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v3.19.3.a.u2

Taxes | 12 Months Ended
--- | ---
Dec. 31, 2019
Income Taxes [Abstract] |
Taxes | Taxes (Loss) before taxes
($ millions) | 2019 |  |  | 2018 |  |  | 2017 |
Switzerland | (274 | ) |  | (227 | ) |  | (104 | )
Foreign | (58 | ) |  | (73 | ) |  | (23 | )
Total (loss) before taxes | (332 | ) |  | (300 | ) |  | (127 | )
Current and deferred income tax (expense)/income
($ millions) | 2019 |  |  | 2018 |  |  | 2017 |
Switzerland | (34 | ) |  | (77 | ) |  | (8 | )
Foreign | (168 | ) |  | (157 | ) |  | (95 | )
Current income tax expense | (202 | ) |  | (234 | ) |  | (103 | )
Switzerland | (246 | ) |  | 78 |  |  | 7 |
Foreign | 124 |  |  | 229 |  |  | 479 |
Deferred tax (expense)/income | (122 | ) |  | 307 |  |  | 486 |
Total income tax (expense)/income | (324 | ) |  | 73 |  |  | 383 |
Analysis of tax rate Alcon's overall applicable tax rate can change each year since it is calculated as the weighted average tax rate based on pre-tax (loss)/income of each subsidiary. The main elements contributing to the difference between Alcon's overall applicable tax rate and the effective tax rate are summarized in the below table.
| 2019 |  | 2018 |  | 2017
| $ m |  |  | % |  |  | $ m |  |  | % |  |  | $ m |  |  | % |
Applicable tax rate | 39 |  |  | 11.7 | % |  | 82 |  |  | 27.3 | % |  | 37 |  |  | 29.1 | %
Effect of disallowed expenditures | (23 | ) |  | (6.9 | )% |  | (26 | ) |  | (8.7 | )% |  | (12 | ) |  | (9.4 | )%
Effect of share based compensation | (1 | ) |  | (0.3 | )% |  | (2 | ) |  | (0.7 | )% |  | (4 | ) |  | (3.1 | )%
Effect of income taxed at reduced rates | 2 |  |  | 0.6 | % |  | 2 |  |  | 0.7 | % |  | — |  |  | — |
Effect of tax credits and allowances | 7 |  |  | 2.1 | % |  | 13 |  |  | 4.3 | % |  | 5 |  |  | 3.9 | %
Effect of adjustments to contingent consideration liabilities | 11 |  |  | 3.3 | % |  | 11 |  |  | 3.7 | % |  | (8 | ) |  | (6.3 | )%
Effect of option payments | (12 | ) |  | (3.6 | )% |  | (17 | ) |  | (5.7 | )% |  | (12 | ) |  | (9.4 | )%
Effect of liquidation of a subsidiary | — |  |  | — |  |  | — |  |  | — |  |  | (10 | ) |  | (7.9 | )%
Effect of tax benefits expiring in 2017(1) | — |  |  | — |  |  | — |  |  | — |  |  | (12 | ) |  | (9.4 | )%
Effect of tax rate changes (2) | (342 | ) |  | (103.0 | )% |  | (14 | ) |  | (4.7 | )% |  | — |  |  | — |
Effect of changes in uncertain tax positions | 10 |  |  | 3.0 | % |  | (33 | ) |  | (11.0 | )% |  | (10 | ) |  | (7.9 | )%
Effect of other items | (2 | ) |  | (0.6 | )% |  | (4 | ) |  | (1.2 | )% |  | (4 | ) |  | (3.2 | )%
Effect of prior year items(3) | (13 | ) |  | (3.9 | )% |  | 61 |  |  | 20.3 | % |  | — |  |  | — | %
Effect of tax rate change on current and deferred tax assets and liabilities from US tax reform (4) | — |  |  | — | % |  | — |  |  | — | % |  | 413 |  |  | 325.2 | %
Effective tax rate | (324 | ) |  | (97.6 | )% |  | 73 |  |  | 24.3 | % |  | 383 |  |  | 301.6 | %
(1) | Effect of tax benefits expiring in 2017 relates to a Swiss subsidiary that was not subject to income tax through the end of calendar year 2017.
(2) | Effect of tax rate changes in 2019 relates primarily to (i) the adoption of the Swiss Tax Reform which has resulted in a non-cash tax increase in the tax expense of $304 million relating to the re-measurement of the Swiss deferred tax balances and (ii) a $31 million re-measurement of US deferred tax balances as a result of rate changes in the US following legal entity reorganizations executed related to the Spin-off.
(3) | In 2019, the prior year items relate to changes in certain estimates which resulted in a $13 million tax expense. In 2018, the prior year items relate to out of period income tax benefit of $61 million, which Alcon concluded was not material to the current period or the prior periods to which they relate.
(4) | Effect of tax rate change on US current and deferred tax assets and liabilities in 2017 relate to the enactment of the Tax Cuts and Jobs Act by the US, which reduced the corporate tax rate from 35% to 21% effective January 1, 2018. This required a re-measurement of the deferred tax balances and a portion of the current tax payables.
Alcon has a substantial business presence in many countries and is therefore subject to different income and expense items that are non-taxable (permanent differences) or are taxed at different rates in those tax jurisdictions. This results in a difference between Alcon's applicable tax rate and effective tax rate as shown in the table above. The applicable tax rate in 2019, 2018 and 2017 was impacted by pre-tax losses in certain tax jurisdictions. The fluctuation in the taxes and the effective tax rates, excluding Swiss and US tax reform, is primarily due to the geographical pre-tax income and loss mix across certain tax jurisdictions relative to Alcon's consolidated (loss)/income before taxes, changes in uncertain tax positions and certain non-recurring items.

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