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Income taxes
 12 Months Ended
Dec. 31, 2024
Income taxes
NOTE 13—Income taxes:
 
a.
Income (loss) before income taxes:
 
    
Year ended December 31,
  
    
2024
     
2023
     
2022
  
    
(U.S. $ in millions)
  
Parent Company and its Israeli subsidiaries
    $ (456 )     $ (767 )     $ (119 ) 
Non-Israeli
subsidiaries
      (828 )      143        (3,044 ) 
  
 
 
     
 
 
     
 
 
  
   $ (1,284 )    $ (624 )     $ (3,163 ) 
  
 
 
     
 
 
     
 
 
  
b. Income taxes:
 
    
Year ended December 31,
  
    
2024
     
2023
     
2022
  
    
(U.S. $ in millions)
  
In Israel
    $ 721      $ (402 )     $ 33  
Outside Israel
      (45 )       395        (676 ) 
  
 
 
     
 
 
     
 
 
  
   $ 676      $ (7 )     $ (643 ) 
  
 
 
     
 
 
     
 
 
  
Current
    $ 1,094      $ 333      $ 430  
Deferred
      (418 )       (340 )       (1,073 ) 
  
 
 
     
 
 
     
 
 
  
   $ 676      $ (7 )     $ (643 ) 
  
 
 
     
 
 
     
 
 
  
 
 
 
  
2024
 
 
2023
 
 
2022
 
 
  
(U.S. $ in millions)
 
Income (loss) before income taxes
    $ (1,284 )   $ (624 )    $ (3,163 ) 
Statutory tax rate in Israel
      23 %      23 %      23 % 
  
 
 
    
 
 
    
 
 
  
Theoretical provision for income taxes
    $ (295 )   $ (144 )    $ (727 ) 
Increase (decrease) in the provision for income taxes due to:
       
Tax benefits arising from net deferred taxes, resulting from intellectual property related integration plans, including carryforward losses
      (87)     (272)   — 
The Parent Company and its Israeli subsidiaries - Settlement with the Israeli tax authorities
      514     —    — 
Increase (decrease) in other uncertain tax positions - net
    171     —        —   
Tax benefits arising from reduced tax rates under benefit programs
        14     15
Mainly nondeductible items and prior year tax
      16       —        35  
Non-Israeli subsidiaries
                         
Impairments that did not have a corresponding tax effect, non-deductible interest and other items
      463       372       941  
Adjustments to valuation allowances on deferred tax assets (*)
      (105)       —        —   
Worthless stock deduction (**)
        —        (909 ) 
Increase (decrease) in other uncertain tax positions - net
      (1 )      23       2  
  
 
 
    
 
 
    
 
 
  
Effective consolidated income taxes
    $ 676     $ (7 )    $ (643 ) 
  
 
 
    
 
 
    
 
 
  
*
Mainly related to deduction of interest expenses in the United States.
**
In 2022, one of Teva’s U.S. subsidiaries was determined to be insolvent for tax purposes (i.e., its liabilities exceeded the fair market value of its assets), mainly in light of its accumulated operational losses. Consequently, Teva recognized on its 2022 tax return, a worthless stock deduction of approximately $4.2 billion, with
a 
related tax benefit of approximately $909 million.
Teva’s effective tax rate is the result of a variety of factors, including the geographic mix and type of products sold during the year, different effective tax rates applicable to
non-Israeli
subsidiaries that have tax rates different than Teva’s average tax rate, a settlement agreement with the Israeli Tax Authorities (“ITA”), impairment charges with no corresponding tax effects, net deferred tax benefits from intellectual property related integration plans, an adjustment to the Company’s corporate tax rate in Israel on losses related to
non-qualified
tax incentive activities in Israel, adjustments to valuation allowances on deferred tax assets, adjustments to uncertain tax positions and interest expense disallowances.
 
 
c.
Deferred income taxes:
 
    
December 31,
  
    
2024
     
2023
  
    
(U.S. $ in millions)
  
Deferred tax assets (liabilities), net:
   
