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Income taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
Income before income taxes included the following (in millions):
Years ended December 31,
202320222021
Domestic$4,047 $3,026 $1,850 
Foreign3,808 4,320 4,851 
Total income before income taxes$7,855 $7,346 $6,701 
The provision for income taxes included the following (in millions):
Years ended December 31,
202320222021
Current provision:
Federal$1,524 $1,721 $865 
State43 44 18 
Foreign786 304 359 
Total current provision2,353 2,069 1,242 
Deferred benefit:
Federal(1,124)(1,185)(308)
State(25)(27)(9)
Foreign(66)(63)(117)
Total deferred benefit(1,215)(1,275)(434)
Total provision for income taxes$1,138 $794 $808 
Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax credit carryforwards and the tax effects of NOL carryforwards. As of December 31, 2022, we elected to establish deferred taxes with respect to the U.S. minimum tax on the earnings of our foreign subsidiaries for the reversal of temporary items in future years. Significant components of our deferred tax assets and liabilities were as follows (in millions):
December 31,
20232022
Deferred income tax assets:
NOL and credit carryforwards$1,465 $1,344 
Accrued expenses668 584 
Capitalized research and development expenses1,333 515 
Investments— 270 
Expenses capitalized for tax210 211 
Earnings of foreign subsidiaries1,260 192 
Stock-based compensation159 104 
Other416 317 
Total deferred income tax assets5,511 3,537 
Valuation allowance(957)(718)
Net deferred income tax assets4,554 2,819 
Deferred income tax liabilities:
Acquired intangible assets(3,028)(1,238)
Debt(268)(272)
Fixed assets(140)(112)
Fair value of acquired inventory
(349)(5)
Investments
(99)— 
Other(224)(249)
Total deferred income tax liabilities(4,108)(1,876)
Total deferred income taxes, net$446 $943 
The Company has determined that unremitted foreign earnings are not considered indefinitely reinvested to the extent foreign earnings can be distributed without a significant tax cost. For the amount considered to be indefinitely reinvested, it is not practicable to determine the amount of the related deferred income tax liability due to the complexities of the tax laws and assumptions we would have to make.
Valuation allowances are provided to reduce the amounts of our deferred tax assets to an amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts.
The valuation allowance increased in 2023, primarily driven by the Company’s expectation that certain state R&D credits will expire unused as well as acquired state credits and state NOLs not expected to be realized.
As of December 31, 2023, we had $201 million of federal tax credit carryforwards available to reduce future federal income taxes and have provided a valuation allowance for $19 million of those federal tax credit carryforwards. The federal tax credit carryforwards expire between 2024 and 2044. We had $1.1 billion of state tax credit carryforwards available to reduce future state income taxes and have provided a valuation allowance for $971 million of those state tax credit carryforwards. We had $84 million of tax credit carryforwards related to our foreign jurisdictions available to offset future foreign income taxes for which we have provided $59 million valuation allowance.
As of December 31, 2023, we had $869 million of federal NOL carryforwards available to reduce future federal income taxes and have provided no valuation allowance on those federal NOL carryforwards. Additionally, $691 million of those federal NOL carryforwards have no expiration; the remainder begin to expire between 2025 and 2037. We had $872 million of state NOL carryforwards available to reduce future state income taxes and have provided a valuation allowance for
$738 million of those state NOL carryforwards. We had $1.3 billion of foreign NOL carryforwards available to reduce future foreign income taxes and have provided a valuation allowance for $238 million of those foreign NOL carryforwards. For the foreign NOLs with no valuation allowance provided, $243 million have no expiration; and the remainder will expire between 2024 and 2033.
The reconciliations of the total gross amounts of UTBs were as follows (in millions):
Years ended December 31,
202320222021
Beginning balance$3,770 $3,546 $3,352 
Additions based on tax positions related to the current year196 151 171 
Additions based on tax positions related to prior years56 90 35 
Reductions for tax positions of prior years— (14)(4)
Reductions for expiration of statute of limitations(4)(3)— 
Settlements (6)— (8)
Ending balance$4,012 $3,770 $3,546 
Substantially all of the UTBs as of December 31, 2023, if recognized, would affect our effective tax rate. As a result, we remeasured our UTBs accordingly.
