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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense Income before income tax provision and the income tax expense consist of the following:
| For the Years Ended December 31,
(In millions) | 2017 |  | 2016 |  | 2015
Income before income taxes (benefit): |  |  |  |  |
Domestic | $ | 3,540.4 |  |  | $ | 3,655.4 |  |  | $ | 3,386.7 |
Foreign | 1,588.4 |  |  | 1,277.6 |  |  | 1,380.6 |
Total | $ | 5,128.8 |  |  | $ | 4,933.0 |  |  | $ | 4,767.3 |
Income tax expense (benefit): |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 2,201.4 |  |  | $ | 1,304.3 |  |  | $ | 1,214.1 |
State | 57.0 |  |  | 55.1 |  |  | 38.6 |
Foreign | 108.6 |  |  | 52.9 |  |  | 54.5 |
Total | 2,367.0 |  |  | 1,412.3 |  |  | 1,307.2 |
Deferred: |  |  |  |  |
Federal | $ | 241.0 |  |  | $ | (125.6 | ) |  | $ | (129.6 | )
State | 9.9 |  |  | (3.8 | ) |  | (1.9 | )
Foreign | (159.2 | ) |  | (45.6 | ) |  | (14.1 | )
Total | 91.7 |  |  | (175.0 | ) |  | (145.6 | )
Total income tax expense | $ | 2,458.7 |  |  | $ | 1,237.3 |  |  | $ | 1,161.6 |
Tax Reform The 2017 Tax Act, which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-taxed income (GILTI). These changes are effective beginning in 2018. The 2017 Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax). Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during the year ended December 31, 2017, we recorded a charge totaling $1,173.6 million related to our current estimate of the provisions of the 2017 Tax Act. Transition Toll Tax The 2017 Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. As of December 31, 2017, we have accrued income tax liabilities of $989.6 million under the Transition Toll Tax, of which $78.3 million is expected to be paid within one year. The Transition Toll Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. At December 31, 2017, we considered none of our earnings to be permanently reinvested outside the U.S. and have therefore recorded tax liabilities associated with an estimate of the total withholding taxes that may be a result of our repatriation of earnings. Effect on Deferred Tax Assets and Liabilities and other Adjustments Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. As our deferred tax assets exceed the balance of our deferred tax liabilities at the date of enactment, we have recorded a tax expense of $184.0 million, reflecting the decrease in the U.S. corporate income tax rate and other changes to U.S. tax law. It is our current policy to not recognize deferred taxes for basis differences expected to reverse as GILTI is incurred and instead to account for any taxes assessed as period costs. Status of our Assessment Our preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates. The final determination of the Transition Toll Tax and the remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act. Article 20 Procedure of ZINBRYTA As a result of the Article 20 Procedure of ZINBRYTA, we have recognized a net impairment charge on certain tax assets reflected within income tax expense of $48.8 million. This charge reflects the write off of $142.6 million related to prepaid taxes, which was partially offset by the recognition of an unrecorded deferred tax benefit of $93.8 million. For additional information on the Article 20 Procedure of ZINBRYTA and resulting impairment of ZINBRYTA related assets, please read Note 20, Collaborative and Other Relationships, to these consolidated financial statements. Deferred Tax Assets and Liabilities Significant components of our deferred tax assets and liabilities are summarized as follows:
| As of December 31,
(In millions) | 2017 |  | 2016
Deferred tax assets: |  |  |
Tax credits | $ | 60.0 |  |  | $ | 201.1 |
Inventory, other reserves and accruals | 147.8 |  |  | 250.6 |
Intangibles, net | 378.8 |  |  | 459.8 |
Net operating loss | 209.8 |  |  | 65.9 |
Share-based compensation | 26.9 |  |  | 61.5 |
Other | 25.1 |  |  | 49.0 |
Valuation allowance | (16.6 | ) |  | (16.1 | )
Total deferred tax assets | $ | 831.8 |  |  | $ | 1,071.8 |
Deferred tax liabilities: |  |  |
Purchased intangible assets | $ | (250.7 | ) |  | $ | (376.6 | )
Depreciation, amortization and other | (107.9 | ) |  | (113.5 | )
Total deferred tax liabilities | $ | (358.6 | ) |  | $ | (490.1 | )
In addition to deferred tax assets and liabilities, we have recorded prepaid tax and deferred charges related to intercompany transactions. As of December 31, 2017 and 2016, the total deferred charges and prepaid taxes were $617.7 million and $989.8 million, respectively. In October 2016 the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory. This new standard eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the income tax consequences from the intra-entity transfer of an asset other than inventory and associated changes to deferred taxes will be recognized when the transfer occurs. This new standard becomes effective for us on January 1, 2018. We will adopt this standard using the modified retrospective method, through a cumulative-effect adjustment directly to retained earnings as of that date. Based on currently enacted tax rates, upon adoption in 2018, we will record additional deferred tax assets of approximately $0.5 billion and an increase to retained earnings of approximately $0.5 billion. We will recognize incremental deferred income tax expense thereafter as these net deferred tax assets are utilized. Tax Rate A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
| For the Years Ended December 31,
| 2017 |  | 2016 |  | 2015
Statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes | 0.8 |  |  | 0.9 |  |  | 0.5 |
Taxes on foreign earnings | (11.1 | ) |  | (9.6 | ) |  | (10.0 | )
Credits and net operating loss utilization | (0.8 | ) |  | (1.4 | ) |  | (1.3 | )
