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Income Taxes | 12 Months Ended
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Dec. 31, 2019
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) | 2019 |  | 2018 |  | 2017
Income before income taxes (benefit): |  |  |  |  |
Domestic | $ | 4,725.3 |  |  | $ | 3,877.0 |  |  | $ | 3,540.4 |
Foreign | 2,400.6 |  |  | 2,022.6 |  |  | 1,588.4 |
Total | $ | 7,125.9 |  |  | $ | 5,899.6 |  |  | $ | 5,128.8 |
Income tax expense (benefit): |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 947.4 |  |  | $ | 1,131.8 |  |  | $ | 2,201.4 |
State | 59.1 |  |  | 45.5 |  |  | 57.0 |
Foreign | 84.4 |  |  | 140.0 |  |  | 108.6 |
Total | 1,090.9 |  |  | 1,317.3 |  |  | 2,367.0 |
Deferred: |  |  |  |  |
Federal | $ | 1,143.9 |  |  | $ | (62.0 | ) |  | $ | 241.0 |
State | (2.3 | ) |  | (7.4 | ) |  | 9.9 |
Foreign | (1,074.5 | ) |  | 177.7 |  |  | (159.2 | )
Total | 67.1 |  |  | 108.3 |  |  | 91.7 |
Total income tax expense | $ | 1,158.0 |  |  | $ | 1,425.6 |  |  | $ | 2,458.7 |
2017 Tax Act The Tax Cuts and Jobs Act of 2017 (2017 Tax Act) 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, which has the effect of subjecting certain earnings of our foreign subsidiaries and collaborations to immediate U.S. taxation as GILTI or Subpart F income, and includes base erosion prevention measures on U.S. earnings and the reduced effective tax rate on income that comes from U.S. exports, called Foreign Derived Intangible Income. These changes became effective in 2018. During the fourth quarter of 2017 we recognized within our provision for income taxes a $1.2 billion estimate pursuant to the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118. Our estimate included an amount of $989.6 million associated with a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax), as discussed below, and $184.0 million related to the impact of remeasuring our deferred tax balances to reflect the new federal statutory rate and other changes to U.S. tax law. During the year ended December 31, 2018, we recognized a net reduction of $34.6 million in our estimated Transition Toll Tax, an expense of $12.7 million to remeasure our deferred tax balances, an expense of $135.8 million related to establishing deferred taxes for GILTI and an expense of $11.0 million to reflect other aspects of the 2017 Tax Act. Transition Toll Tax The 2017 Tax Act eliminated the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Toll Tax. The Transition Toll Tax was assessed on our share of our foreign corporations' accumulated foreign earnings that were not previously taxed. Earnings in the form of cash and cash equivalents were taxed at a rate of 15.5% and all other earnings were taxed at a rate of 8.0%. As of December 31, 2019 and 2018, we have accrued income tax liabilities of $697.0 million under the Transition Toll Tax. Of the amounts accrued as of December 31, 2019, no amounts are expected to be paid within one year due to an approximately $87.0 million carryforward of taxes paid in relation to the company's 2017 tax return. The Transition Toll Tax will be paid over an eight--year period, which started in 2018, and does not accrue interest. Unremitted Earnings At December 31, 2019, we considered our earnings not to be permanently reinvested outside the U.S. and therefore recorded deferred tax liabilities associated with an estimate of the total withholding taxes expected as a result of our repatriation of earnings. Other than for earnings, we are permanently reinvested for book/tax basis differences of approximately $1.5 billion as of December 31, 2019, primarily arising through the impacts of purchase accounting. These permanently reinvested basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which were considered probable as of December 31, 2019. The residual U.S. tax liability, if these differences reverse, would be between $0.3 billion and $0.4 billion as of December 31, 2019. Article 20 Procedure of ZINBRYTA In 2017 the European Medicines Agency initiated a review (referred to as an Article 20 Procedure) of ZINBRYTA following the report of a case of fatal fulminant liver failure, as well as four cases of serious liver injury. As a result of the Article 20 Procedure of ZINBRYTA, for the year ended December 31, 2017, we recognized a net impairment charge on certain tax assets related to ZINBRYTA reflected within income tax expense of $48.8 million. This charge reflected 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 our collaboration arrangement with AbbVie, please read Note 18, 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) | 2019 |  | 2018
Deferred tax assets: |  |  |
Tax credits | $ | 106.6 |  |  | $ | 102.8 |
Inventory, other reserves and accruals | 162.0 |  |  | 163.9 |
Intangibles, net | 3,380.0 |  |  | 2,298.6 |
Net operating loss | 130.4 |  |  | 213.1 |
Share-based compensation | 23.8 |  |  | 25.8 |
Other | 103.7 |  |  | 38.9 |
Valuation allowance | (1.1 | ) |  | (20.0 | )
Total deferred tax assets | $ | 3,905.4 |  |  | $ | 2,823.1 |
Deferred tax liabilities: |  |  |
Purchased intangible assets | $ | (350.3 | ) |  | $ | (232.8 | )
GILTI | (1,381.6 | ) |  | (544.6 | )
Tax credits | (1,617.2 | ) |  | (1,425.7 | )
Depreciation, amortization and other | (135.0 | ) |  | (102.3 | )
Total deferred tax liabilities | $ | (3,484.1 | ) |  | $ | (2,305.4 | )
In addition to deferred tax assets and liabilities, we have recorded prepaid tax and deferred charges related to intra-entity sales of inventory. As of December 31, 2019 and 2018, the total deferred charges and prepaid taxes were $243.8 million and $239.2 million, respectively. 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,
| 2019 |  | 2018 |  | 2017
Statutory rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
State taxes | 0.8 |  |  | 0.6 |  |  | 0.8 |
Taxes on foreign earnings | (4.5 | ) |  | (1.9 | ) |  | (11.1 | )
