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Income Taxes | 12 Months Ended
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Dec. 31, 2021
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):
| 2021 |  | 2020 |  | 2019
United States | $ | 2,500 |  |  | $ | 1,655 |  |  | $ | 854 |
Non-U.S. | 5,098 |  |  | 2,840 |  |  | 2,451 |
Total | $ | 7,598 |  |  | $ | 4,495 |  |  | $ | 3,305 |
The provision for income taxes from continuing operations for the years ended December 31 were as follows ($ in millions):
| 2021 |  | 2020 |  | 2019
Current: |  |  |  |  |
Federal U.S. | $ | 183 |  |  | $ | (321) |  |  | $ | 453 |
Non-U.S. | 1,134 |  |  | 580 |  |  | 800 |
State and local | 163 |  |  | 72 |  |  | 35 |
Deferred: |  |  |  |  |
Federal U.S. | (156) |  |  | 530 |  |  | (297) |
Non-U.S. | (23) |  |  | (16) |  |  | (128) |
State and local | (50) |  |  | 4 |  |  | 10 |
Income tax provision | $ | 1,251 |  |  | $ | 849 |  |  | $ | 873 |
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 and liabilities as of December 31 were as follows ($ in millions):
| 2021 |  | 2020
Deferred tax assets: |  |  |
Allowance for doubtful accounts | $ | 19 |  |  | $ | 24 |
Inventories | 93 |  |  | 99 |
Pension and postretirement benefits | 105 |  |  | 259 |
Environmental and regulatory compliance | 38 |  |  | 27 |
Other accruals and prepayments | 348 |  |  | 341 |
Stock-based compensation expense | 76 |  |  | 68 |
Operating lease liabilities | 252 |  |  | 215 |
Tax credit and loss carryforwards | 544 |  |  | 569 |
Valuation allowances | (242) |  |  | (264) |
Total deferred tax asset | 1,233 |  |  | 1,338 |
Deferred tax liabilities: |  |  |
Property, plant and equipment | (79) |  |  | (50) |
Insurance, including self-insurance | (520) |  |  | (713) |
Basis difference in LYONs | — |  |  | (11) |
Operating lease right-of-use assets | (235) |  |  | (204) |
Goodwill and other intangibles | (3,962) |  |  | (3,814) |
Total deferred tax liability | (4,796) |  |  | (4,792) |
Net deferred tax liability | $ | (3,563) |  |  | $ | (3,454) |
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 $2.1 billion and $1.9 billion as of December 31, 2021 and 2020, respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax liabilities of approximately $1.5 billion and $1.6 billion as of December 31, 2021 and 2020, respectively. During 2021, the Company’s valuation allowance decreased by $22 million primarily from the use of tax attributes which were previously not realizable. As of December 31, 2021, the total amount of the basis difference in investments indefinitely reinvested outside the United States for which deferred taxes have not been provided is approximately $11.2 billion. The income taxes applicable to repatriating such earnings are not readily determinable. As of December 31, 2021, the Company had no plans which would subject these basis differences to income taxes in the United States or elsewhere. The Tax Cuts and Jobs Act (“TCJA”) imposes tax on U.S. shareholders for global intangible low-taxed income (“GILTI”) earned by certain non-U.S. subsidiaries. The Company has elected the period cost method for its accounting for GILTI. 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
| 2021 |  | 2020 |  | 2019
Statutory federal income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) in tax rate resulting from: |  |  |  |  |
State income taxes (net of federal income tax benefit) | 1.1 | % |  | 1.1 | % |  | 0.8 | %
Non-U.S. rate differential | (2.0) | % |  | (1.6) | % |  | (1.4) | %
Resolution and expiration of statutes of limitation of uncertain tax positions | (3.0) | % |  | (0.7) | % |  | (2.1) | %
Research credits, uncertain tax positions and other | 0.5 | % |  | 0.7 | % |  | 9.3 | %
Excess tax benefits from stock-based compensation | (1.1) | % |  | (1.6) | % |  | (1.2) | %
Effective income tax rate | 16.5 | % |  | 18.9 | % |  | 26.4 | %
The Company’s effective tax rate for 2021, 2020 and 2019 differs from the U.S. federal statutory rate of 21.0%, due 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 as well as the impact of the following: •The effective tax rate of 16.5% in 2021 includes net tax benefits primarily related to the release of reserves for uncertain tax positions from the expiration of statutes of limitation, audit settlements and excess tax benefits from stock-based compensation, partially offset by changes in estimates associated with prior period uncertain tax positions. These items decreased the reported rate on a net basis by 3.5%. •The effective tax rate of 18.9% in 2020 includes net tax benefits primarily related to the release of reserves for uncertain tax positions from audit settlements and expiration of statutes of limitation and excess tax benefits from stock-based compensation, partially offset by a higher tax rate associated with the gain on the divestiture of certain product lines in the Life Sciences segment and changes in estimates associated with prior period uncertain tax positions. These items decreased the reported rate on a net basis by 0.7%. •The effective tax rate of 26.4% in 2019 includes 650 basis points of tax charges related primarily 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 non-U.S. tax credits, tax benefits resulting from changes in tax law and excess tax benefits from stock-based compensation. The Company made income tax payments related to both continuing and discontinued operations of approximately $1.7 billion, $1.1 billion and $847 million in 2021, 2020 and 2019, respectively. Current income taxes payable related to both continuing and discontinued operations has been reduced by $118 million, $110 million and $79 million in 2021, 2020 and 2019, 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 $95 million, $85 million and $55 million, respectively. The excess tax benefits 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 as of December 31, 2021 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $427 million ($172 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 2022 through 2041. In addition, the Company had general business and non-U.S. tax credit carryforwards of $117 million ($58 million of which the Company does not expect to realize and have corresponding valuation allowances) as of December 31, 2021, which can be carried forward to various dates from 2022 to 2031. In addition, as of December 31, 2021, the Company had $12 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, 2021, gross unrecognized tax benefits totaled approximately $1.1 billion (approximately $1.2 billion, net of the impact of $58 million of indirect tax benefits offset by $163 