Purchased intangible assets | 1.4 |  |  | 1.2 |  |  | 1.0 |
Manufacturing deduction | (1.9 | ) |  | (1.9 | ) |  | (1.8 | )
2017 Tax Act | 22.9 |  |  | — |  |  | — |
Impairment of ZINBRYTA related tax assets | 0.9 |  |  | — |  |  | — |
Other permanent items | 0.7 |  |  | 0.5 |  |  | 0.7 |
Other | — |  |  | 0.4 |  |  | 0.3 |
Effective tax rate | 47.9 | % |  | 25.1 | % |  | 24.4 | %
Changes in Tax Rate The most significant factors contributing to the increase in our effective tax rate for the year ended December 31, 2017, as compared to 2016 is the effect of the enactment of the 2017 Tax Act and the impairment of certain ZINBRYTA related tax assets, both of which are discussed above. Excluding the effect of these items, our income tax rate would have decreased due to a lower percentage of our earnings being recognized in the U.S., a higher tax jurisdiction. The geographic split of our earnings was affected by milestone and upfront payments in the current year and the spin-off of our hemophilia business, partially offset by growth from the U.S. launch of SPINRAZA and increases in our revenues from anti-CD20 therapeutic programs in the U.S. In addition, in 2017 we earned a lower benefit from the orphan drug credit due to the FDA's approval of SPINRAZA. Our effective tax rate for 2016 compared to 2015 increased primarily due to a net state tax benefit in 2015 resulting from the remeasurement of one of our uncertain tax positions, described below, and a higher relative percentage of our earnings being attributed to the U.S., a higher tax jurisdiction. Tax Attributes As of December 31, 2017, we had net operating losses and general business credit carry forwards for federal income tax purposes of approximately $1.4 million and $1.3 million, respectively, which begin to expire in 2020. Additionally, for state income tax purposes, we had net operating loss carry forwards of approximately $19.3 million that begin to expire in 2018. For state income tax purposes, we also had research and investment credit carry forwards of approximately $129.7 million that begin to expire in 2018. For foreign income tax purposes, we had $2.1 billion of net operating loss carryforwards that begin to expire in 2021. In assessing the realizability of our deferred tax assets, we have considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial reporting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Our estimates of future taxable income take into consideration, among other items, our estimates of future income tax deductions related to the exercise of stock options. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the net benefits of the deferred tax assets of our wholly owned subsidiaries. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to establish a valuation allowance, which could materially impact our consolidated financial position and results of operations. Accounting for Uncertainty in Income Taxes A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
(In millions) | 2017 |  | 2016 |  | 2015
Balance at January 1, | $ | 32.4 |  |  | $ | 67.9 |  |  | $ | 131.5 |
Additions based on tax positions related to the current period | 5.7 |  |  | 7.2 |  |  | 10.5 |
Additions for tax positions of prior periods | 7.3 |  |  | 36.3 |  |  | 19.5 |
Reductions for tax positions of prior periods | (21.8 | ) |  | (13.3 | ) |  | (49.9 | )
Statute expirations | (1.4 | ) |  | (1.4 | ) |  | (1.2 | )
Settlement refund (payment) | 44.6 |  |  | (64.3 | ) |  | (42.5 | )
Balance at December 31, | $ | 66.8 |  |  | $ | 32.4 |  |  | $ | 67.9 |
Our 2017 activity above reflects a refund received from a state, related to the settlement of an uncertain tax position. We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in various U.S. states and in U.S. federal and other foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal tax examination for years before 2013 or state, local or non-U.S. income tax examinations for years before 2010. Included in the balance of unrecognized tax benefits as of December 31, 2017, 2016 and 2015 are $64.3 million, $26.9 million and $15.7 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods. We recognize potential interest and penalties accrued related to unrecognized tax benefits in income tax expense. In 2017 we recognized a net interest expense of $4.8 million. In 2016 we recognized net interest expense of $9.1 million. In 2015 we recognized a net interest expense of approximately $3.1 million. We have accrued approximately $16.1 million and $25.2 million for the payment of interest and penalties as of December 31, 2017 and 2016, respectively. International Uncertain Tax Positions We have made payments totaling approximately $60.0 million to the Danish Tax Authority (SKAT) for assessments received for fiscal 2009, 2011 and 2013 regarding withholding taxes and the treatment of certain intercompany transactions involving a Danish affiliate and another of our affiliates. We continue to dispute the assessments for all of these periods and believe that the positions taken in our historical filings are valid. It is reasonably possible that we will adjust the value of our uncertain tax positions related to Danish withholding taxes based on potential European court decisions expected in 2018 on similar matters. Federal and State Uncertain Tax Positions It is reasonably possible that we will adjust the value of our uncertain tax positions related to our revenues from anti-CD20 therapeutic programs and certain transfer pricing issues as we receive additional information from various taxing authorities, including reaching settlements with the authorities. In addition, the Internal Revenue Service and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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