XML 37 R22.htm IDEA: XBRL DOCUMENT v3.22.0.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
Income Before Income Tax Expense (Benefit) by Category
years ended December 31 (in millions)202120202019
United States$(424)$(329)$(586)
International1,901 1,621 1,556 
Income before income taxes$1,477 $1,292 $970 
Income Tax Expense (Benefit)
years ended December 31 (in millions)202120202019
Current
United States
Federal$(11)$7 $8 
State and local10 (7)3 
International329 270 258 
Current income tax expense328 270 269 
Deferred
United States
Federal(103)(99)(140)
State and local(8)5 (29)
International(35)6 (141)
Deferred income tax expense (benefit)(146)(88)(310)
Income tax expense (benefit)$182 $182 $(41)
Deferred Tax Assets and Liabilities
as of December 31 (in millions)20212020
Deferred tax assets
Accrued liabilities and other$434 $376 
Pension and other postretirement benefits174 218 
Tax credit and net operating loss carryforwards939 905 
Swiss tax reform net asset basis step-up161 174 
Operating lease liabilities155 148 
Valuation allowances(401)(454)
Total deferred tax assets1,462 1,367 
Deferred tax liabilities
Subsidiaries’ unremitted earnings66 77 
Long-lived assets and other1,831 539 
Operating lease right-of-use assets151 146 
Total deferred tax liabilities2,048 762 
Net deferred tax asset (liability)$(586)$605 
At December 31, 2021, we had U.S. state operating loss carryforwards totaling $1.1 billion, U.S. federal operating loss carryforwards totaling $455 million and tax credit carryforwards totaling $411 million, which includes a U.S. foreign tax credit carryforward of $339 million. The U.S. federal and state operating loss and tax credit carryforwards expire between 2022 and 2041, with $334 million of the operating loss carryforwards having no expiration date.
At December 31, 2021, with respect to our operations outside the U.S., we had foreign operating loss carryforwards totaling $1.4 billion and foreign tax credit carryforwards totaling $15 million. The foreign operating loss carryforwards expire between 2022 and 2033 with $798 million having no expiration date. All of the foreign tax credit carryforwards have no expiration date.
Realization of the U.S. and foreign operating loss and tax credit carryforwards depends on generating sufficient future earnings. A valuation allowance of $401 million and $454 million was recognized as of December 31, 2021 and 2020, respectively, to reduce the deferred tax assets associated with net operating loss and tax credit carryforwards because we do not believe it is more likely than not that these assets will be fully realized prior to expiration. After evaluating relevant U.S. tax laws, any elections or other opportunities that may be available, and the future expiration of certain U.S. tax provisions that will impact the utilization of our U.S. foreign tax credit carryforwards, management expects to be able to realize some, but not all, of the U.S. foreign tax credit deferred tax assets up to its overall domestic loss (ODL) balance plus other recurring and non-recurring foreign inclusions. Therefore, a valuation allowance of $98 million and $157 million was recognized with respect to the foreign tax credit carryforwards as of December 31, 2021 and 2020, respectively. We will continue to evaluate the need for additional valuation allowances and, as circumstances change, the valuation allowance may change.
As a result of Swiss tax reform legislation enacted during 2019, we recognized an $863 million net asset basis step-up that is amortizable as a tax deduction ratably over tax years 2025 through 2029. Accordingly, a deferred tax asset of $161 million and $174 million was recognized as of December 31, 2021 and 2020, respectively. We expect to realize some, but not all, of the Swiss deferred tax assets based principally on expected future earnings generated by the Swiss subsidiary during the period in which the tax basis will be amortized. Therefore, a valuation allowance of $59 million and $72 million was recognized on the Swiss deferred tax assets as of December 31, 2021 and 2020, respectively.
As part of the acquisition of Hillrom in 2021, we recorded deferred tax liabilities of $1.3 billion related to the step-up in our U.S. GAAP basis of tangible and intangible assets and liabilities to fair market value which is in excess of the assets’ historical tax bases.
Income Tax Expense (Benefit) Reconciliation
years ended December 31 (in millions)202120202019
Income tax expense at U.S. statutory rate$310 $271 $204 
Tax incentives(193)(169)(140)
State and local taxes, net of federal benefit10 (2)(17)
Impact of foreign taxes103 88 65 
Tax-deductible foreign statutory loss on an investment in a foreign subsidiary(58)— — 
Unfavorable court decision in a foreign jurisdiction related to an uncertain tax position
22 — — 
Swiss tax reform net asset basis step-up— — (159)
Deferred tax revaluation due to 2017 Tax Act and foreign tax reform— — (19)
Transition tax due to 2017 Tax Act— — (16)
Valuation allowances(61)8 110 
Stock compensation windfall tax benefits(13)(27)(54)
Research and development tax credits(5)(7)(13)
Unutilized foreign tax credits14 15 5 
Other, net53 5 (7)
Income tax expense (benefit)$182 $182 $(41)
We plan to repatriate our foreign earnings with the exception of approximately $286 million of accumulated earnings that are indefinitely reinvested as of December 31, 2021 related to one of our foreign operations. Additional withholding and capital gain taxes of $29 million would be incurred if such earnings were remitted currently.
Our tax provisions for 2021, 2020 and 2019 do not include any tax charges related to either the Base Erosion and Anti-Abuse Tax (BEAT) or Global Intangible Low Taxed Income (GILTI) provisions, except for the inability to fully utilize foreign tax credits against such GILTI. Our accounting policy is to recognize any GILTI charge as a period cost.
Our effective income tax rate can differ from the 21% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards.
In 2021, our effective rate was impacted favorably by geographic earnings mix, a $58 million tax benefit related to a tax-deductible foreign statutory loss on an investment in a foreign subsidiary, a tax benefit related to a change in U.S. foreign tax credit regulations, which is reflected in the valuation allowances item in the table above, and excess tax benefits on stock compensation awards, partially offset by an unfavorable court decision in a foreign jurisdiction related to an uncertain tax position.
In 2020, our effective tax rate was impacted favorably by geographic earnings mix and excess tax benefits on stock compensation awards.
In 2019, Switzerland and India enacted tax reform legislation that had a material impact on our effective tax rate. We recognized a deferred tax benefit of $90 million to reflect a tax basis step-up, net of a valuation allowance, partially offset by a $5 million deferred tax revaluation to reflect an increase in the statutory tax rate, under the newly enacted Swiss tax laws. We also recognized a net deferred tax benefit of $24 million associated with deferred tax revaluation in India to reflect a decrease in the statutory tax rate. Our effective tax rate was also favorably impacted by $57 million in 2019 related to a notional interest deduction on the share capital of a foreign subsidiary. The gross tax benefit of the deduction is included in the table above within impact of foreign taxes and the portion not expected to be realized is included within valuation allowances.
Unrecognized Tax Benefits
We classify interest and penalties associated with income taxes in income tax expense (benefit) within the consolidated statements of income. Net interest and penalties recognized were not significant during 2021, 2020 and 2019. The liability recognized related to interest and penalties was $19 million and $17 million as of December 31, 2021 and 2020, respectively. The total amount of gross unrecognized tax benefits that, if recognized, would impact the effective tax rate are $39 million, $48 million and $70 million as of December 31, 2021, 2020 and 2019, respectively.
The following table is a reconciliation of our unrecognized tax benefits, including those related to discontinued operations, for the years ended December 31, 2021, 2020 and 2019. 
as of and for the years ended (in millions)202120202019
Balance at beginning of the year$90 $111 $127 
Increase due to acquisition11 — — 
Increase associated with tax positions taken during the current year31 8 8 
Increase (decrease) associated with tax positions taken during a prior year(3)(1)(3)
Settlements(2)(18)(20)
Decrease associated with lapses in statutes of limitations(16)(10)(1)
Balance at end of the year$111 $90 $111 
Of the gross unrecognized tax benefits, $39 million and $47 million were recognized as liabilities in the consolidated balance sheets as of December 31, 2021 and 2020, respectively.
Tax Incentives
We have received tax incentives in Puerto Rico, Switzerland, Dominican Republic, Costa Rica and Thailand. The financial impact of the reductions as compared to the statutory tax rates is indicated in the income tax expense reconciliation table above. The tax reductions as compared to the local statutory rate favorably impacted earnings per diluted share by $0.38 in 2021, $0.33 in 2020, and $0.27 in 2019. The above grants provide that our manufacturing operations are and will be partially exempt from local taxes with varying expirations from 2023 to 2029.
Examinations of Tax Returns
As of December 31, 2021, we had ongoing audits in the United States, Germany, United Kingdom, China and other jurisdictions. During 2021, we closed U.S. tax years 2009-2016 with the IRS with no material adjustments to our financial statements. Tax years 2017 and forward remain under examination by the IRS and tax years 2012 and forward remain under examination by various foreign taxing authorities. We believe that it is reasonably possible that our gross unrecognized tax benefits will be reduced within the next 12 months by $30 million. While the final outcome of these matters is inherently uncertain, we believe we have made adequate tax provisions for all years subject to examination.