XML 58 R30.htm IDEA: XBRL DOCUMENT v3.8.0.1
Taxation
 12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Taxation
Taxation 

The components of pre-tax income from continuing operations are as follows:
 
Years ended December 31,
(In millions)
2017
 
2016
 
2015
Ireland
$
350.8

 
$
214.3

 
$
(11.4
)
United States
625.2

 
(75.3
)
 
975.8

Rest of the world
917.4

 
347.1

 
421.4

 
$
1,893.4

 
$
486.1

 
$
1,385.8



The provision for income taxes on continuing operations by location of the taxing jurisdiction for the years ended December 31, 2017, 2016 and 2015 consisted of the following:
 
Years ended December 31,
(In millions)
2017
 
2016
 
2015
Current income taxes:
 

 
 

 
 

Ireland
$
46.6

 
$
5.2

 
$
0.8

U.S. federal tax
373.8

 
318.6

 
191.7

U.S. state and local taxes
55.8

 
30.2

 
17.3

Rest of the world
90.4

 
68.9

 
17.8

Total current taxes
566.6

 
422.9

 
227.6

Deferred taxes:
 

 
 

 
 

Ireland
22.3

 
18.2

 
(38.8
)
U.S. federal tax
(3,050.3
)
 
(433.8
)
 
(151.2
)
U.S. state and local taxes
260.1

 
(74.1
)
 
(1.7
)
Rest of the world  
(156.3
)
 
(59.3
)
 
10.2

Total deferred taxes
(2,924.2
)
 
(549.0
)
 
(181.5
)
Total income taxes
$
(2,357.6
)
 
$
(126.1
)
 
$
46.1


 
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (Tax Act) into legislation.  We have recorded a tax benefit of $2.5 billion, related to the remeasurement of deferred tax assets and liabilities offset by a tax expense of $90.0 million relating to the impact of the transition tax on the deemed repatriation of foreign income.  Due to enactment late in the Company’s annual reporting period, the Company was unable to obtain all of the requisite information and perform computations for all consequences of the Tax Act.  In addition, it is expected that significant guidance will be issued that may change how the Company has computed the provisional amounts included in its annual financial statements for the year ended December 31, 2017.  The Company will continue to assess the impact of the Tax Act during the measurement period and will record any adjustments to its provisional estimates as needed during 2018.

The Company determines the amount of income tax expense or benefit allocable to continuing operations using the incremental approach. The amount of income tax attributed to discontinued operations is disclosed in Note 7, Results of Discontinued Operations, in these Consolidated Financial Statements.
 
The reconciliation of income from continuing operations before income taxes and equity in earnings/(losses) of equity method investees at the statutory tax rate to the provision for income taxes is shown in the table below:
 
Years ended December 31,
 
2017
 
2016
 
2015
Income from continuing operations before income taxes and equity in (losses)/ earnings of equity method investees (in millions)
$
1,893.4

