Income Taxes (Tables)

12 Months Ended

Dec. 28, 2014

The provision for taxes on income consists of:



(Dollars in Millions)	2014			2013		2012
Currently payable:
U.S. taxes	$	2,625		594		2,023
International taxes	1,174			1,653		1,277
Total currently payable	3,799			2,247		3,300
Deferred:
U.S. taxes	(258		)	(251	)	(120	)
International taxes	699			(356	)	81
Total deferred	441			(607	)	(39	)
Provision for taxes on income	$	4,240		1,640		3,261

Comparison of income taxes at Statutory rate and Company's effective tax rate

A comparison of income tax expense at the U.S. statutory rate of 35% in 2014, 2013 and 2012, to the Company’s effective tax rate is as follows:



(Dollars in Millions)	2014			2013		2012
U.S.	$	8,001		4,261		4,664
International	12,562			11,210		9,111
Earnings before taxes on income:	$	20,563		15,471		13,775
Tax rates:
U.S. statutory rate	35.0		%	35.0		35.0
International operations excluding Ireland	(7.0		)	(10.6	)	(9.8	)
Ireland and Puerto Rico operations	(6.9		)	(9.0	)	(3.9	)
Research and orphan drug tax credits	(0.3		)	(0.8	)	—
U.S. state and local	1.0			0.4		1.3
U.S. manufacturing deduction	(0.6		)	(0.8	)	(0.9	)
U.S. tax on international income	1.4			1.7		1.1
U.S. tax benefit on asset/business disposals	(1.9		)	(5.1	)	—
All other	(0.1		)	(0.2	)	0.9
Effective tax rate	20.6		%	10.6		23.7

Deferred income tax assets and liabilities

Temporary differences and carryforwards for 2014 and 2013 were as follows:



	2014 Deferred Tax					2013 Deferred Tax
(Dollars in Millions)	Asset			Liability		Asset		Liability
Employee related obligations	$	3,426				1,908
Stock based compensation	799					1,121
Depreciation				(564	)			(772	)
Non-deductible intangibles				(6,671	)			(6,250	)
International R&D capitalized for tax	1,433					1,656
Reserves & liabilities	1,497					1,587
Income reported for tax purposes	1,067					1,043
Net operating loss carryforward international	949					1,090
Miscellaneous international	1,128		⁽¹⁾	(305	)	1,508	⁽¹⁾	(361	)
Miscellaneous U.S.	996					927
Total deferred income taxes	$	11,295		(7,540	)	10,840		(7,383	)

⁽¹⁾The $1,128 million in 2014 was net of a valuation allowance related to Belgium of $172 million. The $1,508 million in 2013 was net of a valuation allowance related to Belgium of $187 million.

Changes in/activity related to unrecognized tax benefits

The following table summarizes the activity related to unrecognized tax benefits:



(Dollars in Millions)	2014			2013		2012
Beginning of year	$	2,729		3,054		2,699
Increases related to current year tax positions	281			643		538
Increases related to prior period tax positions	295			80		57
Decreases related to prior period tax positions	(288		)	(574	)	(41	)
Settlements	(477		)	(418	)	(120	)
Lapse of statute of limitations	(75		)	(56	)	(79	)
End of year	$	2,465		2,729		3,054

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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