XML 60 R22.htm IDEA: XBRL DOCUMENT v3.7.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income taxes
INCOME TAXES

Pre-tax income (loss) and the (benefit) provision for income taxes from continuing operations are summarized as follows (in millions):
 
Year Ended
 
Six Months Ended
 
Year Ended
 
December 31,
2016
 
December 31,
2015
 
June 27,
2015
 
June 28,
2014
 
 
Restated
 
Restated
 
Restated
Pre-tax income (loss):
 
 
 
 
 
 
 
Ireland
$
(3,624.1
)
 
$
(310.2
)
 
$
(792.8
)
 
$
(336.6
)
Other
(1,224.2
)
 
319.1

 
1,053.1

 
640.2

Total pre-tax income (loss)
(4,848.3
)
 
8.9

 
260.3

 
303.6

(Benefit) Provision for income taxes:
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
 
Ireland
0.3

 
1.6

 
(2.2
)
 
2.2

United States - federal
93.0

 
58.9

 
77.2

 
42.8

United States - state
0.7

 
3.0

 
6.8

 
9.3

Other foreign
26.7

 
53.0

 
67.4

 
49.1

Subtotal
120.7

 
116.5

 
149.2

 
103.4

Deferred (credit):
 
 
 
 
 
 
 
Ireland
(549.4
)
 
(23.1
)
 
11.1

 
(20.1
)
United States - federal
(7.6
)
 
(34.4
)
 
(19.9
)
 
8.4

United States - state
(5.1
)
 
(3.3
)
 
(0.8
)
 
(5.8
)
Other foreign
(394.1
)
 
(89.3
)
 
(15.4
)
 
(15.1
)
Subtotal
(956.2
)
 
(150.1
)
 
(25.0
)
 
(32.6
)
Total (benefit) provision for income taxes
$
(835.5
)
 
$
(33.6
)
 
$
124.2

 
$
70.8


A reconciliation of the provision based on the Federal statutory income tax rate to our effective income tax rate is as follows:
 
Year Ended
 
Six Months Ended
 
Year Ended
 
December 31,
2016
 
December 31,
2015
 
June 27,
2015
 
June 28,
2014
 
 
Restated
 
Restated
 
Restated
Provision at statutory rate
12.5
 %
 
12.5
 %
 
12.5
 %
 
12.5
 %
Ireland tax on non-trading differences
(0.4
)
 
(207.4
)
 
(9.9
)
 
2.6

Expenses not deductible for tax purposes/deductions not expensed for book, net
(0.7
)
 
394.0

 
14.7

 
10.9

Goodwill impairment not deductible for tax purposes
(2.8
)
 
—

 
—

 
—

U.S. Operations:
 
 
 
 
 
 
 
State income taxes, net of federal benefit
0.1

 
38.4

 
(1.0
)
 
(0.2
)
Foreign tax credit
—

 
—

 
—

 
0.2

Research and development credit
—

 
(13.2
)
 
(0.7
)
 
(0.4
)
Other
0.4

 
112.3

 
4.8

 
(0.9
)
Other foreign differences (earnings taxed at other than applicable statutory rate)
3.3

 
(647.2
)
 
(16.1
)
 
(14.5
)
Intangible Impairment differences
4.8

 
(397.6
)
 
—

 
—

Worldwide operations:
 
 
 
 
 
 
 
Valuation allowance changes
0.8

 
249.3

 
25.7

 
2.6

     Change in unrecognized taxes
(0.8
)
 
82.7

 
17.7

 
13.5

Rate change impacts
—

 
—

 
—

 
(3.0
)
Effective income tax rate
17.2
 %
 
(376.2
)%
 
47.7
 %
 
23.3
 %
    
We have provided for income taxes for certain earnings of certain foreign subsidiaries which have not been deemed to be permanently reinvested. No further provision has been made for income taxes on remaining undistributed earnings of foreign subsidiaries of approximately $5.6 billion at December 31, 2016, since it is our intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries. Due to the number of legal entities and taxing jurisdictions involved and the complexity of the legal entity structure, the complexity of tax laws in the various jurisdictions, including, but not limited to the rules pertaining to the utilization of foreign tax credits in the U.S. and the impact of income projections to calculations, we believe it is not practicable to estimate, within any reasonable range, the additional income taxes that may be payable on the remittance of such undistributed earnings.

