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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES |
INCOME TAXES
Income (Loss) Before Income Tax Expense (Benefit) by Category
years ended December 31 (in millions) | 2023 | 2022 | 2021
United States | $ | (1,666) |  | $ | (3,831) |  | $ | (505) |
International | 1,563 |  | 1,181 |  | 1,621 |
Income (loss) from continuing operations before income taxes | $ | (103) |  | $ | (2,650) |  | $ | 1,116 |
Income Tax Expense (Benefit)
years ended December 31 (in millions) | 2023 | 2022 | 2021
Current |  |  |
United States |  |  |
Federal | $ | 9 |  | $ | 3 |  | $ | (11) |
State and local | (3) |  | — |  | 6 |
International | 459 |  | 231 |  | 249 |
Current income tax expense (benefit) | 465 |  | 234 |  | 244 |
Deferred |  |  |
United States |  |  |
Federal | (346) |  | (248) |  | (120) |
State and local | (41) |  | (52) |  | (7) |
International | (112) |  | 70 |  | (34) |
Deferred income tax expense (benefit) | (499) |  | (230) |  | (161) |
Income tax expense (benefit) | $ | (34) |  | $ | 4 |  | $ | 83 |
Deferred Tax Assets and Liabilities
as of December 31 (in millions) | 2023 | 2022
Deferred tax assets |  |
Accrued liabilities and other | $ | 326 |  | $ | 404 |
Pension and other postretirement benefits | 152 |  | 143 |
Tax credit and net operating loss carryforwards | 800 |  | 1,143 |
Swiss tax reform net asset basis step-up | 157 |  | 151 |
Operating lease liabilities | 141 |  | 144 |
Valuation allowances | (658) |  | (704) |
Total deferred tax assets | 918 |  | 1,281 |
Deferred tax liabilities |  |
Subsidiaries’ unremitted earnings | 81 |  | 55 |
Long-lived assets and other | 769 |  | 1,470 |
Operating lease right-of-use assets | 131 |  | 137 |
Total deferred tax liabilities | 981 |  | 1,662 |
Net deferred tax asset (liability) | $ | (63) |  | $ | (381) |
At December 31, 2023, we had U.S. state operating loss carryforwards totaling $756 million, U.S. federal operating loss carryforwards totaling $129 million and tax credit carryforwards totaling $299 million, which includes a U.S. foreign tax credit carryforward of $228 million. The U.S. federal and state operating loss and tax credit carryforwards expire between 2024 and 2043, with $165 million of the operating loss carryforwards having no expiration date. At December 31, 2023, with respect to our operations outside the U.S., we had foreign operating loss carryforwards totaling $698 million and foreign tax credit carryforwards totaling $15 million. The foreign operating loss carryforwards expire between 2024 and 2040 with $432 million having no expiration date. A ll of the foreign tax credit carryforwards have no expiration date. Realization of the U.S. and foreign operating loss and tax credit carryforwards depends on generating sufficient future earnings. A valuation allowance of $658 million and $704 million was recognized as of December 31, 2023 and 2022, respectively, to reduce the deferred tax assets associated with net operating loss and tax credit carryforwards because we do not believe it is more likely than not that these assets will be fully realized prior to expiration. After evaluating relevant U.S. tax laws, any elections or other opportunities that may be available and the future expiration of certain U.S. tax provisions that will impact the utilization of our U.S. foreign tax credit carryforwards, management expects to be able to realize some, but not all, of the U.S. foreign tax credit deferred tax assets up to its recurring and non-recurring foreign inclusions. Therefore, a valuation allowance of $130 million and $119 million was recognized with respect to the foreign tax credit carryforwards as of December 31, 2023 and 2022, respectively. We will continue to evaluate the need for additional valuation allowances and, as circumstances change, the valuation allowance may change. As a result of Swiss tax reform legislation enacted during 2019, we recognized an $863 million net asset tax basis step-up that is amortizable as a tax deduction ratably over tax years 2025 through 2029. A deferred tax asset of $157 million and $151 million for the tax basis step-up was recognized as of December 31, 2023 and 2022, respectively. We expect to realize some, but not all, of the Swiss deferred tax assets for that tax basis step-up based on expected future earnings generated by our Swiss subsidiary during the period in which the tax basis will be amortized. Therefore, a valuation allowance of $90 million and $84 million was recognized on the Swiss deferred tax assets for the tax basis step-up as of December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, we recognized $9 million of deferred tax expense to increase our valuation allowance to reflect our current estimate of its recoverability. The following table is a summary of changes in our deferred tax valuation allowance for the years ended December 31, 2023, 2022 and 2021.
