million. The increase in the valuation allowance as of December 31, 2021, as compared to December 31, 2020, is primarily due to an increase of US state loss carryforwards and the concurrent build of the related valuation allowance. The income tax impact of the unrealized gain or loss component of other comprehensive income and stockholders' equity was a charge of $81 million in 2021, a benefit of $78 million in 2020 and a charge of $13 million in 2019. We obtain tax incentives through Free Trade Zone Regime offered in Costa Rica which allows 100.0 percent exemption from income tax in the first eight years of operations and 50.0 percent exemption in the following four years. This tax incentive resulted in income tax savings of $149 million for 2021, $64 million for 2020 and $173 million for 2019. The tax incentive for 100.0 percent exemption from income tax was renewed during 2019 and is expected to expire in 2027. The impact on Net income (loss) per common share - assuming dilution was $0.10 for 2021, $0.04 for 2020 and $0.12 for 2019. Additionally, we benefit from tax incentives in Puerto Rico resulting in income tax savings of $27 million for 2021, $30 million for 2020 and immaterial amounts for 2019. The impact on Net income (loss) per common share - assuming dilution was $0.02 for 2021 and 2020, and less than $0.01 for 2019. As of December 31, 2021, we had $255 million of gross unrecognized tax benefits, of which a net $177 million, if recognized, would affect our effective tax rate. As of December 31, 2020, we had $261 million of gross unrecognized tax benefits, of which a net $183 million, if recognized, would affect our effective tax rate. As of December 31, 2019, we had $455 million of gross unrecognized tax benefits, of which a net $355 million, if recognized, would affect our effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Year Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Beginning Balance | $ | 261 |  |  | $ | 455 |  |  | $ | 427 |
Additions based on positions related to the current year | 8 |  |  | 28 |  |  | 30 |
Additions based on positions related to prior years | 41 |  |  | 6 |  |  | 45 |
Reductions for tax positions of prior years | (36) |  |  | (186) |  |  | (34) |
Settlements with taxing authorities | (2) |  |  | (27) |  |  | (4) |
Statute of limitation expirations | (17) |  |  | (15) |  |  | (9) |
Ending Balance | $ | 255 |  |  | $ | 261 |  |  | $ | 455 |
We are subject to U.S. Federal income tax as well as income tax of multiple state and foreign jurisdictions. We have concluded all U.S. federal income tax matters through 2016 and substantially all material state and local income tax matters through 2010. We have concluded all foreign income tax matters through 2013, with the exception of issues for Italy, which have concluded through 2002. In 2020, we received notification from the IRS regarding the examination of our 2014 through 2016 tax years stating that the Joint Committee on Taxation completed its review, and the IRS examination was resolved. Due to the resolution of these tax years, we recorded a net tax benefit of $91 million to release the reserves related to these years. We received a refund of $62 million from the IRS reflecting the net balance of amounts owed to us by the IRS after consideration of tax and interest due for these years. We recognize interest and penalties related to income taxes as a component of income tax expense. We had $43 million accrued for gross interest and penalties as of December 31, 2021 and $41 million as of December 31, 2020. Net tax expense related to interest and penalties was immaterial in 2021, 2020 and 2019. The increase in our net tax expense related to interest and penalties as of December 31, 2021, as compared to December 31, 2020, is related to reaching settlements with the taxing authorities. It is reasonably possible that within the next 12 months we will resolve transactional-related issues with foreign and state taxing authorities, in which case we could record a reduction in our balance of unrecognized tax benefits of up to approximately $54 million. For the year ended December 31, 2017, we were required under the TCJA to calculate a one-time transition tax based on our total post-1986 foreign subsidiaries' earnings and profits (E&P) that we previously deferred from U.S. income taxes. As a result of various audit activities, the revised amount of transition tax was approximately $938 million as of December 31, 2021 as compared to $939 million as of December 31, 2020. We anticipate offsetting this liability against existing tax attributes reducing the required payment to approximately $590 million, which will be remitted over an eight-year period. We have begun remitting the required installment payments, with a balance remaining of $430 million as of December 31, 2021. In addition, we have provided for U.S. state income taxes of $19 million on all U.S. dollar-denominated E&P accumulated through December 31, 2017, which constitutes the preponderance of our foreign subsidiaries' accumulated E&P through December 31, 2017. We intend to indefinitely reinvest the unremitted foreign earnings of all other subsidiaries as of December 31, 2017, as well as all subsequent earnings generated by all of our foreign subsidiaries. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings and additional outside basis difference in these entities is not practicable. We are subject to a territorial tax system under the TCJA, in which we are required to provide for tax on Global Intangible Low Taxed Income (GILTI) earned by certain foreign subsidiaries. We have established an accounting policy election to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. Economic stimulus legislation has been enacted in many countries in response to the COVID-19 pandemic. In the U.S., the CARES Act was signed into law on March 27, 2020 and provided an estimated $2.2 trillion in COVID-19 pandemic related relief, and included tax relief and government loans, subsidies and other relief for entities in affected industries. While we did not apply for government loans, we took advantage of the benefits offered in multiple jurisdictions, including the U.S. provision allowing taxpayers to defer payment of the employer portion of certain payroll taxes through the end of 2020. This allowed us to preserve cash generated from operations to service our debt obligations and other near-term commitments.

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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=121826272&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=122134291&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=121826272&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=122134291&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=121826272&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 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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