Deferred income taxes arise from temporary differences between the financial reporting and the tax reporting basis of assets and liabilities and operating loss and tax credit carryforwards for tax purposes. The components of our net deferred income tax asset (liability) were as follows:
    
 
December 31,
2016
 
December 31,
2015
 
June 27,
2015
 
 
Restated
 
Restated
Deferred income tax asset (liability):
 
 
 
 
 
Depreciation and amortization
$
(765.2
)
 
$
(1,550.6
)
 
$
(1,618.1
)
Inventory basis differences
27.4

 
22.8

 
32.6

Accrued liabilities
68.5

 
50.8

 
69.3

Allowance for doubtful accounts
1.7

 
1.3

 
0.9

Research and development
61.7

 
63.7

 
62.8

Loss carryforwards
292.4

 
244.2

 
232.4

Share-based compensation
18.1

 
20.6

 
14.3

Foreign tax credit
10.6

 
10.6

 
10.6

Federal benefit of unrecognized tax positions
24.3

 
22.8

 
26.3

Interest carryforwards
435.3

 
334.6

 
259.7

Other, net
3.0

 
14.7

 
30.1

Subtotal
177.8

 
(764.5
)
 
(879.1
)
Valuation allowance
(495.6
)
 
(536.8
)
 
(516.6
)
Net deferred income tax asset (liability):
$
(317.8
)
 
$
(1,301.3
)
 
$
(1,395.7
)

The above amounts are classified on the Consolidated Balance Sheets as follows (in millions):
 
December 31,
2016
 
December 31,
2015
 
June 27,
2015
 
 
 
Restated
 
Restated
Assets
$
72.1

 
$
71.4

 
$
198.3

Liabilities
(389.9
)
 
(1,372.7
)
 
(1,594.0
)
Net deferred income tax (liability) asset
$
(317.8
)
 
$
(1,301.3
)
 
$
(1,395.7
)


At December 31, 2016, we had gross carryforwards as follows:
 
December 31, 2016
 
Gross
Carryforwards(1)
 
Gross Valuation Allowances
U.S. state net operating losses
$
248.8

 
$
193.6

Worldwide federal net operating losses excluding U.S. states
$
997.7

 
$
787.7

Worldwide federal capital losses
$
19.7

 
$
19.7

U.S. federal credits
$
265.9

 
$
265.9

U.S. state credits
$
1,462.6

 
$
1,458.2



(1) Utilization of such carryforwards within the applicable statutory periods is uncertain.

In 2016, we released valuation allowances of $166.0 million million in Ireland, recorded a valuation allowance at Omega of $39.0 million and a recorded a full valuation allowance in the U.S.of $81.0 million.
The U.S. federal net operating loss carryforwards expire through 2034 and U.S. federal credit carryforwards of $30.2 million, $37.2 million and $167.8 million expire through 2022, 2025 and 2027, respectively, with the remaining U.S. credits having no expiration. U.S. state net operating loss carryforwards expire through 2036, and U.S. state credit carryforwards expire through 2031. Of the non-U.S. net operating loss carryforwards, $4.5 million, $21.1 million, $1.4 million, $0.1 million, and $7.3 million expire through 2018, 2021, 2023, 2024, and 2026, respectively, while the remaining amounts of non U.S. net operating loss carryforwards and non-U.S. capital loss carryforwards have no expiration. The valuation allowances for these net operating loss carryforwards are adjusted annually, as necessary. After application of the valuation allowances described above, we anticipate no limitations will apply with respect to the realization of our net deferred income tax assets.

The following table summarizes the activity related to amounts recorded for uncertain tax positions, excluding interest and penalties (in millions):
 
Unrecognized
Tax Benefits
Balance at June 28, 2014
$
160.1

Additions:
 
Positions related to the current year
38.9

Positions related to prior years
128.1

Reductions:
 
Settlements with taxing authorities
(1.4
)
Lapse of statutes of limitation
(1.7
)
Balance at June 27, 2015 (restated)
324.0

Additions:
 
Positions related to the current year
22.9

Reductions:
 
Positions related to prior years
(43.5
)
Settlements with taxing authorities
(15.3
)
Balance at December 31, 2015 (restated)
288.1

Additions:
 
Positions related to the current year
45.5

Positions related to prior years
8.6

Reductions:
 
Settlements with taxing authorities
(2.4
)
Lapse of statutes of limitation
(5.3
)
Balance at December 31, 2016
$
334.5



We recognize interest and penalties related to uncertain tax positions as a component of income tax expense. The total amount accrued for interest and penalties in the liability for uncertain tax positions was $63.5 million, $52.1 million, and $65.7 million as of December 31, 2016, December 31, 2015, and June 27, 2015, respectively.
    
