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INCOME TAXES | 6 Months Ended
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Jun. 30, 2026
Income Tax Disclosure [Abstract] |
INCOME TAXES | 15. INCOME TAXES The Company's effective income tax rate attributable to continuing operations was 53.6% and 16.1% for the three months ended June 30, 2026 and 2025, respectively, and 36.4% and 16.1% for the six months ended June 30, 2026 and 2025, respectively. The increase in the effective rate between the six months ended June 30, 2026 and 2025 was primarily due to (1) a $188.2 million valuation allowance recorded against certain deferred tax assets in the second quarter of 2026 as a result of the enactment of California budget legislation on June 29, 2026, that, as noted below, permanently limits the utilization of most business tax credits, including carryovers of research and development tax credits, (2) a decrease in the benefit from foreign earnings taxed at lower rates, and (3) an increase in global minimum tax ("Pillar Two," as noted below), partially offset by (4) an increase in the tax benefit from employee share-based compensation. As a result, the effective tax rate for the six months ended June 30, 2026 was higher than the federal statutory rate of 21.0%. For the six months ended June 30, 2025, the effective tax rate was lower than the federal statutory rate of 21.0% primarily due to (1) foreign earnings taxed at lower rates, (2) United States federal and California research and development credits, and (3) the tax benefit from foreign-derived deduction eligible income. As a result of the change in California law noted above, the Company has concluded that in applying its methodology where newly generated credits are utilized before existing carryforwards, the annual utilization limit will be lower than the newly generated research and development tax credits and excess research and development credits will continue to be generated annually on a prospective basis. Consequently, the California research and development credit carryforward is no longer considered realizable, and a valuation allowance has been established. Many countries are implementing some or all of the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting Pillar Two (“Pillar Two”) rules that impose a global minimum tax of 15.0% on reported profits. Although Pillar Two provides a framework for applying the minimum tax, countries may enact Pillar Two slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar Two. In January 2026, the OECD released its Side-by-Side Safe Harbour package, intended to reduce double taxation and compliance burdens by deeming Pillar Two top-up tax to be zero under the Income Inclusion Rule (“IIR”) and Undertaxed Profits Rule (“UTPR”) for groups headquartered in the United States while preserving application of local Qualified Domestic Minimum Top-up Taxes (“QDMTT”). As countries continue to enact and refine the Pillar Two rules, including jurisdictional enactment of the Side-by-Side Safe Harbour through the course of 2026, the Company will evaluate the potential effects of Pillar Two on its effective tax rate. In 2026, the Company expects the Pillar Two provision to result in additional tax expense of approximately $50.0 million prior to offsets under current law. As countries enact the Side-by-Side Safe Harbour, the Pillar Two UTPR tax expense will be reduced accordingly. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA is not expected to have a material impact on 2026 and future periods. The Company executed an Advanced Pricing Agreement in the fourth quarter of 2024 between Japan and Singapore covering tax years 2022 through 2026, with rollback provisions covering the distribution of Transcatheter Aortic Valve Replacement (“TAVR”) products beginning in 2020 and Surgical products beginning in 2018. At June 30, 2026, all material state, local, and foreign income tax matters have been concluded for years through 2019. 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 financial condition and results of operations. The Company strives to resolve open matters with each tax authority at the examination level and could reach an 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. 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. As of June 30, 2026 and December 31, 2025, the gross liability recorded for income taxes associated with uncertain tax positions was $814.0 million and $767.4 million, respectively. The Company estimates that these liabilities would be reduced by $408.8 million and $377.0 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 $405.2 million and $390.4 million, respectively, if not required, would favorably affect the Company's effective tax rate. Management believes that adequate amounts of tax and related penalties and interest have been provided for any adjustments that may result from these uncertain tax positions. 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. 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 the 2015 through 2017 period of approximately $265.0 million and reflects 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 laws 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 2026 tax years. The Company made deposits with the IRS of $75.0 million in November 2022, and $305.1 million in March 2024, to prevent the further accrual of interest on that portion of any additional tax and interest the Company may ultimately be found to owe while the Company prepares to contest through the judicial process the IRS's entitlement to any of the additional tax claimed by the IRS. The IRS converted those deposits to advance payments and, on December 20, 2024, the Company filed administrative claims for refunds of those payments with the IRS for the 2015 through 2017 tax years. The Company is now able to sue for refunds in the appropriate judicial forum. Surgical/TAVR intercompany royalty transactions covering tax years 2018 through 2026 remain subject to IRS examination, and those transactions and related tax positions remain uncertain as of June 30, 2026. 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, could have a material impact on 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. During the second quarter of 2026, the Company received two draft Notices of Proposed Adjustment that were issued as final (the “Final NOPAs”) prior to the end of the second quarter. The first of the Final NOPAs relates to certain tax elections made in 2018 and proposes an increase to the Company’s U.S. taxable income in the amount of approximately $233.5 million for 2018. The second of the Final NOPAs relates to the transfer pricing of certain intercompany license transactions related to our Surgical and TAVR product groups and proposes increases to the Company’s U.S. taxable income for 2018, 2019, and 2020 in the amounts of $625.3 million, $530.7 million, and $683.6 million, respectively. The Company and the IRS examination function (“Exam”) continue to engage in discussions and have adjusted the audit timeline to accommodate a potential resolution. If the Company does not reach a resolution with Exam, the Company expects the IRS to issue another NOPA in the third quarter of 2026 imposing 40% transfer pricing penalties on the tax underpayments attributable to the increased taxable income resulting from the IRS’s proposed transfer pricing adjustments received in the second quarter of 2026. The Company also anticipates receiving the related Revenue Agent’s Report by the end of the third quarter of 2026. With respect to any unagreed issues, the Company intends to pursue all available remedies, including administrative appeals and litigation, which could extend over several years. The Company believes that the amounts previously accrued related to these uncertain tax positions are adequate and, accordingly, no additional amounts have been recorded. However, an adverse outcome could have a material adverse impact to the Company’s consolidated financial statements in the period of resolution. During the first quarter of 2024, the Company received a notice of assessment from the Israel Tax Authority (the “ITA”) wherein the ITA claimed that the Company owes approximately $110.0 million of tax excluding interest and penalties in connection with a claimed 2017 transfer of intellectual property. On July 31, 2025, the ITA formally informed the Company that it was withdrawing its 2017 assessment but reserves the right to evaluate whether intellectual property was transferred in later years. The Company maintains that it did not transfer intellectual property outside of Israel and would vigorously defend that position through administrative proceedings including with appeals if the issue is raised in later years. If necessary, the Company expects to defend that position through judicial proceedings. During the fourth quarter of 2024, the Company received a notice of assessment from the ITA claiming that the Company owes additional tax of approximately $16.0 million excluding interest and penalties for the 2018 through 2022 tax years based entirely on the collateral impacts of the 2017 assessment. The Company filed a formal appeal in the first quarter of 2025. In the third quarter of 2025, the ITA agreed that intellectual property was not transferred in 2017 and withdrew its assessment. In the first quarter of 2026, the Company was notified that the ITA had withdrawn its assessment for the 2018 and 2019 taxable years. For taxable years 2020 through 2022, the ITA has until the expiration of each year’s respective statute of limitations to respond to the Company’s appeal. If the 2020 through 2022 assessments are not withdrawn, the Company will defend its position through judicial proceedings.

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