years ended December 31 (in millions) | 2023 | 2022 | 2021
Balance at beginning of period | $ | 704 |  | $ | 401 |  | $ | 454 |
Acquisition | — |  | — |  | 38 |
Divestiture | (5) |  | — |  | — |
Charged to income tax expense | 90 |  | 315 |  | 37 |
Deductions | (135) |  | (1) |  | (98) |
Currency translation adjustments | 4 |  | (11) |  | (30) |
Balance at end of period | $ | 658 |  | $ | 704 |  | $ | 401 |
Income Tax Expense (Benefit) Reconciliation
years ended December 31 (in millions) | 2023 | 2022 | 2021
Income tax expense (benefit) at U.S. statutory rate | $ | (22) |  | $ | (557) |  | $ | 234 |
Tax incentives | (209) |  | (157) |  | (193) |
State and local taxes, net of federal benefit | (36) |  | (26) |  | 8 |
Impact of foreign taxes | 189 |  | 89 |  | 180 |
Tax-deductible foreign statutory loss on an investment in a foreign subsidiary | — |  | — |  | (58) |
Unfavorable court decision in a foreign jurisdiction related to an uncertain tax position | — |  | — |  | 22 |
Non-deductible goodwill impairments | — |  | 591 |  | — |
Non-deductible separation-related costs | 26 |  | — |  | — |
Notional interest deduction expense (benefit) | 31 |  | (306) |  | (97) |
Valuation allowances | (45) |  | 314 |  | (61) |
Stock compensation (windfall) shortfall tax expense (benefit) | 11 |  | (5) |  | (13) |
Research and development tax credits | (21) |  | (10) |  | (4) |
Uncertain tax positions | 5 |  | (13) |  | 14 |
Unutilized foreign tax credits | 20 |  | 43 |  | 13 |
Subpart F income | 26 |  | 11 |  | 10 |
Foreign tax credits | (9) |  | 6 |  | (2) |
Other, net | — |  | 24 |  | 30 |
Income tax expense (benefit) | $ | (34) |  | $ | 4 |  | $ | 83 |
Our effective income tax rate can differ from the 21% U.S. federal statutory rate due to a number of factors, including tax incentives, foreign rate differences, state income taxes, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances and liabilities for uncertain tax positions, excess tax benefits or shortfalls on stock compensation awards, audit developments and legislative changes. In 2023, our effective income tax rate was impacted favorably by geographic earnings mix, which was impacted by the long-lived asset impairments we recognized during 2023, a $50 million net tax benefit after related valuation allowances from notional interest deductions that are received by certain wholly-owned foreign subsidiaries that have financed their operations with equity capital and a $21 million tax benefit related to research and development tax credits, partially offset by non-deductible separation-related costs and tax shortfalls on stock compensation awards. In 2022, our effective income tax rate was adversely impacted by non-deductible impairments of goodwill acquired in the Hillrom acquisition and valuation allowance increases, including the increase described above related to deferred tax assets from a tax basis step-up that arose from Swiss tax reform legislation in 2019. Those items were partially offset by a $47 million net tax benefit after related valuation allowances from notional interest deductions. In 2021, our effective income tax rate was impacted favorably by geographic earnings mix, including a $50 million net tax benefit after related valuation allowances from notional interest deductions, a $58 million tax benefit related to a tax-deductible foreign statutory loss on an investment in a foreign subsidiary, a tax benefit related to a change in U.S. foreign tax credit regulations, which is reflected in the valuation allowances item in the table above, and excess tax benefits on stock compensation awards, partially offset by an unfavorable court decision in a foreign jurisdiction related to an uncertain tax position. We plan to repatriate our foreign earnings with the exception of approximately $505 million of accumulated earnings that are indefinitely reinvested as of December 31, 2023 related to two of our foreign operations. Additional withholding and capital gain taxes of $61 million would be incurred if such earnings were remitted currently. Our tax provisions for 2023, 2022 and 2021 do not include any significant tax charges related to either the Base Erosion and Anti-Abuse Tax (BEAT) or Global Intangible Low Taxed Income (GILTI) provisions, except for the inability to fully utilize foreign tax credits against such GILTI. Our accounting policy is to recognize any GILTI charge as a period cost. Unrecognized Tax Benefits We classify interest and penalties associated with income taxes in income tax expense (benefit) within the consolidated statements of income (loss). Net interest and penalties recognized were not significant during 2023, 2022 and 2021. The liability recognized related to interest and penalties was $23 million and $16 million as of December 31, 2023 and 2022, respectively. The total amount of gross unrecognized tax benefits that, if recognized, would impact the effective tax rate are $57 million, $33 million and $39 million as of December 31, 2023, 2022 and 2021, respectively. We believe that it is reasonably possible that our gross unrecognized tax benefits will be reduced within the next 12 months by $11 million. The following table is a reconciliation of our unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021.
as of and for the years ended (in millions) | 2023 | 2022 | 2021
Balance at beginning of the year | $ | 89 |  | $ | 111 |  | $ | 90 |
Increase due to acquisition | — |  | — |  | 11 |
Increase associated with tax positions taken during the current year | 77 |  | 11 |  | 31 |
Increase (decrease) associated with tax positions taken during a prior year | 12 |  | 11 |  | (3) |
Settlements | (3) |  | (7) |  | (2) |
Decrease associated with lapses in statutes of limitations | (8) |  | (37) |  | (16) |
Balance at end of the year | $ | 167 |  | $ | 89 |  | $ | 111 |
Of the gross unrecognized tax benefits, $83 million and $35 million were recognized as liabilities in the consolidated balance sheets as of December 31, 2023 and 2022, respectively. Tax Incentives We have received tax incentives in Puerto Rico, Switzerland, Dominican Republic, Costa Rica and Thailand. The financial impact of the reductions as compared to the statutory tax rates is indicated in the income tax expense (benefit) reconciliation table above. The tax reductions as compared to the local statutory rate favorably impacted earnings (loss) per diluted share by $0.41 in 2023, $0.31 in 2022 and $0.38 in 2021. The above grants provide that our manufacturing operations are and will be partially exempt from local taxes with varying expirations from 2024 to 2034. Examinations of Tax Returns As of December 31, 2023, we had ongoing audits in the United States, Germany, Italy and other jurisdictions. During 2022, we closed U.S. tax years 2017-2018 with the IRS with no material adjustments to our financial statements. Tax years 2019 and 2020 remain under examination by the IRS and tax years 2012 and forward remain under examination by various foreign taxing authorities. While the final outcome of these matters is inherently uncertain, we believe we have made adequate tax provisions for all years subject to examination.

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