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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
In 2020, 2021, and 2022, we recorded net tax provision (benefit) of $2.9 billion, $4.8 billion, and $(3.2) billion. Our U.S. taxable income is reduced by accelerated depreciation deductions and increased by the impact of capitalized research and development expenses. Cash taxes paid, net of refunds, were $1.7 billion, $3.7 billion, and $6.0 billion for 2020, 2021, and 2022.
Certain foreign subsidiary earnings and losses are subject to current U.S. taxation and the subsequent repatriation of those earnings is not subject to tax in the U.S. The U.S. tax rules also provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of qualified property, primarily equipment, through 2022. Our federal tax provision included a partial election for 2020 and 2021, and a full election for 2022. Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes.
The components of the provision (benefit) for income taxes, net are as follows (in millions):
 Year Ended December 31,
202020212022
U.S. Federal:
Current$1,835 $2,129 $2,175 
Deferred(151)155 (6,686)
Total1,684 2,284 (4,511)
U.S. State:
Current626 763 1,074 
Deferred(190)(178)(1,302)
Total436 585 (228)
International:
Current956 2,209 1,682 
Deferred(213)(287)(160)
Total743 1,922 1,522 
Provision (benefit) for income taxes, net$2,863 $4,791 $(3,217)
U.S. and international components of income (loss) before income taxes are as follows (in millions):
 Year Ended December 31,
 202020212022
U.S.$20,219 $35,879 $(8,225)
International3,959 2,272 2,289 
Income (loss) before income taxes$24,178 $38,151 $(5,936)
The items accounting for differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes are as follows (in millions):
 Year Ended December 31,
 202020212022
Income taxes computed at the federal statutory rate$5,078 $8,012 $(1,246)
Effect of:
Tax impact of foreign earnings and losses(538)(1,349)(370)
State taxes, net of federal benefits343 465 (173)
Tax credits(639)(1,136)(1,006)
Stock-based compensation (1)(1,107)(1,094)612 
Foreign income deduction (2)(372)(301)(1,258)
Other, net98 194 224 
Total$2,863 $4,791 $(3,217)
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(1)Includes non-deductible stock-based compensation and excess tax benefits or shortfalls from stock-based compensation. Our tax provision includes $1.8 billion and $1.9 billion of excess tax benefits from stock-based compensation for 2020 and 2021, and a $33 million tax shortfall from stock-based compensation for 2022.
(2)U.S. companies are eligible for a deduction that lowers the effective tax rate on certain foreign income. This regime is referred to as the Foreign-Derived Intangible Income deduction.
Our provision for income taxes in 2021 was higher than in 2020 primarily due to an increase in pretax income. This was partially offset by an increase in U.S. federal research and development credits and the impact of the distribution of certain intangible assets from Luxembourg to the U.S. in Q4 2021, resulting in the utilization of $2.6 billion of Luxembourg deferred tax assets previously subject to a valuation allowance.
We generated an income tax benefit in 2022 as compared to a provision for income taxes in 2021 primarily due to a decrease in pretax income and an increase in the foreign income deduction. This was partially offset by a reduction in excess tax benefits from stock-based compensation and a decrease in the tax impact of foreign earnings and losses driven by a decline in the favorable effects of corporate restructuring transactions. The foreign income deduction benefit recognized in 2022 reflects a change in our application of tax regulations related to the computation of qualifying foreign income and includes an income tax benefit of approximately $655 million related to years prior to 2022.
We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.
Deferred income tax assets and liabilities are as follows (in millions):
 December 31,
 20212022
Deferred tax assets (1):
Loss carryforwards U.S. - Federal/States228 386 
Loss carryforwards - Foreign2,417 2,831 
Accrued liabilities, reserves, and other expenses2,821 3,280 
Stock-based compensation2,738 4,295 
Depreciation and amortization941 1,009 
Operating lease liabilities15,399 18,285 
Capitalized research and development— 6,824 
Other items603 1,023 
Tax credits626 950 
Total gross deferred tax assets25,773 38,883 
Less valuation allowances (2)(3,596)(4,374)
Deferred tax assets, net of valuation allowances22,177 34,509 
Deferred tax liabilities:
Depreciation and amortization(3,562)(9,039)
Operating lease assets(14,422)(17,140)
Assets held for investment(4,019)— 
Other items(668)(817)
Net deferred tax assets (liabilities), net of valuation allowances$(494)$7,513 
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(1)Deferred tax assets are presented after tax effects and net of tax contingencies.
