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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes [Text Block]
Note 8.    Income Taxes
The components of income before provision for income taxes are as follows:
(In millions)202120202019
U.S.$3,340 $4,762 $2,280 
Non-U.S.5,501 2,468 1,792 
Income before income taxes
$8,841 $7,230 $4,072 
The components of the provision for income taxes are as follows:
(In millions)202120202019
Current income tax provision
Federal$446 $521 $267 
Non-U.S.1,148 423 544 
State160 175 62 
1,754 1,119 873 
Deferred income tax provision (benefit)
Federal$(227)$(237)$(222)
Non-U.S.(399)(18)(252)
State(19)(14)(25)
 (645)(269)(499)
Provision for income taxes
$1,109 $850 $374 
The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate to income before income taxes due to the following:
(In millions)202120202019
Statutory federal income tax rate
21 %21 %21 %
Provision for income taxes at statutory rate
$1,857 $1,518 $855 
Increases (decreases) resulting from:
Foreign rate differential
(255)(223)(204)
Income tax credits
(315)(335)(213)
Global intangible low-taxed income
76 86 92 
Foreign-derived intangible income
(119)(156)(111)
Excess tax benefits from stock options and restricted stock units
(124)(114)(80)
Provision for (reversal of) tax reserves, net
(17)(26)62 
Intra-entity transfers
(284)— (79)
Foreign exchange loss on inter-company debt refinancing
— (47)(62)
Domestication transaction— (263)— 
Valuation allowance
36 379 (4)
Withholding taxes
164 115 38 
Basis difference on disposal of business
— — 73 
Tax return reassessments and settlements
1 (196)(6)
State income taxes, net of federal tax82 147 22 
Other, net
7 (35)(9)
Provision for income taxes
$1,109 $850 $374 
The company has operations and a taxable presence in approximately 50 countries outside the U.S. The company's effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, and foreign taxes that are different than the U.S. federal statutory rate.
During 2021, the company recorded a $188 million income tax benefit related to the deferred tax implications of an intra-entity transfer of assets. Also in 2021, the company recorded a $96 million income tax benefit related to a capital loss resulting from certain intra-entity transactions.
During 2020, the company settled an IRS audit relating to the 2014, 2015, and 2016 tax years. The company recorded a $25 million net tax benefit primarily from this settlement and related impacts, which resulted in a decrease in the company’s unrecognized tax benefits of $378 million, of which $144 million was reclassified to income taxes payable. The company recorded $53 million of charges for expired tax credits and other related components of the settlement. The company recorded a charge of $156 million to establish a valuation allowance against certain U.S. foreign tax credits which the company believes will more likely than not expire unutilized.
In 2020, the company recorded a $263 million income tax benefit related to a domestication transaction involving the transfer of certain non-U.S. subsidiaries to the U.S., including interest expense of those subsidiaries. The company also recorded a valuation allowance of $212 million against the amount of interest expense that the company believes will more likely than not go unused. Also in 2020, the company recorded a $47 million income tax benefit, including both U.S. federal and state taxes, related to a foreign exchange loss for tax purposes on certain intercompany financing arrangements.
In 2019, the company recorded a $62 million income tax benefit, including both U.S. federal and state taxes, related to a foreign exchange loss for tax purposes on certain intercompany financing arrangements as well as a tax provision of $191 million related to the gain on the sale of the Anatomical Pathology business. Also in 2019, the company recorded a $79 million benefit related to the deferred tax implications of intra-entity transactions which included a tax benefit to release a valuation allowance against net operating losses previously determined to be unrealizable.
The foreign tax credits discussed below are the result of foreign earnings and profits remitted or deemed remitted to the U.S. during the reporting year and the U.S. treatment of taxes paid in the foreign jurisdictions in the years those profits were originally earned.
In 2020, the company implemented foreign tax credit planning in Sweden which resulted in $96 million of foreign tax credits, with no related incremental U.S. income tax expense.
In 2019, the company implemented foreign tax credit planning in Sweden which resulted in $75 million of foreign tax credits, with no related incremental U.S. income tax expense.
The company generally receives a tax deduction upon the exercise of non-qualified stock options by employees, or the vesting of restricted stock units held by employees, for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The company uses the incremental tax benefit approach for utilization of tax attributes. These excess tax benefits reduce the tax provision. In 2021, 2020 and 2019, the company's tax provision was reduced by $124 million, $114 million and $80 million, respectively, of such benefits.