Inventory related
    $ 88      $ 76  
Sales reserves and allowances
      55        81  
Provision for legal settlements
      667        702  
Intangible assets (*)
      170        (118 ) 
Carryforward losses and deductions and credits (**)
      1,557        2,463  
Property, plant and equipment
      (157 )       (225 ) 
Deferred interest
      789        799  
Provisions for employee related obligations
      95        80  
Other (***)
      69        357  
  
 
 
     
 
 
  
     3,333        4,215  
Valuation allowance—in respect of carryforward losses and deductions that may not be utilized
      (2,017 )       (3,009 ) 
  
 
 
     
 
 
  
   $ 1,316      $ 1,206  
  
 
 
     
 
 
  

(*)
The increase in deferred tax is mainly due to intellectual property related integration.
(**)
The amounts are shown after reduction for unrecognized tax benefits of $163 million and $2 million as of December 31, 2024 and 2023, respectively.
The amount as of December 31, 2024 represents the tax effect of gross carryforward losses and deductions with the following expirations:
2025
-
2026
—$38 million;
2027
-
2034
—$486 million;
2035
and thereafter—$38 million. The remaining balance—$995 million—can be utilized with no expiration date.
 
(***)
The amounts shown for 2023 are primarily comprised of Capitalization of R&D Expenses.
The deferred income taxes are reflected in the balance sheets among:
 
    
December 31,
  
    
2024
     
2023
  
    
(U.S. $ in millions)
  
Long-term assets—deferred income taxes
      1,799        1,812  
Long-term liabilities—deferred income taxes
      (483 )       (606 ) 
  
 
 
     
 
 
  
   $ 1,316      $ 1,206  
  
 
 
     
 
 
  
 
d.
Uncertain tax positions:
The following table summarizes the activity of Teva’s gross unrecognized tax benefits:
 
    
Year ended December 31,
  
    
2024
     
2023
     
2022
  
    
(U.S. $ in millions)
  
Balance at the beginning of the year
    $ 651      $ 638      $ 672  
Increase (decrease) related to prior year tax positions, net
      109        (1 )       (46 ) 
Increase related to current year tax positions
      53        15        42  
Decrease related to settlements with tax authorities and lapse of applicable statutes of limitations
      (395 )       (15 )       (31 ) 
Other
      29        14        1  
  
 
 
     
 
 
     
 
 
  
Balance at the end of the year
    $ 449      $ 651      $ 638  
  
 
 
     
 
 
     
 
 
  
Uncertain tax positions, mainly of a long-term nature, include accrued potential penalties and interest of $69 million, $224 million and $212 million as of December 31, 2024, 2023 and 2022, respectively. The total amount of interest and penalties reflected in the consolidated statements of income was a net decrease of $155 million for the year ended December 31, 2024, and a net increase of $12 million and $2 million for the years ended December 31, 2023 and 2022, respectively. Substantially all the above uncertain tax benefits, if recognized, would reduce Teva’s annual effective tax rate. Teva does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities or court decisions, the likelihood and timing of which is difficult to estimate.
 
e.
Tax assessments:
Teva files income tax returns in various jurisdictions with varying statutes of limitations. Teva and its subsidiaries in Israel have received final tax assessments through tax year 2020.
On June 23, 2024, Teva entered into an agreement with the ITA to settle certain litigation with respect to taxes payable for the Company’s taxable years 2008 through 2020 (the “Agreement”). Pursuant to the terms of the Agreement, the Company will pay a total amount of approximately $750 million to the ITA spread over a
six-year
period beginning in 2024. The Company has the right to prepay, and amounts paid over time are subject to interest and increase for inflation. Such total amount includes: (i) $495 million in corporate taxes with respect to the Company’s historical earnings that were previously considered by the Company to be exempt from taxes under the Encouragement for Capital Investment Law; and (ii) approximately $250 million in corporate taxes, relating to additional disputed tax issues in the aforementioned taxable years. The Agreement resulted in an increase of $506 million in the Company’s total income taxes in 2024, as certain elements had been recognized in previous periods. Additionally, under the terms of the Agreement, it was further agreed that in the future event the Company pays dividends on, or repurchases, its equity interests, the Company will pay an additional
5%-7%
of the amount of such dividends or repurchases in corporate taxes, up to a maximum tax payment amount of approximately $500 million. Any amounts due under this provision of the Agreement will be recorded in the future as incurred.
In the U.S., Teva is subject to ongoing examination of its U.S. subsidiaries by federal and state tax authorities. The years 2015 to 2019 are open years, currently under IRS examination. Additionally, Teva is currently under examination by various state tax authorities for open years from 2014 to 2023. In addition to ongoing audits, Teva and its subsidiaries have tax years 2009 to 2014 that are in administrative suspense for one open matter, pending the outcome of the court cases discussed further below.
 
