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Income Taxes
 12 Months Ended
Apr. 26, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The income tax provision is based on income before income taxes reported for financial statement purposes. The components of income before income taxes, based on tax jurisdiction, are as follows:
 
Fiscal Year
(in millions)
2019
 
2018
 
2017
U.S.
$
877

 
$
(958
)
 
$
(234
)
International
4,320

 
6,633

 
4,836

Income before income taxes
$
5,197

 
$
5,675

 
$
4,602


The income tax provision consists of the following:
 
Fiscal Year
(in millions)
2019
 
2018
 
2017
Current tax expense:
 

 
 

 
 

U.S.
$
579

 
$
2,899

 
$
614

International
406

 
796

 
840

Total current tax expense
985

 
3,695

 
1,454

Deferred tax expense (benefit):
 

 
 

 
 

U.S.
(310
)
 
45

 
(399
)
International
(128
)
 
(1,160
)
 
(477
)
Net deferred tax benefit
(438
)
 
(1,115
)
 
(876
)
Income tax provision
$
547

 
$
2,580

 
$
578


On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which significantly revises U.S. corporate income taxation by, among other things, lowering the U.S. corporate income tax rate from 35.0 percent to 21.0 percent effective January 1, 2018, broadening the base of taxation, implementing a territorial tax system, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. 
The Company has recorded a cumulative income tax charge associated with the Tax Act totaling $2.4 billion. The $2.4 billion charge is made up of the following components:
•
A $2.4 billion charge associated with the one-time repatriation tax based on post-1986 undistributed earnings and profits not previously subject to U.S. income tax and whether such earnings were held in cash or other specified assets.
•
A $118 million charge resulting from the removal of the permanent reinvestment assertion on earnings and profits through April 27, 2018 for entities subject to the one-time repatriation tax.
•
A $75 million net benefit associated with the remeasurement of U.S. Federal deferred tax assets, liabilities, and valuation allowances, and impacts from the decrease in the U.S. statutory tax rate.
The Company made the accounting policy election to treat taxes due on U.S. inclusions in taxable income related to Global Intangible Low-Taxed Income (GILTI) as a current period expense when incurred (the "period cost method").
Tax assets (liabilities), shown before jurisdictional netting of deferred tax assets (liabilities), are comprised of the following:
(in millions)
April 26, 2019
 
April 27, 2018
Deferred tax assets:
 

 
 

Net operating loss, capital loss, and credit carryforwards
$
6,574

 
$
7,463

Other accrued liabilities
389

 
410

Accrued compensation
315

 
209

Pension and post-retirement benefits
300

 
256

Stock-based compensation
162

 
190

Other
339

 
332

Inventory
194

 
207

Federal and state benefit on uncertain tax positions
83

 
67

Interest limitation
111

 
—

Unrealized loss on available-for-sale securities and derivative financial instruments
17

 
93

Gross deferred tax assets
8,484

 
9,227

Valuation allowance
(6,300
)
 
(7,166
)
Total deferred tax assets
2,184

 
2,061

Deferred tax liabilities:
 

 
 

Intangible assets
(1,614
)
 
(1,697
)
Realized loss on derivative financial instruments
(70
)
 
(69
)
Other
(152
)
 
(143
)
Accumulated depreciation
(38
)
 
(38
)
Outside basis difference of subsidiaries
(119
)
 
(131
)
Total deferred tax liabilities
(1,993
)
 
(2,078
)
Prepaid income taxes
363

 
406

Income tax receivables
335

 
315

Tax assets, net
$
889

 
$
704

Reported as (after valuation allowance and jurisdictional netting):
 

 
 

Other current assets
$
648

 
$
662

Tax assets
1,519

 
1,465

Deferred tax liabilities
(1,278
)
 
