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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Earnings from continuing operations before income taxes for the years ended December 31 were as follows ($ in millions):
| 2019 |  | 2018 |  | 2017
United States | $ | 854.1 |  |  | $ | 801.3 |  |  | $ | 760.2 |
International | 2,451.2 |  |  | 2,160.6 |  |  | 1,783.0 |
Total | $ | 3,305.3 |  |  | $ | 2,961.9 |  |  | $ | 2,543.2 |
The provision for income taxes from continuing operations for the years ended December 31 were as follows ($ in millions):
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal U.S. | $ | 453.7 |  |  | $ | 283.0 |  |  | $ | 395.7 |
Non-U.S. | 799.9 |  |  | 460.4 |  |  | 418.1 |
State and local | 34.6 |  |  | 64.4 |  |  | (14.3 | )
Deferred: |  |  |  |  |
Federal U.S. | (297.1 | ) |  | (200.6 | ) |  | (400.5 | )
Non-U.S. | (127.7 | ) |  | (12.3 | ) |  | (84.8 | )
State and local | 9.6 |  |  | (39.3 | ) |  | 56.8 |
Income tax provision | $ | 873.0 |  |  | $ | 555.6 |  |  | $ | 371.0 |
Noncurrent deferred tax assets and noncurrent deferred tax liabilities are included in other assets and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets. Deferred income tax assets for discontinued operations as of December 31, 2018 were $131 million and consisted primarily of tax credit and loss carryforwards and other accruals and prepayments, net of valuation allowances. Deferred income tax liabilities for discontinued operations as of December 31, 2018 were $333 million and consisted primarily of goodwill and other intangibles. The deferred income tax assets and liabilities for discontinued operations as of December 31, 2018 are included in the table below. The net deferred income tax liability for the year ended December 31, 2018, was $202 million and is reflected in other assets, discontinued operations and other long-term liabilities, discontinued operations in the accompanying Consolidated Balance Sheet. Deferred income tax assets and liabilities as of December 31 were as follows ($ in millions):
| 2019 |  | 2018
Deferred tax assets: |  |  |
Allowance for doubtful accounts | $ | 19.1 |  |  | $ | 19.7 |
Inventories | 73.3 |  |  | 81.2 |
Pension and postretirement benefits | 231.3 |  |  | 222.7 |
Environmental and regulatory compliance | 22.1 |  |  | 22.4 |
Other accruals and prepayments | 194.6 |  |  | 223.7 |
Stock-based compensation expense | 68.5 |  |  | 64.7 |
Operating lease liabilities | 193.7 |  |  | — |
Tax credit and loss carryforwards | 703.4 |  |  | 894.5 |
Valuation allowances | (261.2 | ) |  | (389.6 | )
Total deferred tax asset | 1,244.8 |  |  | 1,139.3 |
Deferred tax liabilities: |  |  |
Property, plant and equipment | (113.5 | ) |  | (90.0 | )
Insurance, including self-insurance | (272.3 | ) |  | (564.0 | )
Basis difference in LYONs | (13.8 | ) |  | (21.6 | )
Operating lease ROU assets | (185.7 | ) |  | — |
Goodwill and other intangibles | (2,311.7 | ) |  | (2,774.9 | )
Total deferred tax liability | (2,897.0 | ) |  | (3,450.5 | )
Net deferred tax liability | $ | (1,652.2 | ) |  | $ | (2,311.2 | )
The Company evaluates the future realizability of tax credits and loss carryforwards considering the anticipated future earnings of the Company’s subsidiaries as well as tax planning strategies in the associated jurisdictions. Deferred taxes associated with U.S. entities consist of net deferred tax liabilities of approximately $1.6 billion and $2.0 billion as of December 31, 2019 and 2018, respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax liabilities of $90 million and $277 million as of December 31, 2019 and 2018, respectively. During 2019, the Company’s valuation allowance decreased by $128 million primarily due to deferred tax assets and associated valuation allowance transferred due to the Envista Disposition, as well as release of a valuation allowance in a certain foreign jurisdiction, partially offset by certain tax benefits recognized in 2019 that are not expected to be realized. As of December 31, 2019, the total amount of the