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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
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,
| 2023 |  | 2022 |  | 2021
United States | $ | 348.0 |  |  | $ | 634.4 |  |  | $ | 610.9 |
Outside of the United States, including Puerto Rico | 1,250.1 |  |  | 1,133.0 |  |  | 1,091.1 |
| $ | 1,598.1 |  |  | $ | 1,767.4 |  |  | $ | 1,702.0 |
The provision for income taxes consists of the following (in millions):
| Years Ended December 31,
| 2023 |  | 2022 |  | 2021
Current |  |  |  |  |
United States: |  |  |  |  |
Federal | $ | 317.3 |  |  | $ | 369.1 |  |  | $ | 125.2 |
State and local | 58.1 |  |  | 60.6 |  |  | 25.1 |
Outside of the United States, including Puerto Rico | 85.3 |  |  | 66.7 |  |  | 92.6 |
Current income tax expense | $ | 460.7 |  |  | $ | 496.4 |  |  | $ | 242.9 |
Deferred |  |  |  |  |
United States: |  |  |  |  |
Federal | $ | (187.5) |  |  | $ | (187.7) |  |  | $ | (9.4) |
State and local | (54.2) |  |  | (58.9) |  |  | (25.4) |
Outside of the United States, including Puerto Rico | (20.3) |  |  | (4.3) |  |  | (9.2) |
Deferred income tax benefit | (262.0) |  |  | (250.9) |  |  | (44.0) |
Total income tax provision | $ | 198.7 |  |  | $ | 245.5 |  |  | $ | 198.9 |
The components of deferred tax assets and liabilities are as follows (in millions):
| December 31,
| 2023 |  | 2022
Deferred tax assets |  |  |
Capitalized research and development expenses (a) | $ | 371.1 |  |  | $ | 199.7 |
Compensation and benefits | 117.9 |  |  | 100.6 |
Benefits from uncertain tax positions | 63.4 |  |  | 42.1 |
Net tax credit carryforwards | 172.9 |  |  | 160.8 |
Net operating loss carryforwards | 75.9 |  |  | 71.7 |
Accrued liabilities | 132.8 |  |  | 93.7 |
Inventories | 15.3 |  |  | 11.9 |
Cash flow and net investment hedges | 1.6 |  |  | 6.6 |
State income taxes | 0.2 |  |  | 0.3 |
Investments | 0.6 |  |  | 0.6 |
Lease liability obligations | 5.8 |  |  | 6.7 |
Other | 0.8 |  |  | 1.9 |
Total deferred tax assets | 958.3 |  |  | 696.6 |
Deferred tax liabilities |  |  |
Property, plant, and equipment | (78.2) |  |  | (80.2) |
Deferred tax on foreign earnings | (3.6) |  |  | (19.2) |
Right-of-use assets | (4.7) |  |  | (6.0) |
Other intangible assets | (53.0) |  |  | (19.9) |
Other | (2.5) |  |  | (2.9) |
Total deferred tax liabilities | (142.0) |  |  | (128.2) |
Valuation allowance | (90.2) |  |  | (99.1) |
Net deferred tax assets | $ | 726.1 |  |  | $ | 469.3 |
______________________________________ (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 2023 and 2022 with an equal amount of deferred tax benefits. During 2023, net deferred tax assets increased $256.8 million, including items that were recorded to stockholders' equity and which did not impact the Company's income tax provision. The valuation allowance of $90.2 million as of December 31, 2023 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, 2023 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 | $ | 9.0 |  |  | $ | 1.9 |  |  | $ | — |  |  | $ | 1.9 |  |  | 2033-2037
United States federal net operating losses | 1.8 |  |  | 0.4 |  |  | — |  |  | 0.4 |  |  | 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 | 416.5 |  |  | 71.6 |  |  | (54.5) |  |  | 17.1 |  |  | Indefinite
United States capital losses | 33.4 |  |  | 0.1 |  |  | (0.1) |  |  | — |  |  | 2024
Total | $ | 499.0 |  |  | $ | 75.9 |  |  | $ | (56.4) |  |  | $ | 19.5 |  |  |
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, 2023 are summarized as follows (in millions):
| Carryforward Amount |  | Valuation Allowance |  | Net Tax Benefit |  | Carryforward Period Ends
California research expenditure tax credits | $ | 211.3 |  |  | $ | — |  |  | $ | 211.3 |  |  | Indefinite
Federal research expenditure tax credits | 1.3 |  |  | — |  |  | 1.3 |  |  | 2026-2039
Foreign tax and general business credits | 0.7 |  |  | — |  |  | 0.7 |  |  | 2030-2033
Puerto Rico purchases credits | 26.2 |  |  | (26.2) |  |  | — |  |  | 2025
Puerto Rico purchases credits | 1.2 |  |  | (1.2) |  |  | — |  |  | Indefinite
Total | $ | 240.7 |  |  | $ | (27.4) |  |  | $ | 213.3 |  |  |
