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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
Note 13. Income Taxes
We are subject to U.S. federal, state and foreign corporate income taxes. The provision (benefit) for income taxes is based on income before provision (benefit) for income taxes as follows (in thousands):
Year Ended December 31,
202320222021
U.S.$1,084,254 $766,781 $991,873 
Non-U.S.(250,039)(237,665)(421,429)
Income before provision (benefit) for income taxes$834,215 $529,116 $570,444 
Our provision (benefit) for income taxes consists of the following (in thousands):
Year Ended December 31,
202320222021
Current:
Federal$344,407$90,088$50,565
State48,10638,13632,505
Foreign3,0013,1414,397
395,514131,36587,467
Deferred:
Federal(139,468)62,107(407,852)
State(19,625)(3,709)(57,677)
Foreign195 (1,307)(75)
(158,898)57,091 (465,604)
Total provision (benefit) for income taxes$236,616 $188,456 $(378,137)
On a periodic basis, we reassess the valuation allowance on our deferred income tax assets. Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. 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 the fourth quarter of 2021, we assessed the valuation allowance and considered positive evidence, including significant cumulative consolidated and U.S. income over the three years ended December 31, 2021, consistent growth in product revenues, and expectations regarding future profitability. We also assessed negative evidence, including the potential impact of competition, clinical failures and patent expirations on our projections. After assessing both the positive evidence and negative evidence, we determined it was more likely than not that the majority of our U.S. deferred tax assets would be realized in the future and released the associated valuation allowance as of December 31, 2021. This resulted in a benefit of $569.0 million.
A reconciliation of income taxes at the U.S. federal statutory rate to the provision (benefit) for income taxes is as follows (in thousands):
Year Ended December 31,
202320222021
Provision at U.S. federal statutory rate$175,185$111,114 $119,793
State and local income taxes21,14526,767 34,461
Foreign tax rate differential(96,434)13,67055,171
Income tax credits(1,433,507)(30,505)(55,139)
Change in valuation allowance1,572,951 67,056(523,279)
Foreign-derived intangible income(32,891)(36,748)(28,259)
Stock based compensation20,97119,70415,497 
Acquisitions accounted for as research and development expenses4,20014,700— 
Other4,9962,6983,618
Provision (benefit) for income taxes$236,616 $188,456$(378,137)
The foreign tax rate differential in the table above reflects the impact of operations in jurisdictions with tax rates that differ from the U.S. federal statutory rate of 21%. It also includes a tax benefit associated with the remeasurement of foreign deferred tax assets resulting from the cancellation of a tax holiday. The income tax credits in the table above includes a tax benefit associated with the issuance of non-refundable Swiss income tax credits. The remeasurement of foreign deferred tax assets and the Swiss income tax credits are fully offset with a valuation allowance in the table above.
Significant components of our deferred tax assets and liabilities are as follows (in thousands):
December 31,
20232022
Deferred tax assets:
Net operating loss carry forwards$326,446 $182,193 
Income tax credits1,441,981 17,141 
Capitalized research and development457,603 265,140 
Deferred revenue and accruals130,291 72,657 
Non-cash compensation96,469 83,138 
Acquisition-related contingent consideration30,298 30,483 
Intangibles, net233,311 257,614 
Long term investments42,975 54,662 
Other9,044 9,600 
Total gross deferred tax assets2,768,418 972,628 
Less valuation allowance for deferred tax assets(2,096,318)(472,125)
Net deferred tax assets$672,100 $500,503 
Deferred tax liabilities:
Property and equipment$(34,757)$(33,683)
Other(5,457)(8,879)
Total gross deferred tax liabilities(40,214)(42,562)
Net deferred tax assets$631,886 $457,941 
The valuation allowance for deferred tax assets increased by approximately $1.6 billion during the year ended December 31, 2023 and increased by approximately $63.9 million during the year ended December 31, 2022. The valuation allowance increase during 2023 was primarily due to the issuance of non-refundable Swiss income tax credits, future deductible temporary differences mainly associated with U.S. research and development expenses required to be capitalized and amortized under the Tax Cuts and Jobs Act of 2017, as well as foreign net operating losses (“NOLs”), which are not more-likely-than-not to be realized as of December 31, 2023.
During the year ended December 31, 2023, our gross deferred tax assets increased by $1.8 billion primarily due to our Swiss subsidiaries being granted approximately $1.4 billion of non-refundable income tax credits, the mandatory capitalization of research and development expenses and the remeasurement of foreign deferred tax assets. The Swiss credits are available for use during the periods 2023 through 2028, however due to the subsidiaries' historical cumulative loss position, we have recorded a full valuation allowance at this time as it is more-likely-than-not that the credits would expire unused. The valuation allowance position will continue to be monitored in the future.
As of December 31, 2023, we had NOL carryforwards, research and development credit carryforwards and foreign income tax credit carryforwards as follows (in thousands):
AmountExpiring if not utilized
Net operating loss carryforwards
State$294,3422024 through 2043; indefinite
Foreign2,145,2432024 through 2030
Research and development credit carryforwards
State14,9562024 through 2041
Swiss income tax credit carryforwards1,429,1932028
The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. If such unrecognized tax benefits were realized, we would recognize a tax benefit of $59.1 million. The following table summarizes the gross amounts of unrecognized tax benefits (in thousands):
Year Ended December 31,
20232022
Balance at beginning of year$73,040$62,359
Additions related to prior periods tax positions3,6875,027
Reductions related to prior periods tax positions(10,382)(2,087)
Additions related to current period tax positions3,0198,290
Settlements(209)(104)
Reductions due to lapse of applicable statute of limitations(33)(356)
Currency translation adjustment23 (89)
Balance at end of year$69,145$73,040
Our policy is to recognize interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. During the years ending December 31, 2023 and 2022, we recorded interest and penalties as a component of income tax expense of $4.9 million and $3.8 million, respectively. We believe that it is reasonably possible that a decrease of up to $22.0 million in unrecognized tax benefits may be necessary within the next twelve months due to a lapse in the statute of limitations.
We file U.S. federal, state and local income tax returns and income tax returns in various foreign jurisdictions, with statutes of limitation generally ranging from three to five years during which such tax returns may be audited by the relevant tax authorities. Those statutes could be extended due to NOL or tax credit carryforwards generated during these periods that are subsequently utilized in open tax periods. In general, tax authorities have the ability to adjust the NOL carryforward or tax credits for three years after utilization of that year’s tax attribute carryforward.