Income Taxes

3 Months Ended

Apr. 02, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The following table summarizes the Company’s effective tax rate:

	Three-Month Period Ended
	April 2, 2021		April 3, 2020
Effective tax rate	18.3	%	16.3	%

The effective tax rate for the three-month period ended April 2, 2021 differs from the U.S. federal statutory rate of 21.0% principally due to net discrete benefits of $44 million related primarily to excess tax benefits from stock-based compensation and the benefit from release of reserves for uncertain tax positions from audit settlements, net of changes in estimates associated with prior period uncertain tax positions. These items decreased the reported tax rate on a net basis by 2.1%.

The effective tax rate for the three-month period ended April 3, 2020 differs from the U.S. federal statutory rate of 21.0% principally due to the impact of net discrete benefits of $27 million related primarily to excess tax benefits from stock-based compensation and the release of reserves for uncertain tax positions due to the expiration of statutes of limitation. These items decreased the reported tax rate on a net basis by 3.8%.

For a description of the Company’s significant tax matters, reference is made to the financial statements as of and for the year ended December 31, 2020 and Note 15 thereto included in the Company’s 2020 Annual Report.

Tax authorities in Denmark have issued tax assessments related to interest accrued by certain of the Company’s subsidiaries for the years 2004 through 2015. During the first quarter of 2021, the Company received a notice from the Danish tax authorities that included a reduction in the interest amounts claimed in the original tax assessments. Taking into account the revised interest amounts, the reassessments total approximately DKK 2.1 billion including interest accrued to date (approximately $332 million based on the exchange rate as of April 2, 2021). The Company’s appeal of the original assessments with the Danish National Tax Tribunal has been put on hold awaiting the final outcome of other preceding withholding tax cases that are to be heard by the Danish High Court. Management believes the positions the Company has taken in Denmark are in accordance

with the relevant tax laws and is vigorously defending its positions. The Company intends on pursuing this matter through the Danish High Court should the appeal to the Danish National Tax Tribunal be unsuccessful. While the ultimate resolution of this matter is uncertain and could take many years, after receiving the notice reducing the interest amounts and tax payments made related to these assessments, the Company does not expect the resolution of this matter will have a further material adverse impact to the Company’s financial statements, including its cash flow and effective tax rate.