Credits and net operating loss utilization | (1.1 | ) |  | (0.9 | ) |  | (0.8 | )
Purchased intangible assets | 0.4 |  |  | 1.2 |  |  | 1.4 |
Divestiture of Denmark manufacturing operations | 1.0 |  |  | — |  |  | — |
Internal reorganization of certain intellectual property rights | (2.1 | ) |  | — |  |  | — |
GILTI | 1.5 |  |  | 1.6 |  |  | — |
Other permanent items | 0.2 |  |  | 0.3 |  |  | 0.7 |
U.S. tax reform | — |  |  | 2.1 |  |  | 22.9 |
Swiss tax reform | (0.8 | ) |  | — |  |  | — |
Manufacturing deduction | — |  |  | — |  |  | (1.9 | )
Impairment of ZINBRYTA related tax assets | — |  |  | — |  |  | 0.9 |
Other | (0.1 | ) |  | 0.2 |  |  | — |
Effective tax rate | 16.3 | % |  | 24.2 | % |  | 47.9 | %
Changes in Tax Rate For the year ended December 31, 2019, as compared to 2018, the decrease in our effective tax rate was primarily due to the combination of the internal reorganization of certain intellectual property rights and the impact of the enactment of a new taxing regime in the country and certain cantons of Switzerland. This decrease was partially offset by a $68.9 million tax expense related to the divestiture of our subsidiary that owned our Hillerød, Denmark manufacturing operations. We also had a higher effective tax rate in 2018 resulting from the unfavorable effects of the 2017 Tax Act and our sale of inventory, the tax effect of which had been included within prepaid taxes at January 1, 2018, at a higher effective tax rate than the 2018 statutory tax rate. Although we are recognizing a loss on the divestiture of our Hillerød, Denmark manufacturing operations, the divestiture required us to write-off certain deferred tax assets and resulted in a taxable gain in certain jurisdictions. As a result of the internal reorganization of certain intellectual property rights, we recorded a deferred tax asset of $754.1 million and a deferred tax liability of $603.3 million as of December 31, 2019. For the year ended December 31, 2018, as compared to 2017, the decrease in our effective tax rate was primarily due to the enactment of the 2017 Tax Act. The effects of an overall reduction in the federal statutory rate in the U.S. were partially offset by the elimination of the manufacturing deduction, the imposition of the GILTI tax on international earnings, our recording of deferred taxes on GILTI in 2018, limits on the deductibility of certain benefits on executive compensation and a reduction in the tax benefit associated with the Orphan Drug Credit, all resulting from the 2017 Tax Act, and a change in accounting rules related to recording the tax impacts of intra-entity transactions. Tax Attributes As of December 31, 2019, we had net operating losses and general business credit carry forwards for federal income tax purposes of approximately $0.7 million and $1.3 million, respectively, which begin to expire in 2022. Additionally, for state income tax purposes, we had net operating loss carry forwards of approximately $4.6 million that begin to expire in 2020. For state income tax purposes, we had research and investment credit carry forwards of approximately $133.8 million that begin to expire in 2020. For foreign income tax purposes, we had $1,773.8 million of net operating loss carryforwards that begin to expire in 2025. 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. 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:
| For the Years Ended December 31,
(In millions) | 2019 |  | 2018 |  | 2017
Balance at January 1, | $ | 114.2 |  |  | $ | 66.8 |  |  | $ | 32.4 |
Additions based on tax positions related to the current period | 5.3 |  |  | 0.5 |  |  | 5.7 |
Additions for tax positions of prior periods | 17.2 |  |  | 58.7 |  |  | 7.3 |
Reductions for tax positions of prior periods | (10.3 | ) |  | (13.6 | ) |  | (21.8 | )
Statute expirations | (0.1 | ) |  | (2.9 | ) |  | (1.4 | )
Settlement refund (payment) | 3.6 |  |  | 4.7 |  |  | 44.6 |
Balance at December 31, | $ | 129.9 |  |  | $ | 114.2 |  |  | $ | 66.8 |
Our 2017 activity 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 2012. The U.S. 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. Included in the balance of unrecognized tax benefits as of December 31, 2019, 2018 and 2017, are $122.7 million, $109.1 million and $64.3 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 related to unrecognized tax benefits in income tax expense. In 2019, 2018 and 2017 we recognized a net interest expense of $4.7 million, $2.2 million and $4.8 million, respectively. We have accrued $20.0 million and $13.8 million for the payment of interest and penalties as of December 31, 2019 and 2018, respectively. Accounting for Uncertainty in Income Taxes On February 1, 2017, in connection with the spin-off of our hemophilia business, we distributed all of the then outstanding shares of Bioverativ common stock to Biogen shareholders pursuant to a separation agreement. In March 2018 Bioverativ was acquired by Sanofi S.A. (Sanofi) and is now an indirect wholly-owned subsidiary of Sanofi. The spin-off of our hemophilia business was intended to qualify for tax-free treatment to Biogen and its shareholders under the Internal Revenue Code. Our 2017 tax return remains open to audit. Bioverativ and Sanofi agreed to indemnify us for certain potential liabilities that may arise. Federal and State Uncertain Tax Positions It is reasonably possible that we will adjust the value of our uncertain tax positions related to certain transfer pricing, collaboration matters and other issues as we receive additional information from various taxing authorities, including reaching settlements with such authorities. We estimate that it is reasonably possible that our gross unrecognized tax benefits, exclusive of interest, could decrease by up to approximately $75.0 million in the next 12 months as a result of various audit closures, settlements and expiration of the statute of limitations.

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