basis difference in investments outside the United States for which deferred taxes have not been provided is approximately $9.6 billion. The income taxes applicable to repatriating such earnings are not readily determinable. As of December 31, 2019, the Company had no plans which would subject these basis differences to income taxes in the United States or elsewhere. On December 22, 2017, the TCJA was enacted, substantially changing the U.S. tax system. Under the SEC Staff Accounting Bulletin No. 118 (“SAB No. 118”) guidance, for the year ended December 31, 2017, the Company recorded provisional amounts in earnings for the effects of the enactment of the TCJA and during 2018, the Company completed its accounting for the TCJA based on the Company’s interpretation of the new tax regulations and related guidance issued by the U.S. Department of the Treasury and the Internal Revenue Service (“IRS”). The TCJA imposes tax on U.S. shareholders for global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company has elected the period cost method for its accounting for GILTI. Due to the complexity and recent issuance of these tax regulations, management’s interpretations of the impact of these rules could be subject to challenge by the taxing authorities. The effective income tax rate from continuing operations for the years ended December 31 varies from the U.S. statutory federal income tax rate as follows:
| Percentage of Pretax Earnings
| 2019 |  | 2018 |  | 2017
Statutory federal income tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
Increase (decrease) in tax rate resulting from: |  |  |  |  |
State income taxes (net of federal income tax benefit) | 0.8 | % |  | 0.9 | % |  | 0.8 | %
Foreign rate differential | (1.4 | )% |  | (0.9 | )% |  | (12.7 | )%
Resolution and expiration of statutes of limitation of uncertain tax positions | (2.1 | )% |  | (1.7 | )% |  | (7.2 | )%
Permanent foreign exchange losses | — | % |  | — | % |  | (0.8 | )%
Research credits, uncertain tax positions and other | 8.1 | % |  | (0.7 | )% |  | (0.5 | )%
TCJA - revaluation of U.S. deferred income taxes | — | % |  | (1.6 | )% |  | (47.9 | )%
TCJA - Transition Tax | — | % |  | 1.8 | % |  | 47.9 | %
Effective income tax rate | 26.4 | % |  | 18.8 | % |  | 14.6 | %
The Company’s effective tax rate for 2019, 2018 and 2017 differs from the U.S. federal statutory rates of 21.0% in 2019 and 2018 and 35.0% in 2017, due principally to the Company’s earnings outside the United States that are indefinitely reinvested and taxed at rates different than the U.S. federal statutory rate. In addition:
• | The effective tax rate of 26.4% in 2019 includes 650 basis points of tax charges primarily related to changes in estimates associated with prior period uncertain tax positions, audit settlements, and Envista Disposition costs, net of the release of reserves for uncertain tax positions due to the expiration of statutes of limitation, release of valuation allowances associated with certain foreign tax credits, tax benefits resulting from changes in tax law and excess tax benefits from stock-based compensation.
• | The effective tax rate of 18.8% in 2018 includes 120 basis points of tax benefits primarily related to the release of reserves upon the expiration of statutes of limitation, audit settlements and release of a valuation allowance in a certain foreign tax jurisdiction. These tax benefits were partially offset by additional provisions related to completing the accounting for the enactment of the TCJA and tax costs directly related to reorganization activities associated with the Envista Disposition.
• | The effective tax rate of 14.6% in 2017 includes 560 basis points of net tax benefits due to the revaluation of deferred tax liabilities from 35.0% to 21.0% due to the TCJA and the release of reserves upon statute of limitation expiration, partially offset by income tax expense related to the Transition Tax on foreign earnings due to the TCJA and changes in estimates associated with prior period uncertain tax positions.