million associated with potential interest and penalties). As of December 31, 2020, gross unrecognized tax benefits totaled approximately $1.2 billion (approximately $1.4 billion, net of the impact of $148 million of indirect tax benefits offset by $354 million associated with potential interest and penalties). The Company recognized approximately $182 million of net tax benefits from the reversal of potential interest and penalties during 2021, and $41 million and $227 million of net tax expense from potential interest and penalties during 2020 and 2019, respectively, related to both continuing and discontinued operations associated with uncertain tax positions. To the extent unrecognized tax benefits (including interest and penalties) are recognized with respect to uncertain tax positions, approximately $1.1 billion and $1.4 billion as of December 31, 2021 and 2020, respectively, would reduce the tax expense and effective tax rate in future periods. The Company recognized interest and penalties related to unrecognized tax benefits within income taxes in the accompanying Consolidated Statements of Earnings. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other accrued expenses as detailed in Note 13. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties related to both continuing and discontinued operations, is as follows ($ in millions):
| 2021 |  | 2020 |  | 2019
Unrecognized tax benefits, beginning of year | $ | 1,175 |  |  | $ | 1,181 |  |  | $ | 986 |
Additions based on tax positions related to the current year | 47 |  |  | 47 |  |  | 71 |
Additions for tax positions of prior years | 166 |  |  | 24 |  |  | 197 |
Reductions for tax positions of prior years | (100) |  |  | (20) |  |  | (16) |
Acquisitions, divestitures and other | 53 |  |  | (30) |  |  | 7 |
Lapse of statute of limitations | (219) |  |  | (13) |  |  | (51) |
Settlements | (4) |  |  | (38) |  |  | (12) |
Effect of foreign currency translation | (23) |  |  | 24 |  |  | (1) |
Unrecognized tax benefits, end of year | $ | 1,095 |  |  | $ | 1,175 |  |  | $ | 1,181 |
The Company conducts business globally, and files numerous consolidated and separate income tax returns in the U.S. federal, state and non-U.S. jurisdictions. The non-U.S. countries in which the Company has a significant presence include China, Denmark, Germany, Singapore, Sweden, Switzerland and the United Kingdom. Excluding these jurisdictions, the Company believes that a change in the statutory tax rate of any individual non-U.S. 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 U.S. and non-U.S. taxing authorities. The Internal Revenue Service (“IRS”) has completed substantially all of the examinations of the Company’s federal income tax returns through 2015 and is currently examining certain of the Company’s federal income tax returns for 2016 through 2018. In addition, the Company has subsidiaries in Austria, Belgium, Canada, China, Denmark, France, Germany, India, Japan, Korea, Switzerland, the United Kingdom and various other countries, states and provinces that are currently under audit for years ranging from 2004 through 2020. During the year ended December 31, 2020, the Company settled the IRS audits of its federal income tax returns for 2012 through 2015. In the audit, the IRS proposed significant adjustments to the Company’s taxable income of approximately $2.7 billion related to the deferral of tax on certain premium income related to the Company’s self-insurance programs. For income tax purposes, the recognition of certain premium income has been deferred in accordance with U.S. tax laws related to insurance. While the settlement of these matters was not material to the Company’s financial statements, the settlement does not preclude the IRS from proposing similar adjustments in future audits and the IRS has continued to examine the deferral of premium income related to self-insurance programs in its examination of the Company’s federal income tax returns for 2016 through 2018. The examination is ongoing and to date, the IRS has not proposed any adjustments related to the Company’s self-insurance programs. 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 remeasured its deferred tax liabilities related to the temporary differences associated with this deferred premium income from 35.0% to 21.0%. If the IRS proposes adjustments related to the Company’s self-insurance premiums with respect to years prior to the adoption of the TCJA and the Company is unsuccessful in defending its position, any taxes owed to the IRS may be computed under the previous 35.0% statutory tax rate and the Company may be required to remeasure 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. Management believes the positions the Company has taken in its U.S. tax returns are in accordance with the relevant tax laws. Tax authorities in Denmark have issued tax assessments related to interest accrued by certain of the Company’s subsidiaries for the years 2004 through 2015. During the first quarter of 2021, the Company received a notice from the Danish tax authorities that included a significant reduction in the interest amounts imposed on the original tax assessments. Taking into account the revised interest amounts, the assessments total approximately DKK 2.1 billion including interest accrued to date (approximately $317 million based on the exchange rate as of December 31, 2021). The Company’s appeal of the tax assessments with the Danish National Tax Tribunal has been put on hold awaiting the final outcome of other preceding withholding tax cases that have been brought before the Danish High Court. 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. While the ultimate resolution of this matter is uncertain and could take many years, as a result of the payments the Company has previously made related to these assessments in order to mitigate further interest accruals, the Company does not expect the resolution of this matter will have a future 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 $58 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 3). 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 2022 and 2027. 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. As of December 31, 2021, the Company had satisfied the conditions enumerated in these agreements. Included in the accompanying Consolidated Financial Statements are tax benefits of $59 million, $43 million and $71 million (or $0.08, $0.06 and $0.10 per diluted common share) for 2021, 2020 and 2019, respectively, from these rulings and tax holidays.

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