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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The Company's income before provision for income taxes was generated from operations in the United States and outside of the United States as follows (in millions):
| Years Ended December 31,
| 2022 |  | 2021 |  | 2020
United States | $ | 634.4 |  |  | $ | 610.9 |  |  | $ | 151.3 |
Outside of the United States, including Puerto Rico | 1,133.0 |  |  | 1,091.1 |  |  | 765.4 |
| $ | 1,767.4 |  |  | $ | 1,702.0 |  |  | $ | 916.7 |
The provision for income taxes consists of the following (in millions):
| Years Ended December 31,
| 2022 |  | 2021 |  | 2020
Current |  |  |  |  |
United States: |  |  |  |  |
Federal | $ | 369.1 |  |  | $ | 125.2 |  |  | $ | 23.4 |
State and local | 60.6 |  |  | 25.1 |  |  | 48.2 |
Outside of the United States, including Puerto Rico | 66.7 |  |  | 92.6 |  |  | 73.9 |
Current income tax expense | $ | 496.4 |  |  | $ | 242.9 |  |  | $ | 145.5 |
Deferred |  |  |  |  |
United States: |  |  |  |  |
Federal | $ | (187.7) |  |  | $ | (9.4) |  |  | $ | 11.0 |
State and local | (58.9) |  |  | (25.4) |  |  | (32.9) |
Outside of the United States, including Puerto Rico | (4.3) |  |  | (9.2) |  |  | (30.3) |
Deferred income tax benefit | (250.9) |  |  | (44.0) |  |  | (52.2) |
Total income tax provision | $ | 245.5 |  |  | $ | 198.9 |  |  | $ | 93.3 |
The components of deferred tax assets and liabilities are as follows (in millions):
| December 31,
| 2022 |  | 2021
Deferred tax assets |  |  |
Capitalized research and development expenses (a) | $ | 199.7 |  |  | $ | — |
Compensation and benefits | 100.6 |  |  | 109.8 |
Benefits from uncertain tax positions | 42.1 |  |  | 33.9 |
Net tax credit carryforwards | 160.8 |  |  | 142.0 |
Net operating loss carryforwards | 71.7 |  |  | 69.4 |
Accrued liabilities | 93.7 |  |  | 108.0 |
Inventories | 11.9 |  |  | 13.5 |
Cash flow and net investment hedges | 6.6 |  |  | — |
State income taxes | 0.3 |  |  | 0.4 |
Investments | 0.6 |  |  | 0.7 |
Lease liability obligations | 6.7 |  |  | 6.6 |
Other | 1.9 |  |  | 1.3 |
Total deferred tax assets | 696.6 |  |  | 485.6 |
Deferred tax liabilities |  |  |
Property, plant, and equipment | (80.2) |  |  | (64.1) |
Cash flow and net investment hedges | — |  |  | (6.4) |
Deferred tax on foreign earnings | (19.2) |  |  | (26.3) |
Right-of-use assets | (6.0) |  |  | (6.1) |
Other intangible assets | (19.9) |  |  | (75.5) |
Other | (2.9) |  |  | (2.6) |
Total deferred tax liabilities | (128.2) |  |  | (181.0) |
Valuation allowance | (99.1) |  |  | (82.5) |
Net deferred tax assets | $ | 469.3 |  |  | $ | 222.1 |
______________________________________ (a) As required by the 2017 Tax Cuts and Jobs Act, effective January 1, 2022, the Company's research and development expenditures were capitalized and amortized which resulted in substantially higher cash paid for taxes in 2022 with an equal amount of deferred tax benefits. During 2022, net deferred tax assets increased $247.2 million, including items that were recorded to stockholders' equity and which did not impact the Company's income tax provision. The valuation allowance of $99.1 million as of December 31, 2022 reduces certain deferred tax assets to amounts that are more likely than not to be realized. This allowance primarily relates to the net operating loss carryforwards of certain non-United States subsidiaries and certain non-United States credit carryforwards. Net operating loss and capital loss carryforwards and the related carryforward periods at December 31, 2022 are summarized as follows (in millions):
| Carryforward Amount |  | Tax Benefit Amount |  | Valuation Allowance |  | Net Tax Benefit |  | Carryforward Period Ends
United States federal net operating losses | $ | 8.6 |  |  | $ | 1.8 |  |  | $ | — |  |  | $ | 1.8 |  |  | 2033-2037
United States federal net operating losses | 11.3 |  |  | 2.4 |  |  | — |  |  | 2.4 |  |  | Indefinite
United States state net operating losses | 35.7 |  |  | 1.8 |  |  | (1.7) |  |  | 0.1 |  |  | 2026-2041
United States state net operating losses | 2.6 |  |  | 0.1 |  |  | (0.1) |  |  | — |  |  | Indefinite
Non-United States net operating losses | 390.5 |  |  | 65.5 |  |  | (50.6) |  |  | 14.9 |  |  | Indefinite
