Income Taxes

6 Months Ended

Jul. 02, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The following table summarizes the Company’s effective tax rate:

	Three-Month Period Ended				Six-Month Period Ended
	July 2, 2021		July 3, 2020		July 2, 2021		July 3, 2020
Effective tax rate	16.8	%	24.0	%	17.6	%	21.2	%

The effective tax rate for the three-month period ended July 2, 2021 differs from the U.S. federal statutory rate of 21.0% principally due to net discrete benefits of $76 million related primarily to the release of reserves for uncertain tax positions due to the expiration of statutes of limitation, audit settlements and excess tax benefits from stock-based compensation, net of changes in estimates associated with prior period uncertain tax positions. These items decreased the reported tax rate on a net basis by 3.7%.

The effective tax rate for the six-month period ended July 2, 2021 differs from the U.S. federal statutory rate of 21.0% principally due to net discrete benefits of $120 million related primarily to release of reserves for uncertain tax positions due to the expiration of statutes of limitation, audit settlements and excess tax benefits from stock-based compensation, net of changes in estimates associated with prior period uncertain tax positions. These items decreased the reported tax rate on a net basis by 2.9%.

The effective tax rate for the three-month period ended July 3, 2020 differs from the U.S. federal statutory rate of 21.0% principally due to a higher tax rate associated with the gain on the divestiture of certain product lines in the Life Sciences segment which incrementally increased the reported tax rate by 4.5%. Changes in estimates associated with prior period uncertain tax positions were offset primarily by excess tax benefits related to stock-based compensation and other items.

The effective tax rate for the six-month period ended July 3, 2020 differs from the U.S. federal statutory rate of 21.0% principally due to a higher tax rate associated with the gain on the divestiture of certain product lines in the Life Sciences segment and changes in estimates associated with prior period uncertain tax positions, partially offset by excess tax benefits related primarily to stock-based compensation, the release of reserves for uncertain tax positions due to the expiration of statutes of limitation and other items, resulting in a net tax charge of $33 million. These items increased the reported tax rate on a net basis by 1.7%.

For a description of the tax provision for discontinued operations, refer to Note 4 to the Consolidated Condensed Financial Statements.

For a description of the Company’s significant tax matters, reference is made to the financial statements as of and for the year ended December 31, 2020 and Note 15 thereto included in the Company’s 2020 Annual Report.

Tax authorities in Denmark have issued tax assessments related to interest accrued by certain of the Company’s subsidiaries for the years 2004 through 2015. During the first quarter of 2021, the Company received a notice from the Danish tax authorities that included a reduction in the interest amounts imposed in the original tax assessments. Taking into account the revised interest amounts, the assessments total approximately DKK 2.1 billion including interest accrued to date (approximately $335 million based on the exchange rate as of July 2, 2021). The Company’s appeal of the original assessments with the Danish National Tax Tribunal has been put on hold awaiting the final outcome of other preceding withholding tax cases that are to be heard by the Danish High Court. Management believes the positions the Company has taken in Denmark are in accordance with the relevant tax laws and is vigorously defending its positions. The Company intends on pursuing this matter through the Danish High Court should the appeal to the Danish National Tax Tribunal be unsuccessful. While the ultimate resolution of this matter is uncertain and could take many years, after receiving the notice reducing the interest amounts and tax payments made related to these assessments, the Company does not expect the resolution of this matter will have a further material adverse impact to the Company’s financial statements, including its cash flow and effective tax rate.