Taxes

12 Months Ended

Dec. 31, 2020

(Loss) before taxes


($ millions)	2020	2019	2018
Switzerland	(585)	(274)	(227)
Foreign	(50)	(58)	(73)
Total (loss) before taxes	(635)	(332)	(300)

Current and deferred income tax (expense)/income


($ millions)	2020	2019	2018
Switzerland	(14)	(34)	(77)
Foreign	(105)	(168)	(157)
Current income tax expense	(119)	(202)	(234)
Switzerland	96	(246)	78
Foreign	127	124	229
Deferred tax income/(expense)	223	(122)	307
Total income tax income/(expense)	104	(324)	73

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.


	2020			2019			2018
($ millions unless indicated otherwise)		%			%			%
Applicable tax rate	98	15.4	%	39	11.7	%	82	27.3	%
Effect of disallowed expenditures	(20)	(3.1)	%	(23)	(6.9)	%	(26)	(8.7)	%
Effect of equity-based compensation	(5)	(0.8)	%	(1)	(0.3)	%	(2)	(0.7)	%
Effect of income taxed at reduced rates	4	0.6	%	2	0.6	%	2	0.7	%
Effect of tax credits and allowances	9	1.4	%	7	2.1	%	13	4.3	%
Effect of adjustments to contingent consideration and other liabilities	17	2.7	%	11	3.3	%	11	3.7	%
Effect of option payments	(6)	(0.9)	%	(12)	(3.6)	%	(17)	(5.7)	%
Effect of tax rate changes(1)	10	1.6	%	(342)	(103.0)	%	(14)	(4.7)	%
Effect of changes in uncertain tax positions	(8)	(1.3)	%	10	3.0	%	(33)	(11.0)	%
Effect of other items	(10)	(1.6)	%	(2)	(0.6)	%	(4)	(1.2)	%
Effect of prior year items(2)	15	2.4	%	(13)	(3.9)	%	61	20.3	%
Effective tax rate	104	16.4	%	(324)	(97.6)	%	73	24.3	%

(1)Effect of tax rate changes in 2019 relates primarily to the adoption of the Swiss Tax Reform which resulted in a non-cash tax increase in tax expense of $304 million for the re-measurement of the Swiss deferred tax balances and 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.

(2) In 2020 and 2019, the prior year items relate to changes in certain estimates which resulted in a $15 million tax benefit and $13 million tax expense, respectively. In 2018, the prior year items relate to an 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.

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 2020, 2019 and 2018 was impacted by pre-tax losses in certain tax jurisdictions. The fluctuation in taxes and effective tax rates, excluding Swiss tax reform, is primarily due to the geographical pre-tax income and loss mix across certain tax jurisdictions relative to Alcon's consolidated (loss) before taxes, changes in uncertain tax positions and certain non-recurring items.