 
$
486.1

 
$
1,385.8

Statutory tax rate (1)
25.0
 %
 
25.0
 %
 
25.0
 %
U.S. R&D credit
(6.6
)%
 
(25.9
)%
 
(7.7
)%
Intra-group items (2)
(13.5
)%
 
(44.4
)%
 
(18.6
)%
Other permanent items
2.5
 %
 
4.5
 %
 
1.1
 %
U.S. Domestic Manufacturing Deduction
(1.4
)%
 
(4.0
)%
 
(1.6
)%
Acquisition Related Costs
—
 %
 
8.5
 %
 
1.1
 %
Irish Treasury Operations
(4.1
)%
 
(8.6
)%
 
0.6
 %
Change in valuation allowance  
(0.5
)%
 
7.9
 %
 
1.0
 %
Difference in taxation rates (3)
3.6
 %
 
13.0
 %
 
7.3
 %
Change in provisions for uncertain tax positions  
(2.7
)%
 
(1.5
)%
 
(0.4
)%
Prior year adjustment  
(0.1
)%
 
1.0
 %
 
(1.6
)%
Change in fair value of contingent consideration
—
 %
 
3.7
 %
 
(3.8
)%
Change in tax rates  
(1.2
)%
 
(5.1
)%
 
0.9
 %
US Tax Reform
(130.3
)%
 
—
 %
 
—
 %
US Transition Tax
4.8
 %
 
—
 %
 
—
 %
Provision for income taxes on continuing operations  
(124.5
)%
 
(25.9
)%
 
3.3
 %
 
(1) In addition to being subject to the Irish corporation tax rate of 25.0% in 2017, the Company is also subject to income tax in other territories in which the Company operates, including: Canada (15.0%); France (33.3%); Germany (15.0%); Italy (24.0%); Japan (23.4%); Luxembourg (19.0%); the Netherlands (25.0%); Belgium (33.99%); Singapore (17.00%); Spain (25.0%); Sweden (22.0%); Switzerland (8.5%); United Kingdom (19.3%) and the U.S. (35.0%). The rates quoted represent the statutory federal income tax rates in each territory, and do not include any state taxes or equivalents or surtaxes or other taxes charged in individual territories, and do not purport to represent the effective tax rate for the Company in each territory.
(2) Intra-group items principally relate to the effect of intra-territory eliminations, the pre-tax effect of which has been eliminated in arriving at the Company’s consolidated income from continuing operations before income taxes, noncontrolling interests, and equity in earnings/(losses) of equity method investees. The Company's intra-group items primarily arise from its acquisition of third parties that result in income and expense being received and taxed in different jurisdictions at various tax rates.
(3) The expense from the difference in taxation rates reflects the impact of the higher income tax rates in the United States offset by the impact of lower foreign jurisdiction income tax rates.
 
As detailed in the income tax rate reconciliation above, the Company's effective tax rate differs from the Irish statutory rate each year due to foreign taxes that are different than the Irish statutory rate and certain operations that are subject to tax incentives. In addition, the effective tax rate can be impacted each period by certain discrete factors and events, which, in 2017, included items related to U.S. tax reform.
 
Provisions for uncertain tax positions
 
The Company files income tax returns in the Republic of Ireland, the U.S. (both federal and state) and various other jurisdictions (see footnote 1 to the table above for major jurisdictions). With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2013. Tax authorities in various jurisdictions are in the process of auditing the Company’s tax returns for fiscal periods primarily after 2012, with the earliest being 2007; these tax audits cover primarily transfer pricing, but may include other areas.
 
While tax audits remain open, the Company also considers it reasonably possible that issues may be raised by tax authorities resulting in increases to the balance of unrecognized tax benefits, however, an estimate of such an increase cannot be made.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In millions)
2017
 
2016
 
2015
Balance as of January 1
$
236.3

 
$
216.3

 
$
207.8

Increases based on tax positions related to the current year
132.6

 
34.3

 
27.0

Decreases based on tax positions taken in the current year
(128.5
)
 
—

 
—

Increases for tax positions taken in prior years
3.1

 
0.5

 
3.9

Decreases for tax positions taken in prior years
(43.7
)
 
(17.8
)
 
(30.6
)
Acquisition related items
(1.8
)
 
29.5

 
17.9

Decreases resulting from settlements with the taxing authorities
—

 
(24.4
)
 
(1.2
)
Decreases as a result of expiration of the statute of limitations
(8.2
)
 
(2.4
)
 
(4.4
)
Foreign currency translation adjustments (1)
0.7

 
0.3

 
(4.1
)
Balance as of December 31(2)
$
190.5

 
$
236.3

 
$
216.3

 
(1) Foreign currency translation adjustments are recognized within Other Comprehensive Income.
(2) As of December 31, 2017, approximately $185.0 million (2016: $227.0 million, 2015: $207.0 million) of which would affect the effective rate if recognized.
 
There is no requirement to record any reserves or other contingencies related to the receipt of the break fee from AbbVie in 2014. The relevant tax return was submitted on September 23, 2015.

The Company does not anticipate any material changes in the next 12 months to the total amount of unrecognized tax benefits recorded as of December 31, 2017. As of the balance sheet date, the Company believes that its reserves for uncertain tax positions are adequate to cover the resolution of these audits. However, the resolution of these audits could have a significant impact on the financial statements if the settlement differs from the amount reserved.
 
The Company recognizes interest and penalties accrued related to unrecognized tax positions within income taxes. During the years ended December 31, 2017, 2016 and 2015, the Company recognized a charge/(credit) to income taxes of ($14.2 million), $4.2 million and $0.8 million in interest and penalties and the Company had a liability of $16.5 million, $30.8 million and $26.5 million for the payment of interest and penalties accrued as of December 31, 2017, 2016 and 2015, respectively.