United States capital losses | 33.4 |  |  | 0.1 |  |  | (0.1) |  |  | — |  |  | 2024
Total | $ | 482.1 |  |  | $ | 71.7 |  |  | $ | (52.5) |  |  | $ | 19.2 |  |  |
Certain tax attributes are subject to an annual limitation as a result of the acquisition of CASMED, which constitute a change of ownership as defined under Internal Revenue Code Section 382. The gross tax credit carryforwards and the related carryforward periods at December 31, 2022 are summarized as follows (in millions):
| Carryforward Amount |  | Valuation Allowance |  | Net Tax Benefit |  | Carryforward Period Ends
California research expenditure tax credits | $ | 189.8 |  |  | $ | — |  |  | $ | 189.8 |  |  | Indefinite
Federal research expenditure tax credits | 1.3 |  |  | — |  |  | 1.3 |  |  | 2026-2039
Foreign tax and general business credits | 4.3 |  |  | (3.8) |  |  | 0.5 |  |  | 2030-2032
Puerto Rico purchases credits | 26.4 |  |  | (26.4) |  |  | — |  |  | Indefinite
Total | $ | 221.8 |  |  | $ | (30.2) |  |  | $ | 191.6 |  |  |
The Company has $189.8 million of gross California research expenditure tax credits it expects to use in future periods. The credits may be carried forward indefinitely. Based upon anticipated future taxable income, the Company expects that it is more likely than not that all California research expenditure tax credits will be utilized, although the utilization of the full benefit is expected to occur over a number of years into the distant future. Accordingly, no valuation allowance has been provided. The Company has $26.4 million of Puerto Rico purchases credits. Throughout its history and into the future, the Company's Puerto Rico operations generate, or are expected to generate, credits each year in excess of its ability to utilize credits in those years. As a result, even though the credits currently have an indefinite life, the Company continues to record a valuation allowance on the purchases credits carryforwards. The Company recently renegotiated its tax grant under Puerto Rico Act 52-2022 ("Act 52") effective January 1, 2023. Among other items, Act 52 introduced new requirements and limitations on the availability and claiming of tax credits. As a result, the Company now expects that its purchases credits may begin to expire after 2026. On December 22, 2017, Public Law 115-97, commonly referred to as the Tax Cuts and Jobs Act (the "2017 Act"), was signed into law. The 2017 Act a) reduced the United States federal corporate tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017, b) required companies to pay a one-time mandatory deemed repatriation tax on the cumulative earnings of certain foreign subsidiaries that were previously tax deferred, and c) created new taxes on certain foreign earnings in future years. The Company elected to pay the repatriation tax in installments over eight years. The Company asserts that $1.0 billion of its foreign earnings continue to be indefinitely reinvested and it intends to repatriate $580.8 million of its foreign earnings as of December 31, 2022. The estimated net tax liability on the indefinitely reinvested earnings if repatriated is $14.9 million. The Company has received tax incentives in certain non-United States tax jurisdictions, the primary benefit for which will expire in 2029. The tax reductions as compared to the local statutory rates were $247.4 million ($0.40 per diluted share), $208.0 million ($0.33 per diluted share), and $189.2 million ($0.30 per diluted share) for the years ended December 31, 2022, 2021, and 2020, respectively. A reconciliation of the United States federal statutory income tax rate to the Company's effective income tax rate is as follows (in millions):
| Years Ended December 31,
| 2022 |  | 2021 |  | 2020
Income tax expense at United States federal statutory rate | $ | 371.1 |  |  | $ | 357.4 |  |  | $ | 192.5 |
Foreign income taxed at different rates | (123.9) |  |  | (122.2) |  |  | (80.5) |
State and local taxes, net of federal tax benefit | 21.1 |  |  | 11.9 |  |  | 5.0 |
Tax credits, federal and state | (50.0) |  |  | (48.4) |  |  | (43.1) |
Build of reserve for prior years' uncertain tax positions | 11.6 |  |  | 3.6 |  |  | 4.2 |