(1,423
)
Tax assets, net
$
889

 
$
704


No deferred taxes have been provided on the approximately $64.1 billion and $61.0 billion of undistributed earnings of the Company’s subsidiaries at April 26, 2019 and April 27, 2018, respectively, since these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. During fiscal year 2018, the Company removed its permanently reinvested assertion on the undistributed earnings of certain foreign subsidiaries with a U.S. parent which were subject to the transition tax. The Company removed the assertion for all earnings of such subsidiaries through April 27, 2018 and reasserted for earnings generated in subsequent fiscal years. Due to the number of legal entities and jurisdictions involved, the complexity of the legal entity structure of the Company, and the complexity of the tax laws in the relevant jurisdictions, the Company believes it is not practicable to estimate, within any reasonable range, the amount of additional taxes which may be payable upon distribution of these undistributed earnings.
At April 26, 2019, the Company had approximately $26.2 billion of net operating loss carryforwards in certain non-U.S. jurisdictions, of which $22.9 billion have no expiration, and the remaining $3.3 billion will expire during fiscal years 2020 through 2039. Included in these net operating loss carryforwards are $18.1 billion of net operating losses related to a subsidiary of the Company, substantially all of which were recorded in fiscal 2008 as a result of the receipt of a favorable tax ruling from certain non-U.S. taxing authorities. The Company has recorded a full valuation allowance against these net operating losses, as management does not believe that it is more likely than not that these net operating losses will be utilized. Certain of the remaining non-U.S.
net operating loss carryforwards of $8.1 billion have a valuation allowance recorded against the carryforwards, as management does not believe that it is more likely than not that these net operating losses will be utilized.
At April 26, 2019, the Company had $682 million of U.S. federal net operating loss carryforwards, which will expire during fiscal years 2020 through 2036. For U.S. state purposes, the Company had $1.3 billion of net operating loss carryforwards at April 26, 2019, which will expire during fiscal years 2020 through 2039.
At April 26, 2019, the Company also had $178 million of tax credits available to reduce future income taxes payable, of which $66 million have no expiration. The remaining credits expire during fiscal years 2020 through 2039.
The Company has established valuation allowances of $6.3 billion and $7.2 billion at April 26, 2019 and April 27, 2018, respectively, primarily related to the uncertainty of the utilization of certain deferred tax assets which are primarily comprised of tax loss and credit carryforwards in various jurisdictions. The decrease in the valuation allowance during fiscal year 2019 is primarily related to tax rate changes and the effects of currency fluctuations. These valuation allowances would result in a reduction to the income tax provision in the consolidated statements of income if they are ultimately not required.
The Company’s effective income tax rate varied from the U.S. federal statutory tax rate as follows:
 
Fiscal Year
 
2019
 
2018
 
2017
U.S. federal statutory tax rate
21.0
 %
 
30.5
 %
 
35.0
 %
Increase (decrease) in tax rate resulting from:
 

 
 

 
 

U.S. state taxes, net of federal tax benefit
0.9

 
0.8

 
1.0

Research and development credit
(1.2
)
 
(0.8
)
 
(0.9
)
Puerto Rico Excise Tax
(1.6
)
 
(1.1
)
 
(1.5
)
International
(10.7
)
 
(18.9
)
 
(27.9
)
U.S. Tax Reform
0.2

 
43.0

 
—

Stock based compensation
(1.0
)
 
(1.0
)
 
—

Other, net
(0.2
)
 
3.0

 
(1.0
)
Divestiture related
—

 
(3.8
)
 
—

Certain tax adjustments
(1.0
)
 
(8.9
)
 
4.4

U.S. tax on foreign earnings
4.1

 
2.7

 
3.5

Effective tax rate
10.5
 %
 
45.5
 %
 
12.6
 %

During fiscal year 2019, certain tax adjustments of $40 million, recognized in income tax provision in the consolidated statements of income, included the following:
•
A net benefit of $30 million associated with the finalization of the transition tax liability and the Tax Act impact to deferred tax assets, liabilities, and valuation allowances.
•
A charge of $42 million related to the recognition of a prepaid tax expense resulting from the reduction in the U.S. statutory tax rate under the Tax Act and the current year sale of U.S. manufactured inventory held as of April 27, 2018.
•
A benefit of $32 million related to intercompany legal entity restructuring.
•
A net benefit of $20 million with the finalization of certain income tax aspects of the divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.
During fiscal year 2018, certain tax adjustments of $1.9 billion, recognized in income tax provision in the consolidated statements of income, included the following:
•
A net charge of $2.4 billion associated with U.S. tax reform, inclusive of the transition tax, remeasurement of U.S. Federal deferred tax assets and liabilities, and the decrease in the U.S. statutory tax rate.
•
A charge of $73 million associated with an internal reorganization of certain foreign subsidiaries.
•
A net benefit of $579 million associated with the intercompany sale of intellectual property.
During fiscal year 2017, certain tax adjustments of $202 million, recognized in income tax provision in the consolidated statements of income, included the following:
•
A charge of $404 million associated with the IRS resolution for the Ardian, CoreValve, Inc., Ablation Frontiers, Inc., PEAK Surgical, Inc. and Salient Surgical Technologies, Inc. acquisition-related issues and the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico for certain businesses. This resolution does not include the businesses that are the subject of the Medtronic, Inc. U.S. Tax Court case for fiscal years 2005 and 2006.
•
A net charge of $125 million associated with the divestiture of a portion of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. The net charge primarily relates to the tax effect from the recognition of the outside basis difference of certain subsidiaries, which are included in the expected divestiture.
•
A charge of $86 million associated with the IRS’s disallowance of the utilization of certain net operating losses, along with the recognition of a valuation allowance against the net operating loss deferred tax asset, which were recognized during the year.
•
A charge of $18 million as a result of the redemption of an intercompany minority interest during the year.
•
A benefit of $431 million as the result of the resolution of Covidien's previously disclosed Tyco International plc intercompany debt issues with the U.S. Tax Court and the Appeals Division of the IRS.
Currently, the Company’s operations in Puerto Rico, Switzerland, Singapore, Dominican Republic, Costa Rica, China, and Israel have various tax holidays and tax incentive grants. The tax reductions as compared to the local statutory rate favorably impacted earnings by $437 million, $446 million, and $475 million in fiscal years 2019, 2018, and 2017, respectively, and earnings per diluted share by $0.32, $0.33, and $0.34 in fiscal years 2019, 2018, and 2017, respectively. The tax holidays are conditional upon the Company meeting certain thresholds required under statutory law. The tax incentive grants, unless extended, will expire between fiscal years 2020 and 2030. The Company’s historical practice has been to renew, extend, or obtain new tax incentive grants upon expiration of existing tax incentive grants. If the Company is not able to renew, extend, or obtain new tax incentive grants, the expiration of existing tax incentive grants could have a material impact on the Company’s financial results in future periods. The tax incentive grants which expired during fiscal year 2019 did not have a material impact on the Company's consolidated financial statements.
The Company had $1.8 billion, $1.7 billion, and $1.9 billion of gross unrecognized tax benefits at April 26, 2019, April 27, 2018, and April 28, 2017, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2019, 2018, and 2017 is as follows:
 
