XML 42 R25.htm IDEA: XBRL DOCUMENT v3.24.0.1
Taxes on Earnings
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Taxes on Earnings Taxes on Earnings
Taxes on earnings reflect the annual effective rates, including charges for interest and penalties. Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts.
Taxes on earnings include approximately $22 million, $43 million and $145 million in excess tax benefits associated with share-based compensation in 2023, 2022 and 2021, respectively. As a result of the resolution of various tax positions related to prior years, taxes on earnings in 2023, 2022 and 2021 also include approximately $80 million and $20 million of net tax expense and $55 million of net tax benefits, respectively.
The TCJA includes a one-time transition tax that is based on Abbott’s total post-1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes. The tax computation also requires the determination of the amount of post-1986 E&P considered held in cash and other specified assets. As of December 31, 2023, the remaining balance of Abbott’s transition tax obligation related to the TCJA is approximately $598 million, which will be paid over the next three years as allowed by the TCJA. Undistributed foreign earnings remain indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in its foreign entities is not practicable.
In the U.S., Abbott’s federal income tax returns through 2016 are settled. In September 2023, Abbott received a Statutory Notice of Deficiency (SNOD) from the IRS for the 2019 Federal tax year in the amount of $417 million. The primary adjustments proposed in the SNOD relate to the reallocation of income between Abbott’s U.S. entities and its foreign affiliates. Abbott believes that the income reallocation adjustments proposed in the SNOD are without merit, in part because certain adjustments contradict methods that were agreed to with the IRS in prior audit periods. The SNOD also contains other proposed adjustments that Abbott believes are erroneous and unsupported. Abbott filed a petition with the U.S. Tax Court contesting the SNOD in December of 2023.
Abbott’s 2017 and 2018 Federal tax years are also currently under examination by the IRS with respect to income reallocation issues similar to those included in the 2019 Federal tax year. Abbott intends to vigorously defend its filing positions through ongoing discussions with the IRS, the IRS independent appeals process and/or through litigation as necessary.
Abbott reserves for uncertain tax positions related to unresolved matters with the IRS and other taxing authorities. Abbott continues to believe that its reserves for uncertain tax positions are appropriate.
There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which Abbott expects to be individually significant. Reserves for interest and penalties are not significant.
The Organization for Economic Cooperation & Development (OECD) has proposed a two-pillared plan for a revised international tax system. Pillar 1 proposes to reallocate taxing rights among the jurisdictions in which in-scope multinational corporations operate. Abbott is continuing to analyze the Pillar 1 proposal. Pillar 2 proposes to assess a 15 percent minimum tax on the earnings of in-scope multinational corporations on a country-by-country basis. Numerous countries have enacted legislation to adopt the Pillar 2 model rules with a subset of the rules becoming effective January 1, 2024, and the remaining rules becoming effective January 1, 2025, or in later periods. Abbott is also continuing to analyze the Pillar 2 model rules. Implementation of the OECD proposal may have a material impact on Abbott’s Consolidated Financial Statements in the future.
Earnings before taxes, and the related provisions for taxes on earnings, were as follows:
(in millions)202320222021
Earnings Before Taxes:
Domestic$1,192 $3,732 $3,264 
Foreign5,472 4,574 4,947 
Total$6,664 $8,306 $8,211 

(in millions)202320222021
Taxes on Earnings:
Current:
Domestic$528 $1,309 $859 
Foreign874 723 790 
Total current1,402 2,032 1,649 
Deferred:
Domestic(382)(610)(355)
Foreign(79)(49)(154)
Total deferred(461)(659)(509)
Total$941 $1,373 $1,140 
Differences between the effective income tax rate and the U.S. statutory tax rate were as follows:
202320222021
Statutory tax rate on earnings21.0 %21.0 %21.0 %
Impact of foreign operations(3.6)(2.5)(3.9)
Foreign-derived intangible income benefit(2.2)(2.0)(1.1)
Domestic impairment loss— — (0.1)
Excess tax benefits related to stock compensation(0.3)(0.5)(1.7)
Research tax credit(1.1)(0.9)(0.6)
Resolution of certain tax positions pertaining to prior years1.2 0.2 (0.7)
Intercompany restructurings and integration(1.4)— 0.1 
State taxes, net of federal benefit0.5 0.7 0.4 
All other, net— 0.5 0.5 
Effective tax rate on earnings14.1 %16.5 %13.9 %
Impact of foreign operations is primarily derived from operations in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, Singapore, Malta and Malaysia.
The tax effect of the differences that give rise to deferred tax assets and liabilities were as follows:
(in millions)20232022
Deferred tax assets:
Compensation and employee benefits$89 $230 
Trade receivable reserves221 227 
Research and development costs568 319 
Inventory reserves198 187 
Lease liabilities272 263 
Deferred intercompany profit283 260 
NOLs, reserves not currently deductible, credit carryforwards and other9,922 2,402 
Total deferred tax assets before valuation allowance11,553 3,888 
Valuation allowance(8,690)(1,169)
Total deferred tax assets2,863 2,719 
Deferred tax liabilities:
Depreciation(414)(376)
Right of Use lease assets(258)(252)
Other, primarily the excess of book basis over tax basis of intangible assets(1,777)(2,038)
Total deferred tax liabilities(2,449)(2,666)
Total net deferred tax assets (liabilities)$414 $53 
Abbott has incurred losses in a foreign jurisdiction where realization of the future economic benefit was, in previous reporting periods, considered so remote that the benefit was not recognized as a deferred tax asset. In 2023, Abbott concluded that the future economic benefit of the incurred losses is no longer remote and therefore, a deferred tax asset was recognized. Abbott also concluded that it is not more likely than not that the tax benefit associated with the deferred tax asset will be realized; therefore, an offsetting valuation allowance was recognized.
The following table summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled:
(in millions)20232022
January 1$2,036 $1,908 
Increase due to current year tax positions225 154 
Increase due to prior year tax positions1,338 108 
Decrease due to prior year tax positions(89)(115)
Settlements(144)3 
Lapse of statute(43)(22)
December 31$3,323 $2,036 
Abbott’s unrecognized tax benefits table includes amounts related to tax positions for which a deferred tax asset has not been recognized because the recognition of the future benefit is not expected. In 2023, Abbott's unrecognized tax benefits increased by $1.3 billion to $3.32 billion, which includes $2.06 billion attributable to tax positions that, if recognized, would result in a deferred tax asset and a related valuation allowance.
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $1.22 billion. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease between $70 million and $1.48 billion, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.