Income taxes

12 Months Ended

Dec. 29, 2024

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

The provision for taxes on income on continuing operations consists of:

(Dollars in Millions)	2024	2023	2022
Currently payable:
U.S. taxes	$2,200	2,705	2,274
International taxes	2,604	3,090	2,295
Total currently payable	4,804	5,795	4,569
Deferred:
U.S. taxes	(2,539)	(3,440)	(1,990)
International taxes	356	(619)	410
Total deferred	(2,183)	(4,059)	(1,580)
Provision for taxes on income	$2,621	1,736	2,989

A comparison of income tax expense at the U.S. statutory rate of 21% in fiscal years 2024, 2023 and 2022, to the Company’s effective tax rate is as follows:

(Dollars in Millions)	2024		2023	2022
U.S.	$(458)		(2,033)	4,606
International	17,145		17,095	14,753
Earnings before taxes on income:	$16,687		15,062	19,359
Tax rates:
U.S. statutory rate	21.0	%	21.0	21.0
International operations(1)	(5.2)		(8.1)	(5.0)
U.S. tax settlements	1.0		(3.0)	—
U.S. taxes on international income(2)	(2.6)		(0.3)	(1.1)
U.S. state taxes	1.5		1.0	0.3
Tax benefits on share-based compensation	(0.6)		(0.8)	(1.4)
All other	0.6		1.7	1.6
Effective Rate	15.7	%	11.5	15.4

(1)International operations reflect the impacts of operations in jurisdictions with statutory tax rates different than the U.S., particularly Ireland, Switzerland, and Belgium, which is a favorable impact on the effective tax rate as compared with the U.S. statutory rate.

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

The fiscal year 2024 effective tax rate increased 4.2% as compared to the fiscal year 2023 effective tax rate. The primary drivers of this change are discussed below.

In fiscal year 2024, The Company had more income in higher tax jurisdictions compared to fiscal year 2023, primarily in the U.S. where the Company recorded a charge of approximately $5.1 billion in the fiscal year of 2024 versus approximately $7.0 billion in the fiscal year of 2023, both for the talc matters in the United States. Both charges were recorded at an effective U.S. tax rate of approximately 21% (for further information see Note 19 to the Consolidated Financial Statements).

Additionally in the fiscal year 2024, the effective tax rate was unfavorably impacted by legislative changes that went into effect for Pillar Two in some of the Company's foreign jurisdictions which are reflected in International operations on the Company’s effective tax rate reconciliation. Also in fiscal year 2024, the Company generated incremental U.S. foreign tax credits related to income sourced and taxed outside the United States and is reflected in U.S. taxes on international income on the Company’s effective tax rate reconciliation. In 2024, the Company finalized multi-year transfer pricing agreements with the U.S. Internal Revenue Service (IRS) and certain other foreign jurisdictions. The U.S portion of the agreements were partially offset by the related tax adjustments in the foreign jurisdictions which are reflected in U.S tax settlements and International operations, respectively, on the Company’s effective rate reconciliation.

The fiscal year 2023 effective tax rate decreased 3.9% as compared to the fiscal year 2022 effective tax rate as the Company recorded certain non-recurring favorable tax items in fiscal year 2023 when compared to the prior fiscal year.

In the fiscal fourth quarter of 2023, the Company settled the U.S. Internal Revenue Service audit for tax years 2013 through 2016 which resulted in a favorable impact to the rate of 3.0%. This settlement was partially offset by the Company recording a $0.4 billion decrease in expected U.S. foreign tax credits, an unfavorable effective rate impact of 2.6%, which has been reflected as a current tax expense in U.S. taxes on international income on the Company’s effective tax rate reconciliation.

In the fiscal year 2023, the Company had certain non-recurring impacts as a result of legislative tax elections made in certain international subsidiaries which resulted in a change in the Company’s tax basis in certain assets resulting in deferred tax re-measurements. The net impact of these non-recurring items is a net benefit of 3.4% to the Company’s annual effective tax rate, comprised of the following items:

•approximately $0.3 billion of tax benefit on local deferred tax assets to record the remeasurement of the increased tax basis, this benefit has been reflected as International operations on the Company’s effective tax rate reconciliation. This benefit was offset by approximately $0.1 billion of U.S. deferred tax expense on the GILTI deferred tax liability resulting from the remeasurement of these deferred tax assets. This has been reflected in the “U.S. tax on international income” on the Company’s effective tax rate reconciliation.