The total liability for uncertain tax positions was $398.0 million, $340.3 million, and $389.7 million as of December 31, 2016, December 31, 2015, and June 27, 2015, respectively, before considering the federal tax benefit of certain state and local items, of which $248.7 million, $198.5 million, and $186.1 million, respectively, would impact the effective tax rate in future periods, if recognized.

We file income tax returns in numerous jurisdictions and are therefore subject to audits by tax authorities. Our primary income tax jurisdictions are Ireland, the U.S., Israel, Belgium, France, and the United Kingdom.

Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audit and any related litigation could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.

In the United States, the Internal Revenue Service ("IRS") audit of our fiscal years ended June 27, 2009 and June 26, 2010 had previously concluded with the issuance of a statutory notice of deficiency on August 27, 2014. While we had previously agreed on certain adjustments and made associated payments of $8.0 million (inclusive of interest) in November 2014, the statutory notice of deficiency asserted various additional adjustments, including transfer pricing adjustments. The statutory notice of deficiency's adjustments for fiscal years 2009 and 2010 asserted an incremental tax obligation of approximately $68.9 million, inclusive of interest and penalties. We disagree with the IRS’s positions asserted in the statutory notice of deficiency. To contest the IRS's adjustments, in January 2015 we paid the incremental tax obligation (a prerequisite to contesting the proposed adjustments in U.S. district court), and in June 2015, we filed an administrative request for a refund with the IRS. The payment was recorded during the three months ended March 28, 2015 as a deferred charge on the balance sheet given our anticipated action to recover this amount. The IRS subsequently denied our request for a refund. We anticipate filing a complaint in U.S. district court claiming a refund of the paid amounts prior to August 2017.

The IRS issued a statutory notice of deficiency on April 20, 2017 for the IRS audits of our fiscal years ended June 25, 2011 and June 30, 2012. While we agreed to certain adjustments in October 2016 and made minimal associated payments, the statutory notice of deficiency asserted various additional adjustments, including transfer pricing adjustments. The statutory notice of deficiency for fiscal years 2011 and 2012 asserted an incremental tax obligation of approximately $74.2 million, inclusive of interest and penalties. We disagree with the IRS's positions asserted in this notice. In anticipation of contesting the IRS's adjustments, in May 2017 we paid the incremental tax obligation (a prerequisite to contesting the proposed adjustments in U.S. district court) and expect to file an administrative request for refund. The payment will be recorded in the second quarter of the year ending December 31, 2017 as a deferred charge on the balance sheet given our anticipated action to recover this amount.

We received notices of proposed adjustments on December 22, 2016 for the IRS audit of Athena Neurosciences, Inc., a subsidiary of Elan Corporation plc, which Perrigo acquired in December 2013, for the years ending December 31, 2011 and December 31, 2012. We disagree with the IRS’s positions asserted in the notices of proposed adjustments and intend to contest them. Additionally, examination of transfer pricing positions is ongoing.

We have ongoing audits in multiple other jurisdictions the resolution of which remains uncertain. These jurisdictions include, but are not limited to, the United States, Israel and Belgium. The IRS notified us in January 2017, that it will be auditing our years ended June 29, 2013 and June 28, 2014. The Israel Tax Authority is currently auditing our years ended June 29, 2013 and June 28, 2014. In the fourth quarter of the year ended December 31, 2016, the Belgium Tax Authority proposed minimal adjustments for the years ending December 31, 2013 and December 31, 2014.

Based on the final resolution of tax examinations, judicial or administrative proceedings, changes in facts or law, expirations of statute of limitations in specific jurisdictions or other resolutions of, or changes in, tax positions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those represented on the financial statements as of December 31, 2016. During the next 12 months, it is reasonably possible that such circumstances may occur that would have a material effect on previously unrecognized tax benefits. As a result, the total net amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings by a range estimated at $4.3 million to $7.0 million.
    
Tax Rate Changes

In July 2013, the U.K. passed legislation reducing the statutory rate to 18% and 17% effective April 1, 2014 and April 1, 2015, respectively. These rates were applicable to Perrigo as of June 30, 2013 and favorably impacted the effective tax rate in the amount of $4.7 million for the year ended June 28, 2014.

For the years ended December 31, 2016 and the six months ended December 31, 2015 statutory rate changes, primarily in Europe, favorably impacted the effective tax rate in the amount of $4.0 million and $27.9 million, respectively.