The Company made income tax payments related to both continuing and discontinued operations of $847 million, $673 million and $689 million in 2019, 2018 and 2017, respectively. Current income taxes payable related to both continuing and discontinued operations has been reduced by $79 million, $57 million and $85 million in 2019, 2018 and 2017, respectively, for tax deductions attributable to stock-based compensation, of which, the excess tax benefit over the amount recorded for financial reporting purposes for both continuing and discontinued operations was $55 million, $38 million and $55 million, respectively. As a result of the adoption of ASU 2016-09, Compensation—Stock Compensation, the excess tax benefits for the years ended December 31, 2019, 2018 and 2017 have been recorded as reductions to the current income tax provision and are reflected as operating cash inflows in the accompanying Consolidated Statements of Cash Flows. Included in deferred income taxes related to continuing operations as of December 31, 2019 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $504 million ($162 million of which the Company does not expect to realize and have corresponding valuation allowances). Certain of the losses can be carried forward indefinitely and others can be carried forward to various dates from 2020 through 2039. In addition, the Company had general business and foreign tax credit carryforwards related to continuing operations of $199 million ($67 million of which the Company does not expect to realize and have corresponding valuation allowances) as of December 31, 2019, which can be carried forward to various dates from 2020 to 2029. In addition, as of December 31, 2019, the Company had $32 million of valuation allowances related to other deferred tax asset balances that are not more likely than not of being realized. As of December 31, 2019, gross unrecognized tax benefits related to continuing operations totaled approximately $1.2 billion (approximately $1.4 billion, net of the impact of $131 million of indirect tax benefits offset by $320 million associated with potential interest and penalties). As of December 31, 2018, gross unrecognized tax benefits related to both continuing and discontinued operations totaled $986 million ($988 million, net of the impact of $117 million of indirect tax benefits offset by $119 million associated with potential interest and penalties). The Company recognized approximately $227 million, $41 million and $41 million in potential interest and penalties related to both continuing and discontinued operations associated with uncertain tax positions during 2019, 2018 and 2017, respectively. To the extent unrecognized tax benefits (including interest and penalties) are recognized with respect to uncertain tax positions, approximately $1.3 billion would reduce the tax expense and effective tax rate in future periods. The Company recognized interest and penalties related to unrecognized tax benefits within income taxes in the accompanying Consolidated Statements of Earnings. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other accrued expenses as detailed in Note 10. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties related to both continuing and discontinued operations, is as follows ($ in millions):
| 2019 |  | 2018 |  | 2017
Unrecognized tax benefits, beginning of year | $ | 986.0 |  |  | $ | 736.8 |  |  | $ | 992.2 |
Additions based on tax positions related to the current year | 71.0 |  |  | 43.1 |  |  | 53.0 |
Additions for tax positions of prior years | 197.3 |  |  | 324.3 |  |  | 39.8 |
Reductions for tax positions of prior years | (15.8 | ) |  | (21.9 | ) |  | (14.5 | )
Acquisitions, divestitures and other | 6.8 |  |  | 9.4 |  |  | 13.4 |
Lapse of statute of limitations | (51.5 | ) |  | (52.9 | ) |  | (246.7 | )
Settlements | (12.2 | ) |  | (41.8 | ) |  | (124.8 | )
Effect of foreign currency translation | (0.7 | ) |  | (11.0 | ) |  | 24.4 |
Unrecognized tax benefits, end of year | $ | 1,180.9 |  |  | $ | 986.0 |  |  | $ | 736.8 |
The Company conducts business globally, and files numerous consolidated and separate income tax returns in the U.S. federal, state and foreign jurisdictions. The non-U.S. countries in which the Company has a significant presence include China, Denmark, Germany, Singapore, Switzerland and the United Kingdom. The Company believes that a change in the statutory tax rate of any individual foreign country would not have a material effect on the Company’s Consolidated Financial Statements given the geographic dispersion of the Company’s taxable income. The Company and its subsidiaries are routinely examined by various domestic and international taxing authorities. The IRS has completed substantially all of the examinations of the Company’s federal income tax returns through 2011 and is currently examining certain of the Company’s federal income tax returns for 2012 through 2017. In addition, the Company has subsidiaries in Austria, Belgium, Canada, China, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Korea, Switzerland, the United Kingdom and various other countries, states and provinces that are currently under audit for years ranging from 2004 through 2018. In the fourth quarter of 2018 and the first quarter of 2019, the IRS proposed significant adjustments to the Company’s taxable income for the years 2012 through 2015 with respect to the deferral of tax on certain premium income related to the Company’s self-insurance programs. For income tax purposes, the