Tax on global intangible low-taxed income | 61.4 |  |  | 56.5 |  |  | 49.2 |
Foreign-derived intangible income deduction | (15.0) |  |  | (1.3) |  |  | (2.6) |
Contingent consideration liabilities | (7.5) |  |  | (26.1) |  |  | 2.9 |
United States federal deductible employee share-based compensation | (31.6) |  |  | (47.8) |  |  | (48.3) |
Nondeductible employee share-based compensation | 5.8 |  |  | 5.3 |  |  | 4.2 |
Other | 2.5 |  |  | 10.0 |  |  | 9.8 |
Income tax provision | $ | 245.5 |  |  | $ | 198.9 |  |  | $ | 93.3 |
The Company's effective tax rate for 2022 increased in comparison to 2021 primarily due to the decrease in the tax benefit from the change in fair value of contingent consideration liabilities and the decrease in the excess tax benefit from employee share-based compensation. The Company's effective tax rate for 2021 increased in comparison to 2020 primarily due to the tax benefit from the Settlement Agreement with Abbott in 2020 (see Note 3) and the decrease in the excess tax benefit from employee share-based compensation, partially offset by the tax benefit from the change in fair value of contingent consideration liabilities. Uncertain Tax Positions As of December 31, 2022 and 2021, the gross uncertain tax positions were $475.3 million and $358.4 million, respectively. The Company estimates that these liabilities would be reduced by $182.1 million and $135.1 million, respectively, from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes, and timing adjustments. The net amounts of $293.2 million and $223.3 million, respectively, if not required, would favorably affect the Company's effective tax rate. A reconciliation of the beginning and ending amount of uncertain tax positions, excluding interest, penalties, and foreign exchange, is as follows (in millions):
| December 31,
| 2022 |  | 2021 |  | 2020
Uncertain gross tax positions, January 1 | $ | 358.4 |  |  | $ | 281.8 |  |  | $ | 203.1 |
Current year tax positions | 120.6 |  |  | 82.1 |  |  | 86.4 |
Increase in prior year tax positions | 3.8 |  |  | 2.3 |  |  | 6.0 |
Decrease in prior year tax positions | (0.6) |  |  | (4.8) |  |  | (10.0) |
Settlements | (0.4) |  |  | (0.3) |  |  | (3.7) |
Lapse of statutes of limitations | (6.5) |  |  | (2.7) |  |  | — |
Uncertain gross tax positions, December 31 | $ | 475.3 |  |  | $ | 358.4 |  |  | $ | 281.8 |
The table above summarizes the gross amounts of uncertain tax positions without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such uncertain tax positions were settled. The Company recognizes interest and penalties, if any, related to uncertain tax positions in the provision for income taxes. As of December 31, 2022, the Company had accrued $29.1 million (net of $15.4 million tax benefit) of interest related to uncertain tax positions, and as of December 31, 2021, the Company had accrued $19.5 million (net of $8.1 million tax benefit) of interest related to uncertain tax positions. During 2022, 2021, and 2020, the Company recognized interest expense, net of tax benefit, of $9.6 million, $5.2 million, and $5.0 million, respectively, in "Provision for Income Taxes" on the consolidated statements of operations. In the normal course of business, the Internal Revenue Service ("IRS") and other taxing authorities are in different stages of examining various years of the Company's tax filings. During these audits, the Company may receive proposed audit adjustments that could be material. Therefore, there is a possibility that an adverse outcome in these audits could have a material effect on the Company's results of operations and financial condition. