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Income Taxes (Tables)
 12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Provision for Income Taxes
The provision for taxes on income consists of:
(Dollars in Millions)
 
2017
 
2016
 
2015
Currently payable:
 
 
 
 
 
 
U.S. taxes
 
$
11,969

 
1,896

 
2,748

International taxes
 
1,998

 
1,708

 
1,309

Total currently payable
 
13,967

 
3,604

 
4,057

Deferred:
 
 
 
 
 
 
U.S. taxes
 
(1,956
)
 
294

 
37

International taxes
 
4,362

 
(635
)
 
(307
)
Total deferred
 
2,406

 
(341
)
 
(270
)
Provision for taxes on income
 
$
16,373

 
3,263

 
3,787
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 2017, 2016 and 2015, to the Company’s effective tax rate is as follows:
(Dollars in Millions)
 
2017
 
2016
 
2015
U.S. 
 
$
4,865

 
7,457

 
8,179

International
 
12,808

 
12,346

 
11,017

Earnings before taxes on income:
 
$
17,673

 
19,803

 
19,196

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

 
35.0

International operations (1)
 
(12.8
)
 
(17.2
)
 
(15.4
)
Research and orphan drug tax credits
 
(0.4
)
 
(0.4
)
 
(0.2
)
U.S. state and local
 
0.6

 
(0.1
)
 
0.4

U.S. manufacturing deduction
 
(0.8
)
 
(0.6
)
 
(0.6
)
U.S. tax on international income
 
0.7

 
1.3

 
0.2

Tax benefits on share based compensation
 
(2.1
)
 
(1.8
)
 
—

U.S. tax benefit on asset/business disposals
 
(0.8
)
 
—

 
—

All other
 
(0.1
)
 
0.3

 
0.3

TCJA impact
 
73.3

(2) 
—

 
—

Effective Rate
 
92.6
 %
 
16.5
 %
 
19.7
 %


(1) For all periods presented the Company has subsidiaries operating in Puerto Rico under various tax incentives. In 2017, International operations reflects the impacts of operations in jurisdictions with statutory tax rates different than the United States, particularly Ireland, Switzerland and Puerto Rico, which is a favorable impact on the effective tax rate as compared with the 35.0% U.S. statutory rate. The 2017 amount also includes tax cost related to the revaluation of deferred tax balances related to the change in the Belgian statutory tax rate increasing the tax provision by approximately 3.4%.
(2) Includes U.S. state and local taxes provisionally recorded as part TCJA provisional charge which was approximately 0.6% of the total effective tax rate
Temporary Differences and Carryforwards
Temporary differences and carryforwards for 2017 and 2016 were as follows:
 
 
2017 Deferred Tax
 
2016 Deferred Tax
(Dollars in Millions)
 
Asset
 
Liability
 
Asset
 
Liability
Employee related obligations
 
$
2,259

 


 
2,958

 


Stock based compensation
 
507

 


 
749

 


Depreciation
 


 
(9
)
 


 
(219
)
Non-deductible intangibles
 


 
(6,506
)
 


 
(6,672
)
International R&D capitalized for tax
 
1,307

 


 
1,264

 


Reserves & liabilities
 
1,718

 


 
1,857

 


Income reported for tax purposes
 
1,316

 


 
1,309

 


Net operating loss carryforward international
 
762

 


 
717

 


Undistributed foreign earnings
 
1,101

 
(4,457
)
 
 
 
 
Miscellaneous international
 
755

 
(194
)
 
1,135

 
(15
)
Miscellaneous U.S. 
 
177

 


 
155

 


Total deferred income taxes
 
$
9,902

 
(11,166
)
 
10,144

 
(6,906
)
Summary of Activity Related to Unrecognized Tax Benefits
The following table summarizes the activity related to unrecognized tax benefits:
(Dollars in Millions)
 
2017
 
2016
 
2015
Beginning of year
 
$
3,041

 
3,080

 
2,465

Increases related to current year tax positions
 
332

 
348

 
570

Increases related to prior period tax positions
 
232

 
11

 
182

Decreases related to prior period tax positions
 
(416
)
(1)
(338
)
 
(79
)
Settlements
 
(2
)
 
(37
)
 
(4
)
Lapse of statute of limitations
 
(36
)
 
(23
)
 
(54
)
End of year
 
$
3,151

 
3,041

 
3,080


(1) $347 million of this decrease is related to the TCJA