Teva currently has a legal proceeding in the U.S. Tax Court and one on appeal to the U.S. District Court of Appeals for the Federal Circuit. Each dispute with the IRS addresses the question of whether certain legal fees incurred related to Abbreviated New Drug Applications (“ANDAs”) were eligible to be deducted in the year incurred for tax purposes or were required to be amortized over longer periods under U.S. tax law. Additionally, the Tax Court case includes a question dealing with qualified research expenses. The U.S. Tax Court case remains in the
pre-trial
phase. Oral arguments were heard by the Federal Circuit in June 2024. While Teva continues to vigorously defend itself in these cases, and believes it is
more-likely-than-not
to prevail, there is uncertainty in the outcome and an adverse ruling could materially affect the Company’s financial statements.
Teva filed a claim seeking the refund of withholding taxes paid to the Indian tax authorities in 2012. Trial in this case is ongoing. A final and binding decision against Teva in this case may lead to an impairment in an amount of up to $122 million.
The Company’s subsidiaries in Europe have received final tax assessments mainly through tax year 2015.
Teva believes it has adequately provided for all uncertain tax positions for open years, and that any other adverse results of examinations or litigation would have an immaterial impact on the Company’s financial statements.
 
f.
Basis of taxation:
The Company and its subsidiaries are subject to tax in many jurisdictions, and estimation is required in recording the assets and liabilities related to income taxes. The Company believes that its accruals for tax liabilities are adequate for all open years. The Company considers various factors in making these assessments, including past history, recent interpretations of tax law, and the specifics of each matter. Because tax regulations are subject to interpretation and tax litigation is inherently uncertain, these assessments can involve a series of complex judgments regarding future events.
An assessment of the tax that would have been payable had the Company’s foreign subsidiaries distributed their income to the Company is not practicable because of the multiple levels of corporate ownership and multiple tax jurisdictions involved in each hypothetical dividend distribution.
Incentives Applicable until 2013
Under the incentives regime applicable to the Company until 2013, industrial projects of Teva and certain of its Israeli subsidiaries were eligible for “Approved Enterprise” status.
Most of the projects in Israel have been granted Approved Enterprise status under the “alternative” tax benefit track which offered tax exemption on undistributed income for a period of two to ten years, depending on the location of the enterprise. Upon distribution of such exempt income, the distributing company is subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise’s income.
Amendment 69 to the Investment Law
Pursuant to Amendment 69 to the Investment Law (“Amendment 69”), a company that elected by November 11, 2013 to pay a corporate tax rate as set forth in that amendment (rather than the tax rate applicable to Approved Enterprise income) with respect to undistributed exempt income accumulated by the company up until December 31, 2011 is entitled to distribute a dividend from such income without being required to pay additional corporate tax with respect to such dividend. A company that has so elected must make certain qualified investments in Israel over the five-year period commencing in 2013. Teva invested the entire required amount in 2013.
 
