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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
We are subject to U.S. federal, state, and foreign income taxes. The components of income before provision for income taxes during the three years ended December 31, 2023, consisted of the following:
202320222021
(in millions)
United States$3,089.1 $3,257.0 $2,030.7 
Foreign
1,290.7 975.4 699.7 
Income before provision for income taxes$4,379.8 $4,232.4 $2,730.4 
The components of our provision for income taxes during the three years ended December 31, 2023, consisted of the following:
202320222021
(in millions)
Current taxes:
Federal$900.4 $779.0 $374.9 
State46.2 34.9 26.5 
Foreign350.1 372.4 141.5 
Total current taxes
1,296.7 1,186.3 542.9 
Deferred taxes:
Federal(569.9)(404.0)(36.9)
State
(21.9)(11.0)(19.3)
Foreign55.3 139.1 (98.4)
Total deferred taxes(536.5)(275.9)(154.6)
Provision for income taxes$760.2 $910.4 $388.3 
Unremitted Earnings
As of December 31, 2023, we do not consider a portion of the earnings of our foreign subsidiaries to be indefinitely reinvested. Upon repatriation of the non-indefinitely invested earnings in the form of distributions or otherwise, we could be
subject to immaterial U.S. federal withholding taxes payable to various foreign countries and income taxes in certain states. There are no material deferred taxes recorded on the excess of financial statement reporting over the tax basis of our investments in our foreign subsidiaries. Any permanently reinvested basis differences could reverse if we sell our foreign subsidiaries or various other events occur, none of which were considered probable as of December 31, 2023. The tax liabilities described above would not be material to our consolidated financial statements.
Effective Tax Rate Reconciliation
A reconciliation between the U.S. federal statutory rate of 21% and our effective tax rate was as follows:
202320222021
Federal statutory tax rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit0.3 %0.6 %0.8 %
Foreign income tax rate differential(0.6)%(0.3)%(0.3)%
U.S. tax on foreign earnings, net of credits0.7 %1.9 %0.7 %
Foreign derived intangible income deduction(1.7)%(1.4)%(0.8)%
Tax credits(6.0)%(2.2)%(6.4)%
Tax rate change
0.0 %0.0 %(3.5)%
Stock compensation (benefit), shortfalls and cancellations
(0.8)%(0.8)%0.0 %
Uncertain tax positions
3.4 %2.7 %2.0 %
Other
1.1 %0.0 %0.7 %
Effective tax rate17.4 %21.5 %14.2 %
Our 17.4% effective tax rate for 2023 was lower than the U.S. statutory rate primarily due to a benefit from a research and development tax credit study that was completed in 2023 and excess tax benefits related to stock-based compensation, partially offset by changes in uncertain tax positions.
Our 21.5% effective tax rate for 2022 was higher than the U.S. statutory rate primarily due to an increase in our uncertain tax positions associated with intercompany transfer pricing matters offset by excess tax benefits related to stock-based compensation, tax credits and changes in our estimated prior-year tax liabilities.
Our 14.2% effective tax rate for 2021 was lower than the U.S. statutory rate primarily due to an increase in the U.K.’s corporate tax rate from 19% to 25%, which was enacted in 2021 and became effective in April 2023, and benefit from a research and development tax credit study that we completed in 2021.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes were as follows:
As of December 31,
20232022
(in millions)
Deferred tax assets:
Tax credit carryforwards$261.0 $223.0 
Intangible assets799.2 738.5 
Stock-based compensation144.1 124.4 
Finance lease liabilities92.1 94.9 
Operating lease assets72.5 79.6 
R&D capitalization919.3 438.3 
Other146.6 146.6 
Gross deferred tax assets2,434.8 1,845.3 
Valuation allowance(266.6)(237.8)
Total deferred tax assets2,168.2 1,607.5 
Deferred tax liabilities:
Property and equipment(145.1)(139.8)
Acquired intangibles(130.2)(130.5)
Operating lease liabilities(55.6)(63.1)
Other(25.2)(27.2)
Total deferred tax liabilities(356.1)(360.6)
Net deferred tax assets$1,812.1 $1,246.9 
On a periodic basis, we reassess the valuation allowance on our deferred income tax assets, weighing positive and negative evidence to assess the recoverability of our deferred tax assets. As of December 31, 2023, we maintained a valuation allowance of $266.6 million related primarily to U.S. state tax attributes.
