Income Taxes (Tables)

12 Months Ended

Jan. 03, 2021

Income Tax Disclosure [Abstract]

Provision for Income Taxes

The provision for taxes on income consists of:

(Dollars in Millions)	2020		2019	2018
Currently payable:
U.S. taxes	$	1,026	1,941	1,284
International taxes	1,898		2,744	2,434
Total currently payable	2,924		4,685	3,718
Deferred:
U.S. taxes	(76)		(814)	1,210	(1)
International taxes	(1,065)		(1,662)	(2,226)
Total deferred	(1,141)		(2,476)	(1,016)
Provision for taxes on income	$	1,783	2,209	2,702

(1) Includes $1.4 billion of deferred tax expense for the adoption of the deferred method to account for GILTI.

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 21% in fiscal years 2020, 2019 and 2018, to the Company’s effective tax rate is as follows:

(Dollars in Millions)	2020			2019		2018
U.S.	$	4,312		3,543		5,575
International	12,185			13,785		12,424
Earnings before taxes on income:	$	16,497		17,328		17,999
Tax rates:
U.S. statutory rate	21.0		%	21.0		21.0
International operations (1)	(9.9)			(5.9)		(3.7)
U.S. taxes on international income (2)	2.7			1.8		1.4
Tax benefits on Capital Loss	(1.2)			(0.3)	(4)	—
Tax benefits on share-based compensation	(1.5)			(0.5)		(1.5)
TCJA and related impacts	0.7			(3.9)	(3)	(1.9)	(3)
All other	(1.0)			0.5	(4)	(0.3)
Effective Rate	10.8		%	12.7		15.0

(1) For all periods presented the Company has subsidiaries operating in Puerto Rico under various tax incentives. International operations reflects the impacts of operations in jurisdictions with statutory tax rates different than the U.S., particularly Ireland, Switzerland and Puerto Rico, which is a favorable impact on the effective tax rate as compared with the U.S. statutory rate. The 2020 and 2019 amounts include the impact of the new tax legislation enactment in Switzerland, which is further described below.

(2) Includes the impact of the GILTI tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.

(3) Represents impact of adjustments to balances originally recorded as part of the 2017 TCJA provisional tax charge. Further information provided below.

(4) Certain prior year amounts have been reclassified to conform to current year presentation.

Temporary Differences and Carryforwards

Temporary differences and carryforwards at the end of fiscal years 2020 and 2019 were as follows:

	2020 Deferred Tax			2019 Deferred Tax*
(Dollars in Millions)	Asset		Liability	Asset	Liability
Employee related obligations	$	2,434		2,473
Stock based compensation	627			595
Depreciation & amortization	721			1,122
Non-deductible intangibles			(6,567)		(5,835)
International R&D capitalized for tax	1,517			1,189
Reserves & liabilities	3,466			2,337
Income reported for tax purposes	1,705			1,605
Net operating loss carryforward international	990			838
Undistributed foreign earnings	812		(1,435)	765	(1,289)
Global intangible low-taxed income			(3,606)		(2,965)
Miscellaneous international	854		(211)	696	(81)
Miscellaneous U.S.	12			411
Total deferred income taxes	$	13,138	(11,819)	12,031	(10,170)

*Certain prior year amounts have been reclassified to conform to current year presentation

Summary of Activity Related to Unrecognized Tax Benefits

The following table summarizes the activity related to unrecognized tax benefits:

(Dollars in Millions)	2020		2019	2018
Beginning of year	$	3,853	3,326	3,151
Increases related to current year tax positions	265		249	242
Increases related to prior period tax positions	668		408	145
Decreases related to prior period tax positions	(551)		(105)	(137)
Settlements	(839)		(9)	(40)
Lapse of statute of limitations	(23)		(16)	(35)
End of year	$	3,373	3,853	3,326