Income Taxes

3 Months Ended

Jul. 29, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's effective tax rate for the three months ended July 29, 2022 was 10.7%, as compared to 7.7% for the three months ended July 30, 2021. The increase in our effective tax rate for the three months ended July 29, 2022, was primarily due to the tax impact of MCS charges in the three months ended July 30, 2021, partially offset by a $39 million charge in the three months ended July 30, 2021 related to a change in the Company's permanent reinvestment assertion on certain historical earnings. The increase was also partially offset by a $25 million benefit in the three months ended July 29, 2022 related to a valuation allowance release associated with certain carryover attributes due to the anticipated RCS transaction, as discussed in Note 4 to the consolidated financial statements.

At both July 29, 2022 and April 29, 2022, the Company's gross unrecognized tax benefits were $1.7 billion. In addition, the Company had accrued gross interest and penalties of $123 million at July 29, 2022. If all of the Company’s unrecognized tax benefits were recognized, approximately $1.6 billion would impact the Company’s effective tax rate. At July 29, 2022 and April 29, 2022, the amount of the Company's gross unrecognized tax benefits, net of cash advance, recorded as a noncurrent liability within accrued income taxes on the consolidated balance sheets was $889 million and $802 million, respectively. The increase in the Company's gross unrecognized tax benefits, net of cash advance, was primarily due to the decrease in advance payments available to offset unrecognized tax benefits. The

Company recognizes interest and penalties related to income tax matters within income tax provision in the consolidated statements of income and records the liability within either current or noncurrent accrued income taxes on the consolidated balance sheets.

Subsequent to the quarter close on July 29, 2022, on August 18, 2022 the U.S. Tax Court (Tax Court) issued its opinion on the previously disclosed litigation regarding the allocation of income between Medtronic, Inc. and its wholly-owned subsidiary operating in Puerto Rico for fiscal years 2005 and 2006 (Opinion). While the Opinion rejected the IRS’s position and the Tax Court determined the methodology advanced by Medtronic was appropriate for purposes of determining the intercompany royalty rate between Puerto Rico and the U.S., it determined that the royalty rate should be higher, thereby increasing income allocated to the U.S. and consequently subject to U.S. tax. This case relates only to fiscal years 2005 and 2006. The Opinion remains subject to finalization by the Tax Court and to appeal by either or both parties. At this time, the Company is evaluating the impact of the Opinion and whether the Company will appeal. If the Opinion is finalized as is, without appeal by either party, the Company anticipates the findings will likely be applied for all years following fiscal year 2006. Under this potential scenario, the Company has currently estimated a potential income tax charge, including interest, of up to $2.0 billion.

Refer to Note 16 to the consolidated financial statements for additional information regarding the status of current tax audits and proceedings.