Note 14 — Taxes on Earnings from Continuing Operations

Taxes on earnings from continuing operations reflect the annual effective rates, including charges for interest and penalties. Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts.

In 2014, taxes on earnings from continuing operations reflect the recognition of $440 million of tax expense associated with a one-time repatriation of 2014 non-U.S. earnings, partially offset by the favorable resolution of various tax positions and adjustments of tax uncertainties pertaining to prior years. Earnings from discontinued operations in 2014 include the recognition of $166 million of tax benefits as a result of the resolution of various tax positions related to AbbVie's operations prior to the separation. In 2013, taxes on earnings from continuing operations reflect the recognition of $230 million of tax benefits as a result of the favorable resolution of various tax positions pertaining to prior years. Earnings from discontinued operations in 2013 include the recognition of $193 million of tax benefits as a result of the resolution of various tax positions related to AbbVie's operations prior to the separation. In addition, as a result of the American Taxpayer Relief Act of 2012 signed into law in January 2013, Abbott recognized a tax benefit in the tax provision related to continuing operations of approximately $103 million for the retroactive extension of the research tax credit and the look-through rules of section 954(c)(6) of the Internal Revenue Code to the beginning of 2012. The $1.58 billion domestic loss before taxes in 2012 includes $1.29 billion of net loss on the early extinguishment of debt.

U.S. income taxes are provided on those earnings of foreign subsidiaries which are intended to be remitted to the parent company. Abbott does not record deferred income taxes on earnings reinvested indefinitely in foreign subsidiaries. Undistributed earnings reinvested indefinitely in foreign subsidiaries as working capital and plant and equipment aggregated $23.0 billion at December 31, 2014. It is not practicable to determine the amount of deferred income taxes not provided on these earnings. In the U.S., Abbott's federal income tax returns through 2011 are settled except for four items, and the income tax returns for years after 2011 are open. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. Reserves for interest and penalties are not significant.

Earnings from continuing operations before taxes, and the related provisions for taxes on earnings from continuing operations, were as follows:

(in millions)	2014		2013		2012
Earnings (Loss) From Continuing Operations Before Taxes:
Domestic	$	392	$	496	$	(1,581	)
Foreign		2,126		1,545		1,361

Total	$	2,518	$	2,041	$	(220	)

(in millions)	2014		2013			2012
Taxes on Earnings (Losses) From Continuing Operations:
Current:
Domestic	$	27	$	4		$	(44	)
Foreign		468		482			819

Total current		495		486			775

Deferred:
Domestic		298		(308	)		(572	)
Foreign		4		(125	)		(660	)

Total deferred		302		(433	)		(1,232	)

Total	$	797	$	53		$	(457	)

Differences between the effective income tax rate and the U.S. statutory tax rate were as follows:

	2014			2013			2012
Statutory tax rate on earnings from continuing operations		35.0	%		35.0	%		35.0	%
Impact of foreign operations		0.7			(18.5	)		105.1
Resolution of certain tax positions pertaining to prior years		(4.2	)		(11.3	)		96.2
Effect of retroactive legislation		—			(5.0	)		—
State taxes, net of federal benefit		(0.5	)		2.1			(4.6	)
All other, net		0.6			0.3			(24.0	)

Effective tax rate on earnings from continuing operations		31.6	%		2.6	%		207.7	%

Impact of foreign operations is primarily derived from operations in Puerto Rico, Switzerland, Ireland, Singapore, and the Netherlands. In 2014, this benefit was more than offset by the tax expense accrued as a result of Abbott's one-time repatriation of its current year foreign earnings.

The tax effect of the differences that give rise to deferred tax assets and liabilities were as follows:

(in millions)	2014			2013
Deferred tax assets:
Compensation and employee benefits	$	1,239		$	862
Other, primarily reserves not currently deductible, and NOL's and credit carryforwards		2,759			2,908
Trade receivable reserves		146			155
Inventory reserves		152			137
Deferred intercompany profit		330			274
State income taxes		178			196

Total deferred tax assets		4,804			4,532

Deferred tax liabilities:
Depreciation		(93	)		(72	)
Other, primarily the excess of book basis over tax basis of intangible assets		(2,491	)		(1,774	)

Total deferred tax liabilities		(2,584	)		(1,846	)

Total net deferred tax assets	$	2,220		$	2,686

Abbott has incurred losses in a foreign jurisdiction where realization of the future economic benefit is so remote that the benefit is not reflected as a deferred tax asset. Valuation allowances for recorded deferred tax assets were not significant.

The following table summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled:

(in millions)	2014			2013
January 1	$	1,965		$	2,257
Increase due to current year tax positions		220			244
Increase due to prior year tax positions		153			152
Decrease due to prior year tax positions		(856	)		(541	)
Lapse of statute		—			(23	)
Settlements		(79	)		(124	)

December 31	$	1,403		$	1,965

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $1.3 billion. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $525 million to $635 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.