Net deferred tax asset (liability) in the accompanying balance sheet consists of the following:
(In millions)20212020
Deferred tax asset (liability)
Depreciation and amortization
$(4,687)$(2,962)
Net operating loss and credit carryforwards
1,652 1,668 
Reserves and accruals
162 164 
Accrued compensation
318 253 
Inventory basis difference
181 112 
Deferred interest295 227 
Unrealized (gains) losses on hedging instruments
(33)242 
Other, net
251 124 
Deferred tax liabilities, net before valuation allowance
(1,861)(172)
Less: Valuation allowance
968 933 
Deferred tax liabilities, net
$(2,829)$(1,105)
The company estimates the degree to which tax assets and loss and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction and provides a valuation allowance for tax assets and loss and credit carryforwards that it believes will more likely than not expire unutilized. At December 31, 2021, all of the company’s valuation allowance relates to deferred tax assets, primarily net operating losses and disallowed interest expense carryforward, for which any subsequently recognized tax benefits will reduce income tax expense.
The changes in the valuation allowance are as follows:
 Year Ended December 31,
(In millions)202120202019
Beginning balance
$933 $408 $471 
Additions (reductions) charged to income tax provision, net
24 514 (27)
Additions due to acquisitions
30 — — 
Reduction due to a divestiture
— — (33)
Currency translation and other
(19)11 (3)
Ending balance$968 $933 $408 
At December 31, 2021, the company had net federal, state and non-U.S. net operating loss carryforwards of $72 million, $88 million and $1.18 billion, respectively. Use of the carryforwards is limited based on the future income of certain subsidiaries. The federal and state net operating loss carryforwards expire in the years 2022 through 2041. Of the net non-U.S. net operating loss carryforwards, $419 million expire in the years 2025 through 2041, and the remainder do not expire.
At December 31, 2021, the company had foreign tax credit carryforwards of $610 million and deferred interest carryforwards of $295 million. The foreign tax credit carryforwards will expire in the years 2022 through 2030 while deferred interest carryforwards do not expire.
U.S. federal taxes have been recorded on $24 billion of undistributed foreign earnings as of December 31, 2021. A provision has not been made for certain U.S. state income taxes or additional non-U.S. taxes that would be due when cash is repatriated to the U.S. as the company’s undistributed foreign earnings are intended to be reinvested outside of the U.S. indefinitely. The determination of the amount of the unrecognized deferred tax liability related to the undistributed foreign earnings is not practicable due to the uncertainty in the manner in which these earnings will be distributed. The company’s intent is to only make distributions from non-U.S. subsidiaries in the future when they can be made at no net tax cost.
Unrecognized Tax Benefits
As of December 31, 2021, the company had $1.12 billion of unrecognized tax benefits substantially all of which, if recognized, would reduce the effective tax rate.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(In millions)202120202019
Beginning balance
$1,091 $1,552 $1,442 
Additions due to acquisitions
26 — — 
Additions for tax positions of current year
32 8 53 
Additions for tax positions of prior years
60 — 69 
Reductions for tax positions of prior years
(5)(296)(7)
Closure of tax years
(27)— — 
Settlements
(53)(173)(5)
Ending balance
$1,124 $1,091 $1,552 
Substantially all of the unrecognized tax benefits are classified as long-term liabilities. The company does not expect its unrecognized tax benefits to change significantly over the next twelve months.
During 2021, the company’s unrecognized tax benefits increased by $80 million as a result of uncertain tax positions relating to foreign tax positions and decreased $75 million relating to U.S. federal and state tax positions. The company also assumed $26 million of uncertain tax benefits as part of the acquisition of PPD.
During 2020, the company’s unrecognized tax benefits decreased $51 million as a result of uncertain tax positions relating to foreign tax positions and $410 million relating to U.S. federal and state tax positions which included $378 million from the settlement of the IRS audit of the 2014, 2015 and 2016 tax years.
During 2019, the company’s unrecognized tax benefits increased $70 million as a result of uncertain tax positions relating to foreign tax positions and $45 million relating to U.S. federal and state tax positions.
The company classified interest and penalties related to unrecognized tax benefits as income tax expense. The total amount of interest and penalties related to uncertain tax positions and recognized in the balance sheet as of December 31, 2021 and 2020 was $59 million and $78 million, respectively.
The company conducts business globally and, as a result, Thermo Fisher or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, China, Denmark, Finland, France, Germany, Japan, Singapore, Sweden, the United Kingdom and the United States. With few exceptions, the company is no longer subject to U.S. state and local or non-U.S. income tax examinations for years before 2012 and no longer subject to U.S. federal income tax examinations for years before 2017.