Income Taxes

9 Months Ended

Oct. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

8. INCOME TAXES

Our effective tax rate may vary from the U.S. federal statutory tax rate due to the change in the mix of earnings in tax jurisdictions with different statutory rates, benefits related to tax credits, and the tax impact of non-deductible expenses and other permanent differences between income before income taxes and taxable income.

Our effective tax rates for Q3 2022 and YTD 2022 were (4.0)% and (2.3)%, respectively, compared to 24.7% and 18.6% in Q3 2021 and YTD 2021, respectively. The variance from the U.S. federal statutory tax rate of 21% in Q3 2022 and YTD 2022 was primarily because of the $822 million tax impact from the impairment of goodwill, which is nondeductible for tax purposes, the $64 million and $91 million tax impacts of research and development expense capitalization for tax purposes, respectively, and the $30 million and $60 million tax impacts of GRAIL pre-acquisition net operating losses on global intangible low-taxed income (GILTI) and the utilization of U.S. foreign tax credits, respectively. This was partially offset by the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore and the United Kingdom.

In YTD 2022, the variance from the U.S. federal statutory tax rate of 21% was also impacted by the $95 million tax impact from the potential European Commission fine related to the GRAIL acquisition, which is nondeductible for tax purposes.

As of October 2, 2022 and January 2, 2022, prepaid income taxes included within prepaid expenses and other current assets on the condensed consolidated balance sheets were $54 million and $101 million, respectively. The decrease primarily relates to the tax expense recorded in Q3 2022.