XML 54 R26.htm IDEA: XBRL DOCUMENT v3.6.0.2
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

18. Income Taxes

The components of income before income taxes and equity in earnings of unconsolidated affiliates are as follows (in millions):

 

     Year Ended December 31,
     2016   2015   2014

Domestic

   $ (85   $ 68      $ 96   

Foreign

     564        471        405   
  

 

 

 

 

 

 

 

 

 

 

 

   $                 479      $                 539      $             501   
  

 

 

 

 

 

 

 

 

 

 

 

The components of income tax expense attributable to continuing operations are as follows (in millions):

 

     Year Ended December 31,
     2016   2015   2014

Current expense:

      

Federal and state

   $ 64      $ 51      $ 62   

Foreign

     129        109        95   
  

 

 

 

 

 

 

 

 

 

 

 

     193        160        157   
  

 

 

 

 

 

 

 

 

 

 

 

Deferred (benefit) expense:

      

Federal and state

     166        5        (5

Foreign

     (14     (6     (3
  

 

 

 

 

 

 

 

 

 

 

 

     152        (1     (8
  

 

 

 

 

 

 

 

 

 

 

 

   $               345      $               159      $               149   
  

 

 

 

 

 

 

 

 

 

 

 

The differences between the Company’s consolidated income tax expense attributable to continuing operations and the expense computed at the 35% United States statutory income tax rate were as follows (in millions):

 

     Year Ended December 31,
     2016   2015   2014

Federal income tax expense at statutory rate

   $ 167      $ 189      $ 175   

Research and development

     (11     (13     (17

Foreign nontaxable interest income

     (8     (9     (10

United States taxes recorded on foreign earnings

     252        38        19   

Foreign rate differential

     (60     (49     (31

Other

     5        3        13   
  

 

 

 

 

 

 

 

 

 

 

 

   $                 345      $                 159      $                 149   
  

 

 

 

 

 

 

 

 

 

 

 

 

Due to the Merger, the Company reevaluated its indefinite reinvestment assertion based on the need for cash in the United States, including funding the Repurchase Program and potential acquisitions. Accordingly, the Company changed its assertion with respect to $2,801 million of foreign earnings, including $1,865 million of IMS Health’s previously undistributed historical foreign earnings. The Company intends to use these acquired foreign earnings to fund cash needs in the United States. Deferred income taxes of $625 million were recorded in 2016 related to non-indefinitely reinvested foreign earnings. Of that amount, $373 million was recorded through purchase accounting related to IMS Health’s historical foreign earnings and the remainder of $252 million was recorded through deferred income tax expense.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $3,564 million at December 31, 2016. Approximately $2,894 million of this total is not considered to be indefinitely reinvested and would be taxable upon repatriation. The Company has recorded a deferred income tax liability, net of foreign tax credits that would be generated upon repatriation, of $590 million as of December 31, 2016, associated with those earnings based upon the United States federal income tax rate. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both United States income taxes (subject to an adjustment for foreign tax credits, if available) and withholding taxes payable to the various countries in which the Company’s foreign subsidiaries are located. If the approximately $670 million of indefinitely reinvested earnings were repatriated to the United States, it would generate an estimated $176 million of additional tax liability for the Company.

The income tax effects of temporary differences from continuing operations that give rise to significant portions of deferred income tax assets (liabilities) are presented below (in millions):

 

     December 31,
     2016   2015

Deferred income tax assets:

    

Net operating loss and capital loss carryforwards

   $                 242      $                 26   

Tax credit carryforwards

     267        16   

Accrued expenses and unearned income

     75        23   

Employee benefits

     273        124   

Other

     32        13   
  

 

 

 

 

 

 

 

     889        202   

Valuation allowance for deferred income tax assets

     (153     (22
  

 

 

 

 

 

 

 

Total deferred income tax assets

     736        180   
  

 

 

 

 

 

 

 

Deferred income tax liabilities:

    

Undistributed foreign earnings

     (590     (37

Amortization and depreciation

     (2,026     (53

Other

     (164     (12
  

 

 

 

 

 

 

 

Total deferred income tax liabilities

     (2,780     (102
  

 

 

 

 

 

 

 

Net deferred income tax (liabilities) assets

   $ (2,044   $ 78   
  

 

 

 

 

 

 

 

Due to the Merger, the Company recorded deferred tax liabilities related to intangible amortization recorded through purchase accounting in the amount of $2,308 million.

 

Additionally, due to the Merger, the Company had federal, state and local, and foreign tax credit and tax loss carryforwards, the tax effect of which was $528 million as of December 31, 2016. Of this amount, $29 million has an indefinite carryforward period, and the remaining $499 million expires at various times beginning in 2017. Some of these losses are subject to limitations under the Internal Revenue Code, however, management expects all losses to be utilized during the carryforward periods.

In 2016, the Company increased its valuation allowance by $131 million to $153 million at December 31, 2016 from $22 million at December 31, 2015. This increase is a result of the Merger as IMS Health had $129 million of valuation allowances recorded as of the date of the Merger. The valuation allowance is primarily related to loss carryforwards in various foreign and state jurisdictions.

A reconciliation of the beginning and ending amount of gross unrecognized income tax benefits is presented below (in millions):

 

     Year Ended December 31,
     2016   2015   2014

Balance at January 1

   $ 30      $ 41      $ 55   

IMS Health balance as of Merger

     37                 

Additions based on tax positions related to the current year

     3        2        3   

Additions for income tax positions of prior years

     7        9        1   

Impact of changes in exchange rates

     (3     (1       

Reductions for income tax positions of prior years

     (1     (2     (6

Reductions due to the lapse of the applicable statute of limitations

     (9     (19     (12
  

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31

   $                 64      $                 30      $                 41   
  

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016, the Company had total gross unrecognized income tax benefits of $64 million associated with over 100 jurisdictions in which the Company conducts business that, if recognized, would reduce the Company’s effective income tax rate.

The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements of income. In 2016, 2015 and 2014, the amount of interest and penalties recorded as an addition/(reduction) to income tax expense in the accompanying consolidated statements of income was $2 million, ($2) million and $1 million, respectively. As of December 31, 2016 and 2015, the Company had accrued approximately $11 million and $3 million, respectively, of interest and penalties.

The Company believes that it is reasonably possible that a decrease of up to $6 million in gross unrecognized income tax benefits for federal, state and foreign exposure items may be necessary within the next 12 months due to lapse of statutes of limitations or uncertain tax positions being effectively settled. The Company believes that it is reasonably possible that a decrease of up to $2 million in gross unrecognized income tax benefits for foreign items may be necessary within the next 12 months due to payments. For the remaining uncertain income tax positions, it is difficult at this time to estimate the timing of the resolution.

The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following table summarizes the tax years that remain open for examination by tax authorities in the most significant jurisdictions in which the Company operates:

 

United States

   2013-2015

India

   2006-2016

Japan

   2011-2015

United Kingdom

   2015

Switzerland

   2012-2015

In certain of the jurisdictions noted above, the Company operates through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.

Due to the geographic breadth of the Company’s operations, numerous tax audits may be ongoing throughout the world at any point in time. Income tax liabilities are recorded based on estimates of additional income taxes which may be due upon the conclusion of these audits. Estimates of these income tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of income tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, the Company will record additional income tax expense or income tax benefit in the period in which such resolution occurs.

The Company had a tax holiday for Quintiles East Asia Pte. Ltd. in Singapore through June 2015. The income tax benefit of this holiday was approximately $2 million in both 2015 and 2014. The tax holiday increased earnings per share by approximately $0.02 in both 2015 and 2014.