The Company has $211.3 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 $27.4 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 generated through December 31, 2022 will expire in 2025 while the purchases credits generated after December 31, 2022 will have an indefinite life. 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 $961.6 million of its foreign earnings continue to be indefinitely reinvested and it intends to repatriate $1.2 billion of its foreign earnings as of December 31, 2023. The estimated net tax liability on the indefinitely reinvested earnings if repatriated is $5.1 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 $333.2 million ($0.55 per diluted share), $247.4 million ($0.40 per diluted share), and $208.0 million ($0.33 per diluted share) for the years ended December 31, 2023, 2022, and 2021, 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,
| 2023 |  | 2022 |  | 2021
Income tax expense at United States federal statutory rate | $ | 335.6 |  |  | $ | 371.1 |  |  | $ | 357.4 |
Foreign income taxed at different rates | (128.3) |  |  | (123.9) |  |  | (122.2) |
State and local taxes, net of federal tax benefit | 18.7 |  |  | 21.1 |  |  | 11.9 |
Tax credits, federal and state | (62.5) |  |  | (50.0) |  |  | (48.4) |
Build of reserve for prior years' uncertain tax positions | (2.9) |  |  | 11.6 |  |  | 3.6 |
Tax on global intangible low-taxed income | 78.7 |  |  | 61.4 |  |  | 56.5 |
Foreign-derived intangible income deduction | (23.0) |  |  | (15.0) |  |  | (1.3) |
Contingent consideration liabilities | (5.5) |  |  | (7.5) |  |  | (26.1) |
United States federal deductible employee share-based compensation | (13.1) |  |  | (31.6) |  |  | (47.8) |
Nondeductible employee share-based compensation | 6.6 |  |  | 5.8 |  |  | 5.3 |
Other | (5.6) |  |  | 2.5 |  |  | 10.0 |
Income tax provision | $ | 198.7 |  |  | $ | 245.5 |  |  | $ | 198.9 |
The Company's effective tax rate for 2023 decreased in comparison to 2022 primarily due to the impact of temporary relief provided by the Internal Revenue Service ("IRS") relating to U.S. foreign tax credit regulations. On July 21, 2023, the IRS issued Notice 2023-55 which delayed the application of certain U.S. foreign tax credit regulations that had previously limited the Company's ability to claim credits on certain foreign taxes for tax years 2022 and 2023. In addition, there was a tax benefit from the Intellectual Property Agreement with Medtronic (see Note 3), partially offset by a reduced tax benefit from employee share-based compensation. 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. Uncertain Tax Positions As of December 31, 2023 and 2022, the gross uncertain tax positions were $583.9 million and $475.3 million, respectively. The Company estimates that these liabilities would be reduced by $250.7 million and $182.1 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 $333.2 million and $293.2 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,
| 2023 |  | 2022 |  | 2021
Uncertain gross tax positions, January 1 | $ | 475.3 |  |  | $ | 358.4 |  |  | $ | 281.8 |
Current year tax positions | 127.0 |  |  | 120.6 |  |  | 82.1 |
Increase in prior year tax positions | 0.8 |  |  | 3.8 |  |  | 2.3 |
Decrease in prior year tax positions | (16.2) |  |  | (0.6) |  |  | (4.8) |
Settlements | (3.0) |  |  | (0.4) |  |  | (0.3) |
Lapse of statutes of limitations | — |  |  | (6.5) |  |  | (2.7) |
Uncertain gross tax positions, December 31 | $ | 583.9 |  |  | $ | 475.3 |  |  | $ | 358.4 |
