Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before income taxes are as follows:

	2022		2021		2020
United States	$	7,305	$	3,740	$	4,070
Foreign	3,400		6,081		4,999
	$	10,705	$	9,821	$	9,069

The provision for income taxes consisted of the following:

	2022		2021		2020
Current:
U.S. Federal	$	1,137	$	702	$	715
Foreign	1,027		955		932
State	246		44		110
	2,410		1,701		1,757
Deferred:
U.S. Federal	22		375		273
Foreign	(709)		(14)		(167)
State	4		80		31
	(683)		441		137
	$	1,727	$	2,142	$	1,894

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

	2022		2021		2020
U.S. Federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income tax, net of U.S. Federal tax benefit	1.8		1.0		1.2
Lower taxes on foreign results	(1.5)		(1.6)		(0.8)
One-time mandatory transition tax - TCJ Act	0.8		1.9		—
Juice Transaction	(2.4)		—		—
Tax settlements	(3.0)		—		—
Other, net	(0.6)		(0.5)		(0.5)
Annual tax rate	16.1	%	21.8	%	20.9	%

Tax Cuts and Jobs Act

In 2022, we recorded $86 million ($0.06 per share) of net tax expense related to the TCJ Act as a result of correlating adjustments related to a partial audit settlement with the IRS for tax years 2014 through 2019. In 2021, we recorded $190 million ($0.14 per share) of net tax expense related to the TCJ Act as a result of adjustments related to the final assessment of the 2014 through 2016 IRS audit. There were no tax amounts recognized in 2020 related to the TCJ Act.

As of December 31, 2022, our mandatory transition tax liability was $2.6 billion, which must be paid through 2026 under the provisions of the TCJ Act. We reduced our liability through cash payments and application of tax overpayments by $309 million in 2022, $309 million in 2021 and $78 million in 2020. We currently expect to pay approximately $309 million of this liability in 2023.

The TCJ Act also created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (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. We elected to treat the tax effect of GILTI as a current-period expense when incurred.

Other Tax Matters

In 2021, we received a final assessment from the IRS audit for the tax years 2014 through 2016. The assessment included both agreed and unagreed issues. On October 29, 2021, we filed a formal written protest of the assessment and requested an appeals conference. As a result of the analysis of the 2014 through 2016 final assessment, we remeasured all applicable reserves for uncertain tax positions for all years open under the statute of limitations, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax expense of $112 million ($0.08 per share) in 2021.

In 2022, we came to an agreement with the IRS to settle one of the issues assessed in the 2014 through 2016 tax audit. The agreement covers tax years 2014 through 2019. As a result, we reduced our reserves for uncertain tax positions, including any correlating adjustments impacting the mandatory transition tax liability under the TCJ Act, resulting in a net non-cash tax benefit of $233 million ($0.17 per share) in 2022. Tax years 2014 through 2019 remain under audit for other issues.

On August 16, 2022, the “Inflation Reduction Act” (H.R. 5376) was signed into law in the United States. We do not currently expect the Inflation Reduction Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity.

On May 19, 2019, a public referendum held in Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020. The enactment of certain provisions of the TRAF resulted in adjustments to our deferred taxes. During 2020, we recorded a net tax benefit of $72 million ($0.05 per share) related to the adoption of the TRAF in the Swiss Canton of Bern.

Deferred tax liabilities and assets are comprised of the following:

	2022		2021
Deferred tax liabilities
Debt guarantee of wholly-owned subsidiary	$	578	$	578
Property, plant and equipment	2,126		2,036
Recapture of net operating losses	492		504
Pension liabilities	189		216
Right-of-use assets	534		450
Investment in TBG	186		—
Other	232		254
Gross deferred tax liabilities	4,337		4,038
Deferred tax assets
Net carryforwards	5,342		4,974
Intangible assets other than nondeductible goodwill	1,614		1,111
Share-based compensation	120		98
Retiree medical benefits	118		147
Other employee-related benefits	349		379
Deductible state tax and interest benefits	144		149
Lease liabilities	534		450
Capitalized research and development	150		—
Other	1,050		842
Gross deferred tax assets	9,421		8,150
Valuation allowances	(5,013)		(4,628)
Deferred tax assets, net	4,408		3,522
Net deferred tax (assets)/liabilities	$	(71)	$	516

A summary of our valuation allowance activity is as follows:

	2022		2021		2020
Balance, beginning of year	$	4,628	$	4,686	$	3,599
Provision	492		(9)		1,082
Other (deductions)/additions	(107)		(49)		5
Balance, end of year	$	5,013	$	4,628	$	4,686

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	2014-2021	2014-2019
Mexico	2014-2021	2014-2017
United Kingdom	2020-2021	None
Canada (Domestic)	2016-2021	2016-2019
Canada (International)	2010-2021	2010-2019
Russia	2019-2021	None

Our annual tax rate is based on our income, statutory tax rates and tax planning strategies and transactions, including transfer pricing arrangements, available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are subject to challenge and that we likely will not succeed. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances, such as the progress of a tax audit, new tax laws, relevant court cases or tax authority settlements. 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.

As of December 31, 2022, the total gross amount of reserves for income taxes, reported in other liabilities, was $1.9 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 $292 million as of December 31, 2022, of which $4 million of tax benefit was recognized in 2022. The gross amount of interest accrued, reported in other liabilities, was $326 million as of December 25, 2021, of which $3 million of tax benefit was recognized in 2021.

A reconciliation of unrecognized tax benefits is as follows:

	2022		2021
Balance, beginning of year	$	1,900	$	1,621
Additions for tax positions related to the current year	228		222
Additions for tax positions from prior years	206		681
Reductions for tax positions from prior years	(357)		(558)
Settlement payments	(53)		(25)
Statutes of limitations expiration	(36)		(39)
Translation and other	(21)		(2)
Balance, end of year	$	1,867	$	1,900

Carryforwards and Allowances

Operating loss carryforwards totaling $32.2 billion as of December 31, 2022 are being carried forward in a number of foreign and state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire as follows: $0.2 billion in 2023, $27.6 billion between 2024 and 2041 and $4.4 billion may be carried forward indefinitely. We

establish valuation allowances for our deferred tax assets if, based on the available evidence, it is not more likely than not that some portion or all of the deferred tax assets will be realized.

Undistributed International Earnings

As of December 31, 2022, we had approximately $9 billion of undistributed international earnings. We intend to continue to reinvest $9 billion of earnings outside the United States for the foreseeable future and while future distribution of these earnings would not be subject to U.S. federal tax expense, no deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign withholding taxes or state taxes have been recognized. It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.