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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense Income before income tax expense and the income tax expense consist of the following:
|  | For the Years Ended December 31,
(In millions) |  | 2020 |  | 2019 |  | 2018
Income before income taxes (benefit): |  |  |  |  |  |
Domestic |  | $ | 3,290.0 |  |  | $ | 4,725.3 |  |  | $ | 3,877.0 |
Foreign |  | 1,757.5 |  |  | 2,400.6 |  |  | 2,022.6 |
Total |  | $ | 5,047.5 |  |  | $ | 7,125.9 |  |  | $ | 5,899.6 |
Income tax expense (benefit): |  |  |  |  |  |
Current: |  |  |  |  |  |
Federal |  | $ | 647.0 |  |  | $ | 947.4 |  |  | $ | 1,131.8 |
State |  | 41.2 |  |  | 59.1 |  |  | 45.5 |
Foreign |  | 155.1 |  |  | 84.4 |  |  | 140.0 |
Total |  | 843.3 |  |  | 1,090.9 |  |  | 1,317.3 |
Deferred: |  |  |  |  |  |
Federal |  | $ | (1,749.9) |  |  | $ | 1,143.9 |  |  | $ | (62.0) |
State |  | (6.8) |  |  | (2.3) |  |  | (7.4) |
Foreign |  | 1,905.7 |  |  | (1,074.5) |  |  | 177.7 |
Total |  | 149.0 |  |  | 67.1 |  |  | 108.3 |
Total income tax expense |  | $ | 992.3 |  |  | $ | 1,158.0 |  |  | $ | 1,425.6 |
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 35.0% to 21.0%, 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, includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax) and base erosion prevention measures on U.S. earnings and reduces the effective tax rate on income that comes from U.S. exports, called Foreign Derived Intangible Income. These changes became effective in 2018. 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, 2020 and 2019, we have accrued income tax liabilities of $697.0 million under the Transition Toll Tax. Of the amounts accrued as of December 31, 2020, $62.0 million is expected to be paid within one year. 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, 2020, 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, 2020, 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, 2020. The residual U.S. tax liability, if these differences reverse, would be between $300.0 million and $400.0 million as of December 31, 2020. Coronavirus Aid, Relief and Economic Security Act In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in the U.S. in March 2020. The CARES Act adjusted a number of provisions of the tax code, including the calculation and eligibility of certain deductions and the treatment of net operating losses and tax credits. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the year ended December 31, 2020, or to our net deferred tax assets as of December 31, 2020. TECFIDERA In June 2020 and September 2020 judgments were entered in favor of the defendants in the patent infringement proceedings relating to TECFIDERA Orange-Book listed patents pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, in West Virginia and Delaware. We have appealed the judgments in both actions. For additional information, please read Note 20, Litigation, to these consolidated financial statements. Multiple TECFIDERA generic entrants are now in the U.S. market and have deeply discounted prices compared to TECFIDERA. The generic competition for TECFIDERA significantly reduced our TECFIDERA revenues during the year ended December 31, 2020, and is expected to have a substantial negative impact on our TECFIDERA revenues for as long as there is generic competition. As of December 31, 2020, we have assessed the realizability of our deferred tax assets that are dependent on future expected sales of TECFIDERA in the U.S. and reduced the net value of certain deferred tax assets by approximately $1.7 billion and reduced the net value of deferred tax liabilities associated with GILTI and tax credits by approximately $1.6 billion. For the year ended December 31, 2020, the income tax expense associated with these reductions was approximately $90.3 million. Deferred Tax Assets and Liabilities Significant components of our deferred tax assets and liabilities are summarized as follows:
|  | As of December 31,
(In millions) |  | 2020 |  | 2019
Deferred tax assets: |  |  |  |
Tax credits |  | $ | 113.4 |  |  | $ | 106.6 |
Inventory, other reserves and accruals |  | 165.9 |  |  | 162.0 |
Intangibles, net |  | 1,546.0 |  |  | 3,380.0 |
Net operating loss |  | 2,080.3 |  |  | 130.4 |
Share-based compensation |  | 23.3 |  |  | 23.8 |
Other |  | 103.1 |  |  | 103.7 |
Valuation allowance |  | (1,753.9) |  |  | (1.1) |
Total deferred tax assets |  | $ | 2,278.1 |  |  | $ | 3,905.4 |
Deferred tax liabilities: |  |  |  |
Purchased intangible assets |  | $ | (396.2) |  |  | $ | (350.3) |
GILTI |  | (1,143.7) |  |  | (1,381.6) |
Tax credits |  | (174.6) |  |  | (1,617.2) |
Depreciation, amortization and other |  | (227.0) |  |  | (135.0) |
Total deferred tax liabilities |  | $ | (1,941.5) |  |  | $ | (3,484.1) |