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for matters it believes are more likely than not to require settlement, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal. The uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations between tax authorities, identification of new issues, and issuance of new legislation, regulations, or case law. Management believes that adequate amounts of tax and related penalty and interest have been provided for any adjustments that may result from these uncertain tax positions. At December 31, 2022, all material state, local, and foreign income tax matters have been concluded for years through 2015. While not material, the Company continues to address matters in India for years from 2010 and on. The Company executed an Advance Pricing Agreement (“APA”) in 2018 between the United States and Switzerland governments for tax years 2009 through 2020 covering various, but not all, transfer pricing matters. The unagreed transfer pricing matters, namely Surgical Structural Heart and Transcatheter Aortic Valve Replacement (collectively "Surgical/TAVR") intercompany royalty transactions, then reverted to IRS examination for further consideration as part of the respective years' regular tax audits. In addition, the Company executed other bilateral APAs as follows: during 2017, an APA between the United States and Japan covering tax years 2015 through 2019; and during 2018, APAs between Japan and Singapore and between Switzerland and Japan covering tax years 2015 through 2019. The Company has filed to renew all of the APAs which cover transactions with Japan for the years 2020 and forward. An APA between Switzerland and Japan covering tax years 2020 through 2024 was executed in 2021. The execution of the other APA renewals depends on many variables outside of the Company's control. The audits of the Company’s United States federal income tax returns through 2014 have been closed. The IRS audit field work for the 2015 through 2017 tax years was completed during the second quarter of 2021, except for transfer pricing and related matters. The IRS began its examination of the 2018 through 2020 tax years during the first quarter of 2022. During 2021, the Company received a Notice of Proposed Adjustment (“NOPA”) from the IRS for the 2015-2017 tax years relating to transfer pricing involving certain Surgical/TAVR intercompany royalty transactions between the Company's United States and Switzerland subsidiaries. The NOPA proposes an increase to the Company's United States taxable income, which could result in additional tax expense for this period of approximately $210 million and represents a significant change to previously agreed upon transfer pricing methodologies for these types of transactions. The Company has formally disagreed with the NOPA and submitted a formal protest on the matter during the fourth quarter of 2021. During the second quarter of 2022, the Company received the IRS's rebuttal to its protest and was notified that the case has been transferred to the IRS Independent Office of Appeals. The opening conference is scheduled for the first quarter of 2023. The Company continues to evaluate all possible remedies available to it, which could take several years to resolve. The Company believes the amounts previously accrued related to this uncertain tax position are sufficient and, accordingly, has not accrued any additional amount based on the NOPA received. While no payment of any amount related to the NOPA is required to be made, if at all, until all applicable proceedings have been completed, the Company made an advance payment of tax in November 2022 to prevent the further accrual of interest on any potential deficiency. Certain Surgical/TAVR intercompany royalty transactions covering tax years 2015 through 2022 that were not resolved under the APA program remain subject to IRS examination, and those transactions and related tax positions remain uncertain as of December 31, 2022. The Company has considered this information, as well as information regarding the NOPA and rebuttal described above, in its evaluation of its uncertain tax positions. The impact of these unresolved transfer pricing matters, net of any correlative repatriation tax adjustment, may be significant to the Company’s consolidated financial statements. Based on the information currently available and numerous possible outcomes, the Company cannot reasonably estimate what, if any, changes in its existing uncertain tax positions may occur in the next 12 months and, therefore, has continued to record the uncertain tax positions as a long-term liability.

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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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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