•approximately $0.3 billion of U.S. deferred tax benefit on the GILTI deferred tax related to an election made by an international subsidiary resulting in a decrease in local deferred tax assets. This has been reflected in the U.S. taxes on international income on the Company’s effective tax rate reconciliation.

The Company also had lower income in higher tax jurisdictions vs. fiscal year 2022, primarily in the U.S. where the Company recorded an approximately $7.0 billion charge related to talc matters in the United States at an effective tax rate of 21.1% (for further information see Note 19 to the Consolidated Financial Statements).

Temporary differences and carryforwards at the end of fiscal years 2024 and 2023 were as follows:

	2024 Deferred Tax		2023 Deferred Tax
(Dollars in Millions)	Asset	Liability	Asset	Liability
Employee related obligations	$372		586
Stock based compensation	717		686
Depreciation of property, plant and equipment		(833)		(902)
Goodwill and intangibles		(3,261)		(1,252)
R&D capitalized for tax	4,398		3,595
Reserves & liabilities	4,444		3,816
Inventory related	371		359
Operating loss carryforwards	2,298		2,145
Undistributed foreign earnings	1,931	(1,492)	1,801	(1,695)
Global intangible low-taxed income		(1,589)		(2,731)
Miscellaneous international	1,212		831
Miscellaneous U.S.	1,083			(4)
Total deferred income taxes	16,826	(7,175)	13,819	(6,584)
Valuation allowances	(1,638)		(1,149)
Total deferred income taxes net of valuation allowances	15,188	(7,175)	12,670	(6,584)

The Company has wholly-owned international subsidiaries that have cumulative net losses. The Company believes that it is more likely than not that these subsidiaries will generate future taxable income sufficient to partially utilize these deferred tax assets. In certain jurisdictions, valuation allowances have been recorded against deferred tax assets for loss carryforwards that are not more likely than not to be realized. The net operating loss carryforwards for these international subsidiaries that do not have an indefinite carryforward period will begin to expire in 2025 for various amounts.

The following table summarizes the activity related to valuation allowances for continuing operations:

(Dollars in Millions)	2024	2023
Beginning of year	$1,149	775
Provision	451	355
Utilization	—	(116)
Foreign currency translation	(46)	25
Net acquisitions / (dispositions/liquidations)	84	110
End of year	$1,638	$1,149

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

(Dollars in Millions)	2024	2023	2022
Beginning of year	$2,485	3,716	3,210
Increases related to current year tax positions	176	239	523
Increases related to prior period tax positions	129	244	143
Decreases related to prior period tax positions	(147)	(781)	(148)
Settlements	(583)	(880)	(1)
Lapse of statute of limitations	(40)	(53)	(11)
End of year	$2,020	2,485	3,716

As of December 29, 2024 the Company had approximately $2.0 billion of unrecognized tax benefits. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress with a number of tax authorities. With respect to the United States, the Internal Revenue Service (IRS) has completed its audit for the tax years through 2016 and has commenced the audit for tax years 2017 through 2020. The Company recently finalized multi-year transfer pricing agreements with the IRS and certain other foreign jurisdictions in the fiscal fourth quarter of 2024.

In other major jurisdictions where the Company conducts business, the years that remain open to tax audits go back to the year 2013. The Company believes it is possible that some tax audits may be completed over the next twelve months by taxing authorities in some jurisdictions. The Company anticipates a change in uncertain tax positions of approximately $200 million in certain jurisdictions in the next twelve months due to the expected expiration of the statute of limitations. However, generally the Company is not able to provide a reasonably reliable estimate of the timing of any other future tax payments, audit settlements, or changes in uncertain tax positions.

The Company classifies liabilities for unrecognized tax benefits and related interest and penalties as long-term liabilities. Interest expense and penalties related to unrecognized tax benefits are classified as income tax expense. The Company recognized after tax interest expense of $217 million, $99 million and $136 million in fiscal years 2024, 2023 and 2022, respectively. The total amount of accrued interest was $274 million and $264 million in fiscal years 2024 and 2023, respectively.