Income Taxes

6 Months Ended

Oct. 28, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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. The Company has assumed the Tax Court findings will be applied for all years following fiscal year 2006. As a result, the Company recorded a $764 million net tax charge during the three months ended October 28, 2022 to recognize the estimated tax impact of the Tax Court Opinion.

The Company's effective tax rate for the three and six months ended October 28, 2022 was 68.7% and 44.0%, respectively, as compared to 11.8% and 10.3% for the three and six months ended October 29, 2021, respectively. The increase in our effective tax rate for the three and six months ended October 28, 2022, as compared to the corresponding periods in the prior fiscal year, was primarily due to the $764 million net tax charge referenced above.

At October 28, 2022 and April 29, 2022, the Company's gross unrecognized tax benefits were $2.6 billion and $1.7 billion, respectively. In addition, the Company had accrued gross interest and penalties of $196 million at October 28, 2022. If all of the Company’s unrecognized tax benefits were recognized, approximately $2.4 billion would impact the Company’s effective tax rate. At October 28, 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 $1.8 billion and $802 million, respectively. The increase in the Company's gross unrecognized tax benefits, net of cash advance, was primarily due to an increase in unrecognized tax benefits relating to the Tax Court Opinion. 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.

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