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Income Taxes | 12 Months Ended
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Dec. 31, 2023
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):
| 2023 |  | 2022 |  | 2021
United States | $ | 1,310 |  |  | $ | 2,527 |  |  | $ | 2,054 |
Non-U.S. | 3,734 |  |  | 4,619 |  |  | 4,457 |
Total | $ | 5,044 |  |  | $ | 7,146 |  |  | $ | 6,511 |
The provision for income taxes from continuing operations for the years ended December 31 were as follows ($ in millions):
| 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal U.S. | $ | 559 |  |  | $ | 232 |  |  | $ | 59 |
Non-U.S. | 1,271 |  |  | 1,042 |  |  | 982 |
State and local | 197 |  |  | 126 |  |  | 125 |
Deferred: |  |  |  |  |
Federal U.S. | (737) |  |  | (362) |  |  | (55) |
Non-U.S. | (338) |  |  | (145) |  |  | (16) |
State and local | (129) |  |  | (75) |  |  | (31) |
Income tax provision | $ | 823 |  |  | $ | 818 |  |  | $ | 1,064 |
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, 2022 were $240 million and consisted primarily of other accruals and prepayments and tax credit and loss carryforwards, net of valuation allowances. Deferred income tax liabilities for discontinued operations as of December 31, 2022 were $298 million and consisted primarily of goodwill and other intangibles. The deferred income tax assets and liabilities for discontinued operations are included in the table below. The net deferred income tax liability for discontinued operations as of December 31, 2022, was $58 million and is reflected in other assets, discontinued operations and other long-term liabilities, discontinued operations in the accompanying Consolidated Balance Sheet. Deferred income tax assets and liabilities as of December 31 were as follows ($ in millions):
| 2023 |  | 2022
Deferred tax assets: |  |  |
Allowance for doubtful accounts | $ | 18 |  |  | $ | 17 |
Inventories | 120 |  |  | 118 |
Pension and postretirement benefits | 25 |  |  | 17 |
Environmental and regulatory compliance | 37 |  |  | 39 |
Other accruals and prepayments | 574 |  |  | 406 |
Stock-based compensation expense | 115 |  |  | 105 |
Operating lease liabilities | 252 |  |  | 238 |
Research and development expense | 441 |  |  | 243 |
Tax credit and loss carryforwards | 557 |  |  | 479 |
Valuation allowances | (234) |  |  | (236) |
Total deferred tax asset | 1,905 |  |  | 1,426 |
Deferred tax liabilities: |  |  |
Property, plant and equipment | (125) |  |  | (92) |
Insurance, including self-insurance | (315) |  |  | (803) |
Operating lease ROU assets | (228) |  |  | (219) |
Goodwill and other intangibles | (3,429) |  |  | (3,270) |
Total deferred tax liability | (4,097) |  |  | (4,384) |
Net deferred tax liability | $ | (2,192) |  |  | $ | (2,958) |
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 $832 million and approximately $1.9 billion as of December 31, 2023 and 2022, respectively, of which $66 million were associated with discontinued operations in 2022. Deferred taxes associated with non-U.S. entities consist of net deferred tax liabilities of approximately $1.4 billion and $1.1 billion as of December 31, 2023 and 2022, respectively, of which $8 million of net deferred tax assets were associated with discontinued operations in 2022. During 2023, the Company’s valuation allowance decreased by $2 million due to deferred tax assets and associated valuation allowance transferred due to the Separation, offset by certain tax benefits recognized in 2023 that were not expected to be realized. As of December 31, 2023, 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 $14.5 billion. The income taxes applicable to repatriating such earnings are not readily determinable. As of December 31, 2023, 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
| 2023 |  | 2022 |  | 2021
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) | 1.2 | % |  | 1.2 | % |  | 1.0 | %
Non-U.S. rate differential | (3.4) | % |  | (3.4) | % |  | (2.4) | %
Resolution and expiration of statutes of limitation of uncertain tax positions | (0.4) | % |  | (0.3) | % |  | (2.9) | %
Realignment of businesses | 0.6 | % |  | (5.7) | % |  | — | %
Research credits | (1.6) | % |  | (0.6) | % |  | (0.6) | %
Foreign-derived intangible income, uncertain tax positions and other | (0.8) | % |  | (0.3) | % |  | 1.1 | %
Excess tax benefits from stock-based compensation | (0.3) | % |  | (0.5) | % |  | (0.9) | %
Effective income tax rate | 16.3 | % |  | 11.4 | % |  | 16.3 | %
The Company’s effective tax rate for 2023, 2022 and 2021 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 16.3% in 2023 includes net deferred tax benefits from changes in estimates related to prior year tax filing positions, the release of reserves for uncertain tax positions due to the expiration of statutes of limitation and excess tax benefits from stock-based compensation, net of charges related to tax costs related to the Separation, tax costs from legal and operational actions undertaken to realign certain of its businesses and changes in estimates associated with prior period uncertain tax positions. These items decreased the reported rate on a net basis by 0.9%. •The effective tax rate of 11.4% in 2022 includes net deferred tax benefits resulting from legal and operational actions undertaken to realign certain of its businesses, as well as excess tax benefits from stock-based compensation, the release of reserves for uncertain tax positions due to the expiration of statutes of limitation and audit settlements and changes in estimates related to prior year tax filing positions, net of changes in estimates associated with prior period uncertain tax positions. These items decreased the reported rate on a net basis by 7.0%. •The effective tax rate of 16.3% 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 3.0%. The Company made income tax payments related to both continuing and discontinued operations of approximately $1.8 billion, $1.8 billion and $1.7 billion in 2023, 2022 and 2021, respectively. Current income taxes payable related to both continuing and discontinued operations has been reduced by $80 million, $85 million and $118 million in 2023, 2022 and 2021, 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 $51 million, $61 million and $95 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, 2023 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $284 million ($154 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 2024 through 2043. In addition, the Company had general business and non-U.S. tax credit carryforwards of $273 million ($75 million of which the Company does not expect to realize and have corresponding valuation allowances) as of December 31, 2023, which can be carried forward to various dates from 2024 to 2033. In addition, as of December 31, 2023, the Company had $5 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, 2023, gross unrecognized tax benefits totaled approximately $1.2 billion (approximately $1.3 billion, net of the impact of $73 million of indirect tax benefits offset by $199 million associated with potential interest and penalties). As of December 31, 2022, gross unrecognized tax benefits totaled approximately $1.1 billion (approximately $1.2 billion (of which $76 million related to discontinued operations), net of the impact of $65 million of indirect tax benefits offset by $171 million associated with potential interest and penalties). The Company recognized approximately $32 million and $14 million of net tax expense from potential interest and penalties during 2023 and 2022, respectively, and $182 million of net tax benefits from the reversal of potential interest and penalties during 2021, related to both continuing and discontinued operations associated with uncertain tax positions. The net tax expense for potential interest and penalties related to discontinued operations were $6 million and $2 million in 2023 and 2022, respectively, and $9 million of net tax benefit in 2021. To the extent unrecognized tax benefits (including interest and penalties) are recognized with respect to uncertain tax positions, approximately $1.3 billion and $1.2 billion as of December 31, 2023 and 2022, respectively, would reduce the tax expense and effective tax rate in future periods, of which $76 million related to discontinued operations in 2022. The Company recognized interest and penalties related to unrecognized tax benefits within income taxes in the accompanying Consolidated Statements of Earnings. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other accrued expenses as detailed in Note 13. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties related to both continuing and discontinued operations, is as follows ($ in millions):
| 2023 |  | 2022 |  | 2021
Unrecognized tax benefits, beginning of year | $ | 1,139 |  |  | $ | 1,095 |  |  | $ | 1,175 |
Additions based on tax positions related to the current year | 72 |  |  | 44 |  |  | 47 |
Additions for tax positions of prior years | 41 |  |  | 49 |  |  | 166 |
Reductions for tax positions of prior years | (15) |  |  | (10) |  |  | (100) |
Acquisitions, divestitures and other | (14) |  |  | 6 |  |  | 53 |
Lapse of statute of limitations | (11) |  |  | (16) |  |  | (219) |
Settlements | (8) |  |  | (7) |  |  | (4) |
Effect of foreign currency translation | 10 |  |  | (22) |  |  | (23) |
Unrecognized tax benefits, end of year | $ | 1,214 |  |  | $ | 1,139 |  |  | $ | 1,095 |
The Company conducts business globally and files numerous consolidated and separate income tax returns in the U.S. federal and 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 2021. In addition, the Company has subsidiaries in Canada, China, Denmark, France, Germany, India, Italy, Switzerland, the United Kingdom and various other countries, states and provinces that are currently under audit for years ranging from 2004 through 2022. Similar to the position it took in connection with the audit of the Company’s taxable income for the years 2012 through 2015, in the fourth quarter of 2022, the IRS proposed significant adjustments to the Company’s taxable income for the years 2016 through 2018 with respect to the deferral of tax on certain premium income related to the Company’s self-insurance programs. The settlement of this matter for the 2012 through 2015 audit was not material to the Company’s financial statements but did not preclude the IRS from proposing similar adjustments in future audit periods, as the IRS did with the 2022 assessment. For income tax purposes, the recognition of premium income has been deferred in accordance with U.S. tax laws related to insurance. The IRS challenged the deferral of premium income for certain types of the Company’s self-insurance policies. The proposed adjustments would have increased the Company’s taxable income over the 2016 through 2018 periods by approximately $2.5 billion. In the first quarter of 2023, the Company settled these proposed adjustments with the IRS, although the audit is still open with respect to other matters for the 2016 through 2018 period. The impact of the settlement with respect to the Company’s self-insurance policies was not material to the Company’s financial statements, including cash flows and the effective tax rate. As the settlement with the IRS was specific to the audit period, the settlement does not preclude the IRS from proposing similar adjustments to the Company’s self-insurance programs with respect to periods subsequent to 2018. 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 in the original tax assessments. Taking into account the revised interest amounts, the assessments total approximately DKK 2.1 billion including applicable accrued interest (approximately $307 million based on the exchange rate as of December 31, 2023). During 2023, the Danish National Tax Tribunal lifted the suspension of the Company’s appeal of the tax assessments and the appeal will now proceed in due course. 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 and the Danish Supreme 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, taking into account the payments the Company has previously made related to these assessments in order to mitigate further interest accrual claims, 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 $352 million within 12 months as a result of resolution of worldwide tax matters, net of payments for 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 accompanying 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 Puerto Rico, Singapore and Switzerland, the Company has various tax rulings and tax holiday arrangements which reduce the overall effective tax rate of the Company. The various rulings and tax holidays expire between 2024 and 2027. As of December 31, 2023, the Company had satisfied the conditions enumerated in these agreements. Included in the accompanying Consolidated Financial Statements are tax benefits of $83 million, $71 million and $59 million (or $0.11, $0.10 and $0.08 per diluted common share) for 2023, 2022 and 2021, respectively, from these rulings and tax holidays.

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