(2)Relates primarily to deferred tax assets that would only be realizable upon the generation of net income in certain foreign taxing jurisdictions or future capital gains, as well as tax credits.
Our valuation allowances primarily relate to foreign deferred tax assets, including substantially all of our foreign net operating loss carryforwards as of December 31, 2022. Our foreign net operating loss carryforwards for income tax purposes as of December 31, 2022 were approximately $10.4 billion before tax effects and certain of these amounts are subject to annual limitations under applicable tax law. If not utilized, a portion of these losses will begin to expire in 2023.
Tax Contingencies
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
The reconciliation of our tax contingencies is as follows (in millions):
 December 31,
 202020212022
Gross tax contingencies – January 1$3,923 $2,820 $3,242 
Gross increases to tax positions in prior periods88 403 274 
Gross decreases to tax positions in prior periods(465)(354)(172)
Gross increases to current period tax positions507 507 706 
Settlements with tax authorities(1,207)(60)(20)
Lapse of statute of limitations(26)(74)(28)
Gross tax contingencies – December 31 (1)$2,820 $3,242 $4,002 
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(1)As of December 31, 2022, we had approximately $4.0 billion of accrued tax contingencies of which $2.2 billion, if fully recognized, would decrease our effective tax rate.
As of December 31, 2021 and 2022, we had accrued interest and penalties, net of federal income tax benefit, related to tax contingencies of $110 million and $103 million. Interest and penalties, net of federal income tax benefit, recognized for the years ended December 31, 2020, 2021, and 2022 were $(48) million, $28 million, and $(7) million.
We are under examination, or may be subject to examination, by the Internal Revenue Service for the calendar year 2016 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods.
We are also subject to taxation in various states and other foreign jurisdictions including China, France, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities in respect of these particular jurisdictions primarily for 2011 and thereafter. We are currently disputing tax assessments in multiple jurisdictions, including with respect to the allocation and characterization of income.
In September 2022, the Luxembourg Tax Authority (“LTA”) denied the tax basis of certain intangible assets that we distributed from Luxembourg to the U.S. in 2021. We believe the LTA’s position is without merit and intend to defend ourselves vigorously in this matter.
In February 2023, we received a decision by the Indian Tax Authority (“ITA”) that tax applies to cloud services fees paid to the U.S. We will need to remit taxes on the services in question, including for a portion of prior years, until this matter is resolved, which payments could be significant in the aggregate. We believe the ITA’s decision is without merit, we intend to defend our position vigorously, and we expect to recoup taxes paid. If this matter is adversely resolved, we would reflect significant additional tax expense, including for taxes previously paid.
In October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid. On October 4, 2017, the European Commission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules on state aid. Based on that decision the European Commission announced an estimated recovery amount of approximately €250 million, plus interest, for the period May 2006 through June 2014, and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to recovery. Luxembourg computed an initial recovery amount, consistent with the European Commission’s decision, which we deposited into escrow in March 2018, subject to adjustment pending conclusion of all appeals. In December 2017, Luxembourg appealed the European Commission’s decision. In May 2018, we appealed. On May 12, 2021, the European Union General Court annulled the European Commission’s state aid decision. In July 2021, the European Commission appealed the decision to the European Court of Justice. We will continue to defend ourselves vigorously in this matter.
Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies. Due to various factors, including the inherent complexities and uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax controversies in one or more jurisdictions. These assessments or settlements could result in changes to our contingencies related to positions on prior years’ tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes.