Income Taxes (Tables)

12 Months Ended

Dec. 29, 2018

Summary of Income Tax Contingencies [Table Text Block]

Reserves

A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions and the related open tax audits are as follows:



Jurisdiction	Years Open to Audit	Years Currently Under Audit
United States	2014-2017	2014-2016
Mexico	2017	None
United Kingdom	2016-2017	None
Canada (Domestic)	2014-2017	2014-2015
Canada (International)	2010-2017	2010-2015
Russia	2014-2017	2014-2017

During 2018, we recognized a non-cash tax benefit of $364 million ($0.26 per share) resulting from the conclusion of certain international tax audits. Additionally, during 2018, we recognized non-cash tax benefits of $353 million ($0.24 per share) as a result of our agreement with the IRS resolving all open matters related to the audits of taxable years 2012 and 2013, including the associated state impact.

While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the probable outcome of known tax contingencies. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution. For further unaudited information on the impact of the resolution of open tax issues, see “Other Consolidated Results” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As of December 29, 2018, the total gross amount of reserves for income taxes, reported in other liabilities, was $1.4 billion. We accrue interest related to reserves for income taxes in our provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses. The gross amount of interest accrued, reported in other liabilities, was $179 million as of December 29, 2018, which reflects a reduction of the prior year liability of $64 million of tax benefit that was recognized in 2018. The gross amount of interest accrued, reported in other liabilities, was $283 million as of December 30, 2017, of which $89 million of expense was recognized in 2017.

A recon

Income Taxes

The components of income before income taxes are as follows:



		2018			2017			2016
United States		$	3,864		$	3,452		$	2,630
Foreign		5,325			6,150			5,923
		$	9,189		$	9,602		$	8,553

The (benefit from)/provision for income taxes consisted of the following:
		2018			2017			2016
Current:	U.S. Federal	$	437		$	4,925		$	1,219
	Foreign	378			724			824
	State	63			136			77
		878			5,785			2,120
Deferred:	U.S. Federal	140			(1,159		)	109
	Foreign	(4,379		)	(9		)	(33		)
	State	(9		)	77			(22		)
		(4,248		)	(1,091		)	54
		$	(3,370	)	$	4,694		$	2,174

A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:



	2018		2017		2016
U.S. Federal statutory tax rate	21.0	%	35.0	%	35.0	%
State income tax, net of U.S. Federal tax benefit	0.5		0.9		0.4
Lower taxes on foreign results	(2.2	)	(9.4	)	(8.0	)
One-time mandatory transition tax - TCJ Act	0.1		41.4		—
Remeasurement of deferred taxes - TCJ Act	(0.4	)	(15.9	)	—
International reorganizations	(47.3	)	—		—
Tax settlements	(7.8	)	—		—
Other, net	(0.6	)	(3.1	)	(2.0	)
Annual tax rate	(36.7	)%	48.9	%	25.4	%

Tax Cuts and Jobs Act

During the fourth quarter of 2017, the TCJ Act was enacted in the United States. Among its many provisions, the TCJ Act imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of the enactment of the TCJ Act, we recognized a provisional net tax expense of $2.5 billion ($1.70 per share) in the fourth quarter of 2017. See further unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Included in the provisional net tax expense of $2.5 billion recognized in the fourth quarter of 2017, was a provisional mandatory one-time transition tax of approximately $4 billion on undistributed international earnings, included in other liabilities. This provisional mandatory one-time transition tax was partially offset by a provisional $1.5 billion benefit resulting from the required remeasurement of our deferred tax assets and liabilities to the new, lower U.S. corporate income tax rate, effective January 1, 2018. The effect of the remeasurement was recorded in the fourth quarter of 2017, consistent with the enactment date of the TCJ Act, and reflected in our provision for income taxes.

During 2018, we recognized a net tax benefit of $28 million ($0.02 per share) primarily reflecting the impact of the final analysis of certain foreign exchange gains or losses, substantiation of foreign tax credits, as well as cash and cash equivalents as of November 30, 2018, the tax year-end of our foreign subsidiaries, partially offset by additional transition tax guidance issued by the United States Department of Treasury, as well as the TCJ Act impact of both the conclusion of certain international tax audits and the resolution with the IRS of all open matters related to the audits of taxable years 2012 and 2013, each discussed below.

As of December 29, 2018, our mandatory transition tax liability is $3.8 billion. Under the provisions of the TCJ Act, this transition tax liability must be paid over eight years; we currently expect to pay approximately $0.4 billion of this liability in 2019 and the remainder over the period 2020 to 2026.

The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as GILTI, must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. During the first quarter of 2018, we elected to treat the tax effect of GILTI as a current-period expense when incurred.

In 2017, the SEC issued guidance related to the TCJ Act which allowed recording of provisional tax expense using a measurement period, not to exceed one year, when information necessary to complete the accounting for the effects of the TCJ Act is not available. We elected to apply the measurement period provisions of this guidance to certain income tax effects of the TCJ Act when it became effective in the fourth quarter of 2017. The provisional measurement period ended in the fourth quarter of 2018. While our accounting for the recorded impact of the TCJ Act is deemed to be complete, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the aforementioned amounts in future periods.

For further unaudited information and discussion, refer to “Item 1A. Risk Factors,” “Our Business Risks,” “Our Liquidity and Capital Resources” and “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

International Reorganizations

During the fourth quarter of 2018, we reorganized certain of our international operations, including the intercompany transfer of certain intangible assets. As a result, we recognized other net tax benefits of $4.3 billion ($3.05 per share). The related deferred tax asset of $4.4 billion is expected to be amortized over a period of 15 years beginning in 2019. Additionally, the reorganization generated significant net operating loss carryforwards and related deferred tax assets that are not expected to be realized, resulting in the recording of a full valuation allowance.

Deferred tax liabilities and assets are comprised of the following:

Deferred Tax Liabilities



	2018			2017
Debt guarantee of wholly-owned subsidiary	$	578		$	578
Property, plant and equipment	1,303			1,397
Intangible assets other than nondeductible goodwill	—			3,169
Recapture of net operating losses	414			—
Other	71			50
Gross deferred tax liabilities	2,366			5,194
Deferred tax assets
Net carryforwards	4,353			1,400
Intangible assets other than nondeductible goodwill	985			—
Share-based compensation	106			107
Retiree medical benefits	167			198
Other employee-related benefits	303			338
Pension benefits	221			22
Deductible state tax and interest benefits	110			157
Other	739			893
Gross deferred tax assets	6,984			3,115
Valuation allowances	(3,753		)	(1,163		)
Deferred tax assets, net	3,231			1,952
Net deferred tax (assets)/liabilities	$	(865	)	$	3,242

A summary of our valuation allowance activity is as follows:



	2018			2017		2016
Balance, beginning of year	$	1,163		$	1,110	$	1,136
Provision	2,639			33		13
Other (deductions)/additions	(49		)	20		(39		)
Balance, end of year	$	3,753		$	1,163	$	1,110

For additional unaudited information on our income tax policies, including our reserves for income taxes, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reserves

A numb

Reserves Rollforward

A reconciliation of unrecognized tax benefits is as follows:



	2018			2017
Balance, beginning of year	$	2,212		$	1,885
Additions for tax positions related to the current year	142			309
Additions for tax positions from prior years	197			86
Reductions for tax positions from prior years	(822		)	(51		)
Settlement payments	(233		)	(4		)
Statutes of limitations expiration	(42		)	(33		)
Translation and other	(14		)	20
Balance, end of year	$	1,440		$	2,212