Fiscal Year
(in millions)
2019
 
2018
 
2017
Gross unrecognized tax benefits at beginning of fiscal year
$
1,727

 
$
1,896

 
$
2,703

Gross increases:
 

 
 

 
 

Prior year tax positions
34

 
13

 
147

Current year tax positions
109

 
63

 
75

Acquisitions
—

 
—

 
4

Gross decreases:
 

 
 

 
 

Prior year tax positions
(14
)
 
(120
)
 
(538
)
Settlements
—

 
(80
)
 
(467
)
Statute of limitation lapses
(20
)
 
(45
)
 
(28
)
Gross unrecognized tax benefits at end of fiscal year
1,836

 
1,727

 
1,896

Cash advance paid to taxing authorities
(859
)
 
(859
)
 
—

Gross unrecognized tax benefits at end of fiscal year, net of cash advance
$
977

 
$
868

 
$
1,896


If all of the Company’s unrecognized tax benefits at April 26, 2019, April 27, 2018, and April 28, 2017 were recognized, $1.8 billion, $1.7 billion, and $1.8 billion would impact the Company’s effective tax rate, respectively. Although the Company believes that it has adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on the Company’s effective tax rate in future periods. The Company has recorded gross unrecognized tax benefits, net of cash advance, of $977 million as a noncurrent liability which is not expected to decrease within the next 12 months.
The Company recognizes interest and penalties related to income tax matters in income tax provision in the consolidated statements of income and records the liability in the current or noncurrent accrued income taxes in the consolidated balance sheets, as appropriate. The Company had $172 million, $128 million, and $360 million of accrued gross interest and penalties at April 26, 2019, April 27, 2018, and April 28, 2017, respectively. During fiscal years 2019, 2018, and 2017, the Company recognized gross interest expense (income) of approximately $48 million, $84 million, and $(208) million, respectively, in income tax provision in the consolidated statements of income.
During fiscal year 2018, the Company made a $1.1 billion advance payment to the IRS in connection with certain tax matters for fiscal years 2005 through 2014. This payment was comprised of $859 million of tax and $285 million of interest.
The Company’s reserves for uncertain tax positions related to unresolved matters with the IRS and other taxing authorities. These reserves are subject to a high degree of estimation and management judgment. Resolution of these significant unresolved matters, or positions taken by the IRS or other tax authorities during future tax audits, could have a material impact on the Company’s financial results in future periods. The Company continues to believe that its reserves for uncertain tax positions are appropriate and that it has meritorious defenses for its tax filings and will vigorously defend them during the audit process, appellate process, and through litigation in courts, as necessary.
The major tax jurisdictions where the Company conducts business which remain subject to examination are as follows:
Jurisdiction
 
Earliest Year Open
United States - federal and state
 
1998
Brazil
 
2014
Canada
 
2011
China
 
2009
Costa Rica
 
2015
Dominican Republic
 
2016
Germany
 
2014
India
 
2002
Ireland
 
2012
Israel
 
2010
Italy
 
2005
Japan
 
2017
Luxembourg
 
2013
Mexico
 
2005
Puerto Rico
 
2011
Singapore
 
2013
Switzerland
 
2012
United Kingdom
 
2016

See Note 19 for additional information regarding the status of current tax audits and proceedings.