Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Earnings Before Income Tax Expense

years ended December 31 (in millions)	2023		2022		2021
Domestic	$	(3,475)	$	(4,608)	$	(1,644)
Foreign	9,725		18,085		14,633
Total earnings before income tax expense	$	6,250	$	13,477	$	12,989

Income Tax Expense

years ended December 31 (in millions)	2023		2022		2021
Current
Domestic	$	3,272	$	2,647	$	1,987
Foreign	994		916		351
Total current taxes	$	4,266	$	3,563	$	2,338
Deferred
Domestic	$	(2,324)	$	(1,512)	$	(839)
Foreign	(565)		(419)		(59)
Total deferred taxes	$	(2,889)	$	(1,931)	$	(898)
Total income tax expense	$	1,377	$	1,632	$	1,440

Effective Tax Rate Reconciliation

years ended December 31	2023		2022		2021
Statutory tax rate	21.0	%	21.0	%	21.0	%
Effect of foreign operations	8.0		(4.4)		(5.4)
U.S. tax credits	(3.1)		(2.8)		(2.8)
Non-deductible expenses	1.5		0.6		0.3
Tax law changes	(3.8)		(2.4)		(2.0)
Tax audits and settlements	(1.1)		0.9		(0.4)
All other, net	(0.5)		(0.8)		0.4
Effective tax rate	22.0	%	12.1	%	11.1	%

The effective income tax rate fluctuates year to year due to the allocation of the company's taxable earnings among jurisdictions, as well as certain discrete factors and events in each year, including changes in tax law and business development activities. The effective income tax rates in 2023, 2022 and 2021 differed from the statutory tax rate principally due to the impact of foreign operations with lower income tax rates in locations outside the United States, the U.S. global minimum tax, changes in fair value of contingent consideration, tax credits and incentives in the United States, Puerto Rico and other foreign tax jurisdictions, and business development activities. The effective income tax rate in 2023 was higher than prior periods due to increased changes in fair value of contingent consideration, intangible asset impairments and the impacts of the transition from the Puerto Rico excise tax to an income tax.

In 2022, Puerto Rico enacted Act 52-2022 (the Puerto Rico Act) allowing for a transition from a Puerto Rico excise tax levied on gross inventory purchases to an income-based tax beginning in 2023. The company completed the transition requirements of the Puerto Rico Act in 2022, resulting in the remeasurement of certain deferred tax assets and liabilities based on income tax rates at which they are expected to reverse in the future. The net tax benefit recognized in 2022 from the remeasurement of deferred taxes related to the Puerto Rico Act was $323 million.

The Tax Cuts and Jobs Act (the Act) was signed into law in December 2017, resulting in significant changes to the U.S. corporate tax system, including a one-time transition tax on a mandatory deemed repatriation of earnings of certain foreign subsidiaries that were previously untaxed. The Act also created a U.S. global minimum tax on certain foreign sourced earnings. The company’s accounting policy for the minimum tax on foreign sourced earnings is to report the tax effects on the basis that the minimum tax will be recognized in tax expense in the year it is incurred as a period expense.

Deferred Tax Assets and Liabilities

as of December 31 (in millions)	2023		2022
Deferred tax assets
Compensation and employee benefits	$	519	$	497
Accruals and reserves	1,113		1,023
Chargebacks and rebates	1,431		991
Advance payments	298		547
Net operating losses and other carryforwards	14,316		10,391
Other	2,259		1,710
Total deferred tax assets	19,936		15,159
Valuation allowances	(13,478)		(9,627)
Total net deferred tax assets	6,458		5,532
Deferred tax liabilities
Excess of book basis over tax basis of intangible assets	(1,535)		(3,590)
Excess of book basis over tax basis in investments	(374)		(340)
Other	(746)		(772)
Total deferred tax liabilities	(2,655)		(4,702)
Net deferred tax assets	$	3,803	$	830

The increase in net deferred tax assets is primarily related to capitalization of R&D expense and increases in accruals and reserves, offset by a decrease in advance payments. The decrease in deferred tax liabilities is primarily related to amortization and impairments of intangible assets.

In 2023, Bermuda enacted the Corporate Income Tax Act (“Bermuda Tax Act”), which implements a 15% corporate income tax effective beginning in 2025. The enactment of the Bermuda Tax Act resulted in the remeasurement of certain deferred tax assets and liabilities based on income tax rates at which they are expected to reverse in the future. The remeasurement related primarily to net operating losses and reflected an increase of $3.6 billion to deferred tax assets and an offsetting increase to valuation allowances, resulting in no net impact to deferred tax assets as such losses are not expected to be realized in the foreseeable future.

The company had valuation allowances of $13.5 billion as of December 31, 2023 and $9.6 billion as of December 31, 2022. These were principally related to foreign and state net operating losses and other credit carryforwards that are not expected to be realized.

As of December 31, 2023, the company had U.S. federal, state and foreign credit carryforwards of $372 million as well as U.S. federal, state and foreign net operating loss carryforwards of $33.6 billion, which will expire at various times through 2043. The company also had foreign loss carryforwards of $31.3 billion that have no expiration.

Unremitted foreign earnings subject to the Act’s transition tax are not considered indefinitely reinvested. Post-2017 earnings subject to the U.S. minimum tax on foreign sourced earnings or eligible for the 100 percent foreign dividends received deduction are also not considered indefinitely reinvested earnings. However, the company generally considers instances of outside basis differences in foreign subsidiaries that would incur additional U.S. tax upon reversal (e.g., capital gain distributions) to be permanent in duration. The unrecognized tax liability is not practicable to determine.

Unrecognized Tax Benefits

years ended December 31 (in millions)	2023		2022		2021
Beginning balance	$	5,670	$	5,489	$	5,264
Increase due to current year tax positions	129		88		208
Increase due to prior year tax positions	109		243		137
Decrease due to prior year tax positions	(21)		(33)		(62)
Settlements	(86)		(7)		(24)
Lapse of statutes of limitations	(39)		(110)		(34)
Ending balance	$	5,762	$	5,670	$	5,489

If recognized, the net amount of potential tax benefits that would impact the company's effective tax rate is $5.6 billion in 2023 and $5.5 billion in 2022. The "Increase due to current year tax positions" and "Increase due to prior year tax positions" in the table above include amounts related to federal, state and international tax items.

AbbVie recognizes interest and penalties related to income tax matters in income tax expense in the consolidated statements of earnings. AbbVie recognized gross income tax expense of $430 million in 2023, $339 million in 2022 and $161 million in 2021, for interest and penalties related to income tax matters. AbbVie had an accrual for the payment of gross interest and penalties of $1.6 billion at December 31, 2023, $1.1 billion at December 31, 2022 and $803 million at December 31, 2021.

The company is routinely audited by the tax authorities in significant jurisdictions and a number of audits are currently underway. It is reasonably possible during the next 12 months that uncertain tax positions may be settled, which could result in a decrease in the gross amount of unrecognized tax benefits. Due to the potential for resolution of federal, state and foreign examinations and the expiration of various statutes of limitation, the company's gross unrecognized tax benefits balance may change within the next 12 months up to $476 million. All significant federal, state, local and international matters have been concluded for years through 2009. The company believes adequate provision has been made for all income tax uncertainties.