Income Taxes

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rates were 9.5 percent and 14.1 percent for the three and six months ended June 30, 2019, respectively. The effective tax rate for the three months ended June 30, 2019 reflects a net discrete tax benefit resulting from the resolution of certain global income tax audits. The effective tax rate for the six months ended June 30, 2019 reflects the non-deductibility of accelerated vesting of Loxo employee equity awards as part of the closing of the acquisition of Loxo, tax expenses associated with the suspension of promotion of Lartruvo^®, as well as the net discrete tax benefit resulting from the resolution of certain global income tax audits. During the three months ended June 30, 2018, we incurred $273.3 million of income tax expense, despite earning $41.7 million of income before income taxes, as a result of the non-deductible acquired IPR&D charges totaling $1.56 billion related to the acquisitions of ARMO and AurKa. The effective tax rate for the six months ended June 30, 2018 was 33.5 percent as it also reflected these non-deductible charges.

In 2017, the U.S. enacted the Tax Cuts and Jobs Act (2017 Tax Act), which significantly revised U.S. tax law. Guidance related to the 2017 Tax Act, including Notices, Proposed Regulations, and Final Regulations, has been issued, and we expect additional guidance will be issued in the second half of 2019. This additional guidance could materially impact our assumptions and estimates used to record our U.S. federal and state income tax expense resulting from the 2017 Tax Act.

The U.S. examination of tax years 2013-2015 began in 2016, and certain matters were effectively settled during the second quarter of 2019. As a result, our gross uncertain tax positions were reduced by approximately $200 million, we made a cash payment of approximately $125 million, and our consolidated condensed results of operations were benefited by an immaterial reduction in tax expense for three and six months ended June 30, 2019. The examination for tax year 2015 remains ongoing, and we believe it is reasonably possible that this examination could reach conclusion within the next 12 months. We currently estimate that gross uncertain tax positions may be reduced up to $100 million within the next 12 months.