Income Taxes

3 Months Ended

Apr. 02, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The worldwide effective income tax rates for the fiscal first quarters of 2023 and 2022 were 90.8% and 12.2%, respectively. This increase in the consolidated tax rate as compared to the prior year fiscal first quarter is primarily due to a $6.9 billion charge related to the talc settlement proposal at an effective tax rate of 23.5% (for further information see Note 11 to the Consolidated Financial Statements).

In the first fiscal quarter of 2022, there were favorable tax benefits due to income mix for mark to market adjustments to the Company’s investment portfolio and the impairment of the bermekimab AD IPR&D, both at the U.S. statutory rate. Additionally, the prior year’s effective tax rate benefited from the impact of certain provisions of the Tax Cuts and Jobs Act of 2017 that became effective in 2022. These benefits were partially offset by incremental tax costs directly related to the planned separation of the Company’s Consumer Health business in the first fiscal quarter of 2022 as compared to the first fiscal quarter of 2023.

The Company also received tax benefits from stock-based compensation that were either exercised or vested during each of the fiscal first quarters.

As of April 2, 2023, the Company had approximately $3.8 billion of liabilities from unrecognized tax benefits. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of jurisdictions. With respect to the United States, the IRS has completed its audit for the tax years through 2012 and is currently auditing tax years 2013 through 2016. The Company currently expects completion of this audit and settlement of the related tax liabilities in the next 12 months. As a result, the Company has classified approximately $1.7 billion of unrecognized tax benefits and associated interest as a current liability on the “Accrued taxes on Income” line of the Consolidated Balance Sheet as of the end of the first fiscal quarter of 2023 in anticipation of final settlement. Subsequent to April 2, 2023, the Company made a payment for approximately $1.4 billion to the U.S. Treasury for the estimated liability of the 2013-2016 IRS Audit. The completion of this tax audit may result in additional adjustments to the Company’s unrecognized tax benefit liability. In other major jurisdictions where the Company conducts business, the years that remain open to tax audit go back to the year 2008. The Company believes it is possible that some tax audits may be completed over the next twelve months by taxing authorities in some jurisdictions. However, the Company is not able to provide a reasonably reliable estimate of the timing of any other future tax payments relating to uncertain tax positions.