Interest and penalties related to UTBs are included in our provision for income taxes. During the years ended December 31, 2023, 2022 and 2021, we recognized $287 million, $189 million and $98 million, respectively, of interest and penalties through the income tax provision in the Consolidated Statements of Income. The increase in interest expense for the year ended December 31, 2023, was primarily due to higher interest rates during 2023 and acquired positions. As of December 31, 2023 and 2022, accrued interest and penalties associated with UTBs were $1.4 billion and $1.1 billion, respectively.
The reconciliations between the federal statutory tax rate applied to income before income taxes and our effective tax rate were as follows:
Years ended December 31,
202320222021
Federal statutory tax rate21.0 %21.0 %21.0 %
Foreign earnings(5.1)%(5.6)%(7.8)%
Foreign-derived intangible income(1.3)%(1.3)%(1.0)%
Credits, Puerto Rico excise tax0.3 %(2.8)%(3.4)%
Interest on uncertain tax positions2.6 %1.9 %1.1 %
Credits, primarily federal R&D(3.5)%(2.0)%(2.1)%
Acquisition IPR&D— %— %4.9 %
Other, net0.5 %(0.4)%(0.6)%
Effective tax rate14.5 %10.8 %12.1 %
The effective tax rates for the years ended December 31, 2023, 2022 and 2021, differ from the federal statutory rate primarily due to impacts of the jurisdictional mix of income and expenses. Substantially all of the benefit to our effective tax rate from foreign earnings results from locations where the Company has significant manufacturing operations, including Singapore, Ireland and Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes. Our operations in Puerto Rico are subject to tax incentive grants through 2050. Additionally, the Company’s operations conducted in Singapore are subject to a tax incentive grant through 2036. Our foreign earnings are also subject to U.S. tax at a reduced rate of 10.5%.
We are no longer subject to a 4% excise tax in the U.S. territory of Puerto Rico on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico. As of January 1, 2023, we qualify for and are subject to the alternative income tax rate on industrial development income of our Puerto Rico affiliate. In the United States, this income tax qualifies for foreign tax credits. Both this income tax and the associated foreign tax credits are generally recognized in our provision for income taxes. We accounted for the 2022 excise tax that was capitalized in Inventories as an expense in Cost of sales when the related products were sold in 2023, and a foreign tax credit was not recognized in 2023 with respect to the excise tax.
Income taxes paid during the years ended December 31, 2023, 2022 and 2021, were $3.4 billion, $2.4 billion and $1.9 billion, respectively.
One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely examined by tax authorities in those jurisdictions. Significant disputes can and have arisen with tax authorities involving issues regarding the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and relevant facts. Tax authorities, including the IRS, are becoming more aggressive and are particularly focused on such matters.
In 2017, we received an RAR and a modified RAR from the IRS for the years 2010–2012, proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2021, we filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for the years 2010–2012 that we received in May and July 2021, which seek to increase our U.S. taxable income for the years 2010–2012 by an amount that would result in additional federal tax of approximately $3.6 billion plus interest. Any additional tax that could be imposed for the years 2010–2012 would be reduced by up to approximately $900 million of repatriation tax previously accrued on our foreign earnings.
In 2020, we received an RAR and a modified RAR from the IRS for the years 2013–2015, also proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico similar to those proposed for the years 2010–2012. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2022, we filed a petition in the U.S. Tax Court to contest a Notice for the years 2013–2015 that we previously reported receiving in April 2022 that seeks to increase our U.S. taxable income for the years 2013–2015 by an amount that would result in additional federal tax of approximately $5.1 billion, plus interest. In addition, the Notice asserts penalties of approximately $2.0 billion. Any additional tax that could be imposed for the years 2013–2015 would be reduced by up to approximately $2.2 billion of repatriation tax previously accrued on our foreign earnings.
We firmly believe that the IRS positions set forth in the 2010–2012 and 2013–2015 Notices are without merit. We are contesting the 2010–2012 and 2013–2015 Notices through the judicial process. The two cases were consolidated in the U.S. Tax Court on December 19, 2022. On February 10, 2023, the U.S. Tax Court entered an order setting a trial date of November 4, 2024.
We are currently under examination by the IRS for the years 2016–2018 with respect to issues similar to those for the 2010 through 2015 period. In addition, we are under examination by a number of state and foreign tax jurisdictions.
Final resolution of these complex matters is not likely within the next 12 months. We continue to believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, application of the tax law to our facts and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes and uncertain resolution of these matters, the ultimate outcome of any tax matters may result in payments substantially greater than amounts accrued and could have a material adverse impact on our consolidated financial statements.
We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009.