Deferred taxes
 
The significant components of deferred tax assets and liabilities and their balance sheet classifications, as of December 31, are as follows: 
  
December 31,
 
December 31,
(In millions)
2017
 
2016
Deferred tax assets:
 

 
 

Deferred revenue
$
3.5

 
$
16.8

Inventory & warranty provisions
64.2

 
88.7

Losses carried forward (including tax credits)
1,687.1

 
1,907.3

Provisions for sales deductions and doubtful accounts
119.4

 
191.6

Intangible assets
50.3

 
79.7

Share-based compensation
93.3

 
137.5

Excess of tax value over book value of assets
11.5

 
14.2

Accruals and provisions
249.4

 
448.6

Other
26.2

 
78.5

Gross deferred tax assets
2,304.9

 
2,962.9

Less: valuation allowance
(635.7
)
 
(569.4
)
  
1,669.2

 
2,393.5

Deferred tax liabilities:
 

 
 

Intangible assets
(5,501.2
)
 
(9,073.4
)
Excess of book value over tax value in inventory
(9.6
)
 
(150.3
)
Excess of book value over tax value of assets and investments
(650.0
)
 
(1,304.2
)
Other
(67.8
)
 
(91.6
)
Net deferred tax liabilities
(4,559.4
)
 
(8,226.0
)
  
 

 
 

Balance sheet classifications:
 

 
 

Deferred tax assets - non-current
188.8

 
96.7

Deferred tax liabilities - non-current
(4,748.2
)
 
(8,322.7
)
  
$
(4,559.4
)
 
$
(8,226.0
)


As of December 31, 2017, the Company had a valuation allowance of $635.7 million (2016: $569.4 million; 2015: $416.1 million) to reduce its deferred tax assets to estimated realizable value. These valuation allowances related primarily to operating losses, capital losses, and tax-credit carry-forwards in Switzerland (2017: $200.0 million; 2016: $176.8 million; 2015: $131.5 million); U.S. (2017: $148.9 million; 2016: $155.1 million; 2015: $125.9 million); Ireland (2017: $22.3 million; 2016: $22.4 million; 2015: $22.2 million); and other foreign tax jurisdictions (2017: $264.5 million; 2016: $215.1 million; 2015: $136.5 million).
 
Management is required to exercise judgment in determining whether deferred tax assets will more likely than not be realized. A valuation allowance is established where there is an expectation that on the balance of probabilities management considers it is more likely than not that the relevant deferred tax assets will not be realized. In assessing the need for a valuation allowance, management weighs all available positive and negative evidence including cumulative losses in recent years, projections of future taxable income, carry forward and carry back potential under relevant tax law, expiration period of tax attributes, taxable temporary differences, and prudent and feasible tax-planning strategies.
 
The net increase in valuation allowances of $66.3 million includes (i) increases of $81.4 million relating to operating losses in various jurisdictions for which management considers that there is insufficient positive evidence related to the factors described above to overcome negative evidence, such as cumulative losses and expiration periods and therefore it is more likely than not that the relevant deferred tax assets will not be realized in full, and (ii) decreases of $15.1 million primarily related to U.S. state tax losses, which based on the assessment of factors described above now provides sufficient positive evidence to support the losses are more likely than not to be realized.
 
As of December 31, 2017, based upon a consideration of the factors described above management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowances. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if these factors are revised in future periods.
 
The approximate tax effect of NOLs, capital losses and tax credit carry-forwards as of December 31, are as follows: 
(In millions)
2017
 
2016
U.S. federal tax
$
489.6

 
$
687.1

U.S. state tax
140.3

 
170.7

Republic of Ireland
29.4

 
45.1

Foreign tax jurisdictions
723.8

 
614.9

R&D and other tax credits
303.9

 
389.5

 
$
1,687.0

 
$
1,907.3


 
The approximate gross value of net operating losses (NOLs) and capital losses at December 31, 2017 is $11,137.5 million (2016: $10,843.1 million). The tax effected NOLs, capital losses and tax credit carry-forwards shown above have the following expiration dates: 
 
December 31,
(In millions)
2017
Within 1 year
$
1.4

Within 1 to 2 years
34.4

Within 2 to 3 years
18.4

Within 3 to 4 years
44.3

Within 4 to 5 years
50.1

Within 5 to 6 years
31.8

After 6 years
919.5

Indefinitely
587.1


 
The Company does not provide for deferred taxes on the excess of the financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. As of December 31, 2017, that excess totaled $14.4 billion (2016: $16.6 billion). On December 22, 2017, President Trump signed tax reform legislation (HR 1) which includes a broad range of tax reform proposals affecting businesses, including the payment of a one-time tax or "toll charge" on previously unremitted earnings of certain non-US subsidiaries. Accordingly, the Company will no longer assert that any of the earnings that will be taxed as part of the toll charge are indefinitely reinvested (approximately $7.6 billion).