During 2013, Teva applied the provisions of Amendment 69 to certain exempt profits Teva accrued prior to 2012. Consequently, Teva paid $577 million in corporate tax on exempt income of $9.4 billion. Part of this income was distributed as dividends during 2013-2018, while the remainder is available to be distributed as dividends in future years with no additional corporate tax liability.
Incentives Applicable starting 2014
:
The Incentives Regime – Amendment 68 to the Investment Law
Under Amendment 68 to the Investment Law, which Teva started applying in 2014, upon an irrevocable election made by a company, a uniform corporate tax rate will apply to all qualifying industrial income of such company (“Preferred Enterprise”), as opposed to the previous law’s incentives, which were limited to income from Approved Enterprises during the benefits period. Under the law, when the election is made, the uniform tax rate for 2014 until 2016 was 9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The uniform tax rate for Development Zone A, as of January 1, 2017, is 7.5% (as part of changes enacted in Amendment 73, as described below). The profits of these “Preferred Enterprise” will be freely distributable as dividends, subject to a 20% or lower withholding tax, under an applicable tax treaty. Certain “Special Preferred Enterprises” that meet more stringent criteria (significant investment, R&D or employment thresholds) will enjoy further reduced tax rates of 5% in Zone A and 8% elsewhere. In order to be classified as a “Special Preferred Enterprises,” the approval of three governmental authorities in Israel is required.
The New Technological Enterprise Incentives Regime – Amendment 73 to the Investment Law
Since 2017, a portion of the Company’s taxable income in Israel is entitled to a preferred 6% tax rate under Amendment 73 to the Investment Law as it pertains to Special Preferred Technological Enterprises.
The new incentives regime applies to “Preferred Technological Enterprises” or “Special Preferred Technological Enterprises.” A “Preferred Technological Enterprise” is an enterprise that meet certain conditions, including, inter alia:
 
  a.
Investment of at least 7% of income, or at least NIS 75 million (approximately $22 million) in R&D activities; and
 
  b.
One of the following:
 
  a.
At least 20% of the workforce (or at least 200 employees) are employed in R&D;
 
  b.
A venture capital investment approximately equivalent to at least $2 million was previously made in the company; or
 
  c.
Growth in sales or workforce by an average of 25% over the three years preceding the tax year.
A “Special Preferred Technological Enterprise” is an enterprise that meets, inter alia conditions 1 and 2 above, and in addition has total annual consolidated revenues above NIS 10 billion (approximately $2.9 billion).
Preferred Technological Enterprises are subject to a corporate tax rate of 7.5% on their income derived from intellectual property in areas in Israel designated as Zone A and 12% elsewhere, while Special Preferred Technological Enterprises are subject to 6% on such income. The withholding tax on dividends from these enterprises is 4% to foreign companies (or a lower rate under a tax treaty, if applicable).
Income not eligible for Preferred Technological Enterprise benefits is taxed at the regular corporate tax rate, which is 23%, or the preferred tax rate, as the case may be.
 
The Parent Company and its Israeli subsidiaries elected to compute their taxable income in accordance with Income Tax Regulations (Rules for Accounting for Foreign Investors Companies and Certain Partnerships and Setting their Taxable Income), 1986. Accordingly, the taxable income or loss is calculated in U.S. dollars. Applying these regulations reduces the effect of U.S. dollar – NIS exchange rate on the Company’s Israeli taxable income.
Non-Israeli
subsidiaries are taxed according to the tax laws in their respective country of residence. Certain manufacturing subsidiaries operate in several jurisdictions outside Israel, some of which benefit from tax incentives such as reduced tax rates, investment tax credits and accelerated deductions.
Pillar Two Taxation
The OECD introduced Base Erosion and Profit Shifting (“BEPS”) Pillar Two rules that impose a global minimum tax rate of 15% for large multinational corporations. On December 12, 2022, the EU Council announced that EU member states had reached an agreement to implement the minimum taxation component of 15% of the OECD’s reform of international taxation. Other countries have also enacted legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax by January 1, 2025, or are expected to enact such legislation in the future. Teva has evaluated the potential impact on its 2024 consolidated financial statements and related disclosures and does not expect Pillar Two to have a material impact on its effective tax rate or consolidated financial statements in the foreseeable future.