In addition to deferred tax assets and liabilities, we have recorded deferred charges related to intra-entity sales of inventory. As of December 31, 2023 and 2022, the total deferred charges were $185.8 million and $195.1 million, respectively.
As of December 31, 2023, we had net operating loss (“NOL”) carryforwards of $53.1 million, which are subject to annual utilization limitations for U.S. federal income tax purposes. In 2027, our definite lived U.S. federal NOLs of $18.2 million will begin to expire, while the remaining portion may be carried forward indefinitely. For U.S. state income tax purposes, we had NOL carryforwards of $525.5 million and tax credit carryforwards of $334.8 million. The state NOL and tax credit carryforwards begin to expire in 2024. For foreign income tax purposes, we had NOL carryforwards of $113.2 million and tax credit carryforwards of $20.6 million. The foreign NOL carryforwards may be carried forward indefinitely, with the exception of $38.2 million that will expire in 2041. The foreign tax credit carryforwards will begin to expire in 2024.
Unrecognized Tax Benefits
Unrecognized tax benefits during the three years ended December 31, 2023 were as follows:
202320222021
(in millions)
Balance at beginning of the period$459.6 $147.2 $86.6 
Increases related to current period tax positions116.0 128.3 42.0 
Increases related to prior period tax positions62.5 205.3 19.9 
Decreases related to prior period tax positions(14.4)(14.4)— 
Statute of limitations expiration
(8.1)(4.5)(1.3)
Foreign currency translation adjustment
0.3 (2.3)— 
Balance at end of period
$615.9 $459.6 $147.2 
During 2023, we increased our gross unrecognized tax benefits by $156.3 million, primarily associated with intercompany transfer pricing matters. This unrecognized tax benefit was recorded as a $3.7 million increase to our gross deferred tax assets and a $160.0 million gross tax liability.
During 2022, we increased our gross unrecognized tax benefits by $312.4 million, primarily associated with intercompany transfer pricing matters. This unrecognized tax benefit was recorded as a $29.7 million reduction to our gross deferred tax assets and a $282.7 million gross tax liability.
As of December 31, 2023, we have classified $47.9 million and $568.0 million of our unrecognized tax benefits as credits to “Deferred tax assets” and “Other long-term liabilities,” respectively, on our consolidated balance sheet.
Included in our unrecognized tax benefits as of December 31, 2023, 2022 and 2021, we had $288.7 million, $208.5 million and $129.5 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits, which would affect our effective income tax rate if recognized.
We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes. In 2023 and 2022, we recognized total interest and penalty expenses of $84.9 million and $36.6 million, respectively. Our total interest and penalty expenses in 2021 was not material to our consolidated financial statements. As of December 31, 2023 and 2022, our accrual for interest and penalties was $124.1 million and $39.2 million, respectively.
The U.S. Internal Revenue Service and other local and foreign tax authorities routinely examine our tax returns, including intercompany transfer pricing, and it is reasonably possible that we will adjust the value of our uncertain tax positions related these matters and other issues as we receive additional information from various taxing authorities, including reaching settlements with such authorities. In the case of intercompany transfer pricing, it is reasonably possible that taxing authorities do not agree with each other on the reallocation of income or the valuation of intellectual property, in which case we could be subject to double taxation, despite bilateral treaty agreements available to prevent this. During the year ended December 31, 2023, we came to settlement with the U.K.’s HM Revenue & Customs (“HMRC”) with respect to our tax positions for 2015 through 2020. Due to the nature of the adjustments, we will be asserting our rights under the U.S./U.K. Income Tax Convention pursuant to the mutual agreement procedures for the relief of double taxation for these matters.
As a result of various audit closures, settlements and statutes of limitations, we estimate that it is reasonably possible that our gross unrecognized tax benefits could decrease by up to $81.8 million in the next 12 months due to statute of limitations expirations.
We file U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. We have various income tax audits ongoing at any time throughout the world. Except for jurisdictions where we have NOLs or tax credit carryforwards, we are no longer subject to any tax assessment from tax authorities for years prior to 2014 in jurisdictions that have a material impact on our consolidated financial statements.