recognition of premium income has been deferred in accordance with U.S. tax laws related to insurance. The IRS is challenging the deferral of premiums for certain types of the Company’s self-insurance policies. The proposed adjustments would increase the Company’s taxable income over the 2012 through 2015 period by approximately $2.7 billion. Management believes the positions the Company has taken in its U.S. tax returns are in accordance with the relevant tax laws and intends to vigorously defend these positions. Due to the enactment of the TCJA in 2017 and the resulting reduction in the U.S. corporate tax rate for years after 2017, the Company revalued its deferred tax liabilities related to the temporary differences associated with this deferred premium income from 35.0% to 21.0%. If the Company is not successful in defending these assessments, the taxes owed to the IRS may be computed under the previous 35.0% statutory tax rate and the Company may be required to revalue the related deferred tax liabilities from 21.0% to 35.0%, which in addition to any interest due on the amounts assessed, would require a charge to future earnings. The ultimate resolution of this matter is uncertain, could take many years and could result in a material adverse impact to the Company’s financial statements, including its cash flows and effective tax rate. Tax authorities in Denmark have raised significant issues related to interest accrued by certain of the Company’s subsidiaries. On December 10, 2013, the Company received assessments from the Danish tax authority (“SKAT”) of approximately DKK 1.8 billion (approximately $266 million based on exchange rates as of December 31, 2019) including interest through December 31, 2019, imposing withholding tax relating to interest accrued in Denmark on borrowings from certain of the Company’s subsidiaries for the years 2004-2009. The Company appealed these assessments to the Danish National Tax Tribunal in 2014. The appeal is pending, awaiting the final outcome of other, preceding withholding tax cases that were appealed to the Danish courts and subsequently to the Court of Justice of the European Union (“CJEU”). In February 2019, the CJEU decided several of these cases and ruled that the exemption of interest payments from withholding taxes provided in the applicable European Union (“EU”) directive should be denied where taxpayers use the directive for abusive or fraudulent purposes, and that it is up to the national courts to make this determination. This decision of the CJEU now awaits application by the Danish High Court in the other, preceding withholding tax cases. SKAT has maintained a similar position related to withholding tax on interest accrued in Denmark on borrowings from certain of the Company’s subsidiaries with respect to tax years 2010-2012 and 2013-2015. On August 27, 2019 and December 16, 2019, the Company received assessments for these matters of approximately DKK 1.1 billion including interest through December 31, 2019 (approximately $159 million based on the exchange rate as of December 31, 2019) for tax years 2010-2012 and DKK 751 million including interest through December 31, 2019 (approximately $113 million based on the exchange rate as of December 31, 2019) for tax years 2013-2015, respectively. The Company is appealing these assessments as well. Management believes the positions the Company has taken in Denmark are in accordance with the relevant tax laws and is vigorously defending its positions. The Company intends on pursuing this matter through the Danish High Court should the appeal to the Danish National Tax Tribunal be unsuccessful. The Company will continue to monitor decisions of both the Danish courts and the CJEU and evaluate the impact of these court rulings on the Company’s tax positions in Denmark. The ultimate resolution of this matter is uncertain, could take many years, and could result in a material adverse impact to the Company’s financial statements, including its cash flow and effective tax rate. Management estimates that it is reasonably possible that the amount of unrecognized tax benefits related to continuing operations may be reduced by approximately $368 million within 12 months as a result of resolution of worldwide tax matters, payments of tax audit settlements and/or statute of limitations expirations. Future resolution of uncertain tax positions related to discontinued operations may result in additional charges or credits to earnings from discontinued operations in the Consolidated Statements of Earnings (refer to Note 4). The Company operates in various non-U.S. jurisdictions where income tax incentives and rulings have been granted for specific periods of time. In Switzerland, the Company has various tax rulings and tax holiday arrangements which reduce the overall effective tax rate of the Company. The tax holidays expire between 2019 and 2022. In Singapore, the Company operates under various tax incentive agreements that provide for reduced tax rates. Subject to the Company satisfying certain requirements, the agreements expire in 2022. The Company has satisfied the conditions enumerated in these agreements to date. Included in the accompanying Consolidated Financial Statements are tax benefits of $71 million, $69 million, and $62 million (or $0.10, $0.10, and $0.09 per diluted share) for 2019, 2018, and 2017, respectively, from these rulings and tax holidays.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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