Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Deferred taxes related to global intangible low-taxed income (GILTI) are also recognized for the future tax effects of temporary differences.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position, based on its technical merits, will be sustained upon examination by the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Following is the composition of income tax expense:

	2023		2022		2021
Current:
Federal(1)	$	3,017.9	$	2,153.6	$	938.5
Foreign	613.0		547.7		466.0
State	24.3		45.5		(28.4)
Total current tax expense	3,655.2		2,746.8		1,376.1
Deferred:
Federal	(2,369.0)		(1,992.4)		(977.5)
Foreign	34.2		(78.2)		174.6
State	(6.2)		(114.6)		0.6
Total deferred tax benefit	(2,341.0)		(2,185.2)		(802.3)
Income taxes	$	1,314.2	$	561.6	$	573.8

(1) The 2023, 2022, and 2021 current tax expense includes $69.3 million, $189.5 million, and $64.7 million of tax benefit, respectively, from utilization of net operating loss and other tax carryforwards.

Significant components of our deferred tax assets and liabilities as of December 31 were as follows:

	2023		2022
Deferred tax assets:
Capitalized research and development	$	2,997.5	$	1,615.4
Purchases of intangible assets	1,981.9		2,071.3
Sales rebates and discounts	1,632.5		1,312.9
Correlative tax adjustments	1,031.3		752.5
Tax credit carryforwards	577.0		477.6
Tax loss and other tax carryforwards	527.2		626.0
Compensation and benefits	521.4		427.9
Foreign tax redeterminations	323.7		267.8
Operating lease liabilities	253.3		147.5
Other	463.4		361.0
Total gross deferred tax assets	10,309.2		8,059.9
Valuation allowances	(913.5)		(775.1)
Total deferred tax assets	9,395.7		7,284.8
Deferred tax liabilities:
Intangibles	(1,338.2)		(1,387.9)
Earnings of foreign subsidiaries	(796.6)		(1,226.0)
Inventories	(619.5)		(639.5)
Property and equipment	(495.2)		(433.5)
Prepaid employee benefits	(460.6)		(546.5)
Operating lease assets	(237.1)		(130.7)
Financial instruments	(75.1)		(215.0)
Total deferred tax liabilities	(4,022.3)		(4,579.1)
Deferred tax assets - net	$	5,373.4	$	2,705.7

The deferred tax asset and related valuation allowance amounts for U.S. federal, international, and state net operating losses and tax credits shown above have been reduced for differences between financial reporting and tax return filings.

At December 31, 2023, based on filed tax returns we have tax credit carryforwards and carrybacks of $1.00 billion available to reduce future income taxes; $148.8 million, if unused, will expire in 2026, and $60.8 million, if unused, will expire between 2029 and 2043. The remaining portion of the tax credit carryforwards is related to federal tax credits of $55.3 million, international tax credits of $109.9 million, and state tax credits of $629.3 million, all of which are fully reserved.

At December 31, 2023, based on filed tax returns we had net operating losses and other carryforwards for international and U.S. federal income tax purposes of $1.35 billion: $284.6 million will expire by 2028; $35.0 million will expire between 2029 and 2043; and $1.03 billion of the carryforwards will never expire. Net operating losses and other carryforwards for U.S. federal income tax purposes are partially reserved. Deferred tax assets related to state net operating losses and other carryforwards of $261.9 million are fully reserved as of December 31, 2023.

At December 31, 2023 and 2022, prepaid expenses included prepaid taxes of $4.26 billion and $2.37 billion, respectively.

Domestic and Puerto Rican companies contributed approximately 14 percent, 33 percent, and 28 percent for the years ended December 31, 2023, 2022, and 2021, respectively, to consolidated income before income taxes. We have a subsidiary operating in Puerto Rico under a tax incentive grant effective through the end of 2046. The tax incentive grant was amended in 2022 to apply the alternate tax regime established by Puerto Rico legislation starting in 2023.

