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Income Taxes (Tables)
 12 Months Ended
Jan. 01, 2017
Income Tax Disclosure [Abstract]  
Provision for Income Taxes
The provision for taxes on income consists of:
(Dollars in Millions)
 
2016
 
2015
 
2014
Currently payable:
 
 
 
 
 
 
U.S. taxes
 
$
1,896

 
2,748

 
2,625

International taxes
 
1,708

 
1,309

 
1,174

Total currently payable
 
3,604

 
4,057

 
3,799

Deferred:
 
 
 
 
 
 
U.S. taxes
 
294

 
37

 
(258
)
International taxes
 
(635
)
 
(307
)
 
699

Total deferred
 
(341
)
 
(270
)
 
441

Provision for taxes on income
 
$
3,263

 
3,787

 
4,240
Comparison of Income Taxes at Statutory Rate and Company's Effective Tax Rate
A comparison of income tax expense at the U.S. statutory rate of 35% in 2016, 2015 and 2014, to the Company’s effective tax rate is as follows:
(Dollars in Millions)
 
2016
 
2015
 
2014
 
U.S. 
 
$
7,457

 
8,179

 
8,001

 
International
 
12,346

 
11,017

 
12,562

 
Earnings before taxes on income:
 
$
19,803

 
19,196

 
20,563

 
Tax rates:
 
 
 
 
 
 
 
U.S. statutory rate
 
35.0
 %
 
35.0

 
35.0

 
International operations excluding Ireland
 
(9.4
)
 
(6.7
)
 
(7.0
)
 
Ireland and Puerto Rico operations(1)
 
(7.8
)
 
(8.7
)
 
(6.9
)
 
Research and orphan drug tax credits
 
(0.4
)
 
(0.2
)
 
(0.3
)
 
U.S. state and local
 
(0.1
)
 
0.4

 
1.0

 
U.S. manufacturing deduction
 
(0.6
)
 
(0.6
)
 
(0.6
)
 
U.S. tax on international income
 
1.3

 
0.2

 
1.4

 
Additional tax benefits on share based compensation
 
(1.8
)
 
—

 
—

 
U.S. tax benefit on asset/business disposals
 
—

 
—

 
(1.9
)
 
All other
 
0.3

 
0.3

 
(0.1
)
 
Effective tax rate
 
16.5
 %
 
19.7

 
20.6

 

(1)The Company has subsidiaries operating in Puerto Rico under various tax incentives.
Temporary Differences and Carryforwards
Temporary differences and carryforwards for 2016 and 2015 were as follows:
 
 
2016 Deferred Tax
 
2015 Deferred Tax
(Dollars in Millions)
 
Asset
 
Liability
 
Asset
 
Liability
Employee related obligations
 
$
2,958

 


 
2,863

 


Stock based compensation
 
749

 


 
790

 


Depreciation
 


 
(219
)
 


 
(247
)
Non-deductible intangibles
 


 
(6,672
)
 


 
(6,663
)
International R&D capitalized for tax
 
1,264

 


 
1,318

 


Reserves & liabilities
 
1,857

 


 
1,801

 


Income reported for tax purposes
 
1,309

 


 
960

 


Net operating loss carryforward international
 
717

 


 
997

 


Miscellaneous international
 
1,135

 
(15
)
 
922

(1) 
(249
)
Miscellaneous U.S. 
 
155

 


 
436

 


Total deferred income taxes
 
$
10,144

 
(6,906
)
 
10,087

 
(7,159
)

(1) Net of a valuation allowance related to Belgium of $196 million. In 2016, this allowance was reversed and the related deferred tax asset was utilized to reduce current tax expense.

Summary of Activity Related to Unrecognized Tax Benefits
The following table summarizes the activity related to unrecognized tax benefits:
(Dollars in Millions)
 
2016
 
2015
 
2014
Beginning of year
 
$
3,080

 
2,465

 
2,729

Increases related to current year tax positions
 
348

 
570

 
281

Increases related to prior period tax positions
 
11

 
182

 
295

Decreases related to prior period tax positions
 
(338
)
 
(79
)
 
(288
)
Settlements
 
(37
)
 
(4
)
 
(477
)
Lapse of statute of limitations
 
(23
)
 
(54
)
 
(75
)
End of year
 
$
3,041

 
3,080

 
2,465