The change in the valuation allowance between December 31, 2020 and 2019, was primarily related to the establishment of a valuation allowance against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S., as discussed above. In addition to deferred tax assets and liabilities, we have recorded deferred charges related to intra-entity sales of inventory. As of December 31, 2020 and 2019, the total deferred charges were $142.2 million and $243.8 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,
|  | 2020 |  | 2019 |  | 2018
Statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes |  | 0.7 |  |  | 0.8 |  |  | 0.6 |
Taxes on foreign earnings |  | (3.3) |  |  | (4.5) |  |  | (1.9) |
Credits and net operating loss utilization |  | (1.2) |  |  | (1.1) |  |  | (0.9) |
Purchased intangible assets |  | 0.7 |  |  | 0.4 |  |  | 1.2 |
Divestiture of Denmark manufacturing operations |  | (0.4) |  |  | 1.0 |  |  | — |
Internal reorganization of certain intellectual property rights |  | — |  |  | (2.1) |  |  | — |
TECFIDERA impairment |  | 1.8 |  |  | — |  |  | — |
GILTI |  | 1.3 |  |  | 1.5 |  |  | 1.6 |
U.S. tax reform |  | — |  |  | — |  |  | 2.1 |
Swiss tax reform |  | — |  |  | (0.8) |  |  | — |
Other |  | (0.9) |  |  | 0.1 |  |  | 0.5 |
Effective tax rate |  | 19.7 | % |  | 16.3 | % |  | 24.2 | %
Changes in Tax Rate For the year ended December 31, 2020, our effective tax rate was primarily increased by the income tax expense related to the establishment of a valuation allowance against certain deferred tax assets, the realization of which is dependent on future sales of TECFIDERA in the U.S., as discussed above, and partially offset by the benefit recognized on the effective settlement of certain tax matters. Additionally, our 2019 effective tax rate benefited from an internal reorganization of certain intellectual property rights and the enactment of a new taxing regime in the country and certain cantons of Switzerland, which we refer to as Swiss Tax Reform, partially offset by tax expense related to the divestiture of our Hillerød, Denmark manufacturing operations. Although we recognized 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. For additional information on the divestiture of our Hillerød, Denmark manufacturing operations, please read Note 3, Divestitures, to these consolidated financial statements. As a result of the 2019 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, 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 Swiss Tax Reform. 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. Tax Attributes As of December 31, 2020, we had net operating losses and general business credit carry forwards for U.S. federal income tax purposes of approximately $0.6 million and $1.3 million, respectively, which begin to expire in 2026. For U.S. state income tax purposes, we had research and investment credit carry forwards of approximately $142.4 million that begin to expire in 2022. For foreign income tax purposes, we had $18.0 billion of Swiss federal net operating loss carryforwards that begin to expire in 2025 and $16.8 billion of Swiss cantonal 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, net of the recorded valuation allowance. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to adjust or 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) |  | 2020 |  | 2019 |  | 2018
Beginning balance at January 1, |  | $ | 129.9 |  |  | $ | 114.2 |  |  | $ | 66.8 |
Additions based on tax positions related to the current period |  | 1.5 |  |  | 5.3 |  |  | 0.5 |
Additions for tax positions of prior periods |  | 51.7 |  |  | 17.2 |  |  | 58.7 |
Reductions for tax positions of prior periods |  | (63.6) |  |  | (10.3) |  |  | (13.6) |
Statute expirations |  | (7.9) |  |  | (0.1) |  |  | (2.9) |
Settlement refund (payment) |  | (35.9) |  |  | 3.6 |  |  | 4.7 |
Ending balance ar December 31, |  | $ | 75.7 |  |  | $ | 129.9 |  |  | $ | 114.2 |
Our 2020 activity reflects the impact of the effective settlement of certain tax matters. 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 2017 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, 2020, 2019 and 2018, are $68.8 million, $122.7 million and $109.1 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 2020, 2019 and 2018 we recognized a net interest and penalty expense of $1.0 million, $4.7 million and $2.2 million, respectively. We have accrued $21.2 million and $20.0 million for the payment of interest and penalties as of December 31, 2020 and 2019, respectively. 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 $25.0 million in the next 12 months as a result of various audit closures, settlements and expiration of the statute of limitations. Accounting for Bioverativ Spin-off 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 position remains open to audit. Bioverativ and Sanofi agreed to indemnify us for certain potential liabilities that may arise.

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