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, 2023, the Company had accrued $41.4 million (net of $29.9 million tax benefit) of interest related to uncertain tax positions, and 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. During 2023, 2022, and 2021, the Company recognized interest expense, net of tax benefit, of $12.3 million, $9.6 million, and $5.2 million, respectively, in "Provision for Income Taxes" on the consolidated statements of operations. In the normal course of business, the 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 materially different from 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. 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 Singapore and Japan and between Switzerland and Japan covering tax years 2015 through 2019. The Company has filed to renew all three of the APAs with Japan for the years 2020 and forward. An APA between Switzerland and Japan covering tax years 2020 through 2024 was executed in 2021. An APA between the United States and Japan covering tax years 2020 through 2024 was executed in 2023. The execution of some or all these APA renewals depends on many variables outside of Edwards' 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 is currently examining the 2018 through 2020 tax years. At December 31, 2023, 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. During 2021, the Company received a Notice of Proposed Adjustment (“NOPA”) from the IRS for the 2015 through 2017 tax years relating to transfer pricing involving Surgical/TAVR intercompany royalty transactions between the Company's United States and Switzerland subsidiaries. The NOPA proposed a substantial increase to the Company's United States taxable income, which could result in additional tax expense for this period of approximately $230.0 million and represented a departure from a transfer pricing method the Company had previously agreed upon with the IRS. The Company disagreed with the NOPA and pursued an administrative appeal with the IRS Independent Office of Appeals ("Appeals"). The Appeals process culminated in the third quarter of 2023 when the Company and Appeals concluded that a satisfactory resolution of the matter at the administrative level was not possible. During the fourth quarter of 2023, Appeals issued a notice of deficiency ("NOD") increasing the Company's 2015 through 2017 United States federal income tax in amounts resulting from the income adjustments previously reflected in the NOPA. The additional tax sought in excess of the Company's filing position is $269.3 million before consideration of interest and a repatriation tax offset. The Company plans to vigorously contest the additional tax claimed by the IRS through the judicial process. Final resolution of this matter is not likely within the next 12 months. The Company believes the amounts previously accrued related to this uncertain tax position are appropriate for a number of reasons, including the interpretation and application of relevant tax law and accounting standards to the Company's facts and, accordingly, has not accrued any additional amount based on the NOD and other proceedings to date. Nonetheless, the outcome of the judicial process cannot be predicted with certainty, and it is possible that the outcome of that process could have a material impact on the Company's consolidated financial statements. As noted below, similar material tax disputes may arise for the 2018 through 2023 tax years. While no payment of any amount related to the NOPA or NOD has yet been required, the Company made a partial deposit with the IRS in November 2022 to prevent the further accrual of interest on that portion of any additional tax the Company may ultimately be found to owe. The Company intends to make an additional deposit in the range of $200 million to $300 million with the IRS by the second quarter of 2024 in order to further mitigate interest on potential tax liabilities while the Company prepares to contest through the judicial process the IRS's entitlement to any of the additional tax claimed by the IRS. Surgical/TAVR intercompany royalty transactions covering tax years 2018 through 2023 remain subject to IRS examination, and those transactions and related tax positions remain uncertain as of December 31, 2023. The Company has considered this information, as well as information regarding the NOD and other proceedings described above, in its evaluation of its uncertain tax positions. The impact of these unresolved transfer pricing matters, net of any correlative tax adjustments, 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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