Substantially all of the unremitted earnings of our foreign subsidiaries are considered not to be indefinitely reinvested for continued use in our foreign operations. At December 31, 2023 and 2022, we accrued an immaterial amount of foreign withholding taxes and state income taxes that would be owed upon future distributions of unremitted earnings of our foreign subsidiaries that are not indefinitely reinvested. 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 in the tax laws and assumptions we would have to make.

Cash payments of U.S. federal, state, and foreign income taxes, net of refunds, were as follows:

	2023		2022		2021
Cash payments of income taxes	$	5,558.8	$	2,672.9	$	1,598.8

In December 2017, the Tax Cuts and Job Act (2017 Tax Act) was signed into law. The 2017 Tax Act included significant changes to the U.S. corporate income tax system, including a one-time repatriation transition tax (also known as the 'Toll Tax') on unremitted foreign earnings. The 2017 Tax Act provided an election to taxpayers subject to the Toll Tax to make payments over an eight-year period beginning in 2018 through 2025. Having made this election, our future cash payments relating to the Toll Tax as of December 31, 2023 are as follows:

	Total		2024		2025
2017 Tax Act Toll Tax	$	1,427.0	$	634.2	$	792.8

As of December 31, 2023, we have additional noncurrent income tax payables of $3.06 billion unrelated to the Toll Tax; we cannot reasonably estimate the timing of future cash outflows associated with these liabilities.

Following is a reconciliation of the consolidated income tax expense applying the U.S. federal statutory rate to income before income taxes to reported consolidated income tax expense:

	2023		2022		2021
Income tax at the U.S. federal statutory tax rate	$	1,376.5	$	1,429.3	$	1,292.6
Add (deduct):
Non-deductible acquired IPR&D(1)	677.2		68.3		10.5
General business credits	(258.0)		(155.0)		(100.5)
Foreign-derived intangible income deduction	(236.7)		(287.5)		(86.7)
International operations, including Puerto Rico(2)	(187.1)		(299.5)		(447.5)
Stock-based compensation(3)	(79.9)		(48.9)		(55.7)
Valuation allowance release	(4.2)		(116.4)		(19.0)
Other	26.4		(28.7)		(19.9)
Income taxes	$	1,314.2	$	561.6	$	573.8

(1) Non-deductible acquired IPR&D was primarily related to the acquisitions of DICE, Versanis, and Emergence in 2023. See Note 3 for additional information related to acquisitions.

(2) Includes the impact of GILTI tax, Puerto Rico Excise Tax (for 2022 and 2021), and other U.S. taxation of foreign income.

(3) Includes excess tax benefits from stock-based compensation and non-deductible stock-based compensation.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	2023		2022		2021
Beginning balance at January 1	$	2,987.0	$	2,798.3	$	2,551.9
Additions based on tax positions related to the current year	364.3		274.2		310.3
Additions for tax positions of prior years	78.2		34.6		98.6
Reductions for tax positions of prior years	(39.0)		(10.9)		(8.1)
Settlements	(4.7)		(44.8)		(38.5)
Lapses of statutes of limitation	(21.5)		(11.8)		(49.7)
Changes related to the impact of foreign currency translation	30.7		(52.6)		(66.2)
Ending balance at December 31	$	3,395.0	$	2,987.0	$	2,798.3

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $1.77 billion and $1.70 billion at December 31, 2023 and 2022, respectively.

We file U.S. federal, foreign, and various state and local income tax returns. We are no longer subject to U.S. federal income tax examination for years before 2016. In most major foreign and state jurisdictions, we are no longer subject to income tax examination for years before 2012.

The U.S. examination of tax years 2016-2018 began in 2019 and remains ongoing. The Internal Revenue Service commenced its examination of tax years 2019-2021 during the third quarter of 2023. The resolution of both audit periods will likely extend beyond the next 12 months.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense and were not material for the years ended December 31, 2023, 2022, and 2021. Our accrued interest and penalties related to unrecognized tax benefits were $414.9 million and $271.5 million at December 31, 2023 and 2022, respectively.