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Income Taxes
 12 Months Ended
Jan. 01, 2022
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
INCOME TAXES
The components of income before income taxes and the provision for income taxes were as follows:
(millions)202120202019
Income before income taxes
United States$1,158 $1,018 $938 
Foreign808 583 367 
 1,966 1,601 1,305 
Income taxes
Currently payable
Federal188 129 345 
State44 26 52 
Foreign117 100 77 
 349 255 474 
Deferred
Federal40 56 (124)
State4 9 (29)
Foreign81 3 — 
 125 68 (153)
Total income taxes$474 $323 $321 
The difference between the U.S. federal statutory tax rate and the Company’s effective income tax rate was:
202120202019
U.S. statutory income tax rate21.0 %21.0 %21.0 %
Foreign rates varying from U.S. statutory rate(1.6)(2.4)(2.5)
State income taxes, net of federal benefit1.9 1.8 1.3 
Cost (benefit) of remitted and unremitted foreign earnings0.6 1.0 0.8 
Revaluation of investment in foreign subsidiary— — 2.5 
Net change in valuation allowance2.7 1.4 (1.6)
Statutory rate changes, deferred tax impact0.7 0.2 0.3 
U.S. deemed repatriation tax— (2.0)— 
Divestiture— — 2.9 
Out-of-period adjustment— — 3.0 
Other(1.2)(0.8)(3.1)
Effective income tax rate24.1 %20.2 %24.6 %
As presented in the preceding table, the Company’s 2021 consolidated effective tax rate was 24.1%, as compared to 20.2% in 2020 and 24.6% in 2019.

The 2021 effective income tax rate was unfavorably impacted by the following items. During the second quarter of 2021, the Company recorded tax expense of $23 million as a result of tax legislation enacted in the UK in June 2021, which increased the statutory UK tax rate from 19 percent to 25 percent for tax periods after April 1, 2023. The Company revalued its net deferred tax balances related to the UK business to reflect the increased tax rate. During the third quarter, the Company determined that certain foreign deferred tax assets were no longer more likely than not to be realized in the future and a full valuation allowance totaling $20 million was recorded on a discrete period basis.

The 2020 effective income tax rate was favorably impacted by the reversal of a liability for uncertain tax positions of $32 million, resulting from the finalization of a tax examination during the third quarter. The reserves were related to the Company's estimate of the transition tax liability in conjunction with the finalization of accounting under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.

The 2019 effective income tax rate was unfavorably impacted by a permanent basis difference in the assets sold to Ferrero as well as an out-of-period correction. During the fourth quarter of 2019, the Company recorded an out-of-period adjustment to correct an error in the tax rate applied to a deferred tax asset arising from an intangible property transfer in a prior year. The adjustment increased income tax expense and decreased deferred tax assets by $39 million, respectively. We determined the adjustment to be immaterial to our Consolidated Financial Statements for the year ended December 28, 2019 and related prior annual and quarterly periods.

Transition tax on foreign earnings: The transition tax is a tax on the previously untaxed accumulated and current earnings and profits of certain of our foreign subsidiaries. In order to determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings and profits (E&P) of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. During the third quarter of 2020, the Company reversed $32 million of a liability previously recorded as a result of the finalization of an IRS tax examination.

As of January 1, 2022, approximately $1 billion of unremitted earnings were considered indefinitely reinvested. The unrecognized deferred tax liability for these earnings is estimated at approximately $28 million. However, this estimate could change based on the manner in which the outside basis difference associated with these earnings reverses.

Management monitors the Company’s ability to utilize certain future tax deductions, operating losses and tax credit carryforwards, prior to expiration. Changes resulting from management’s assessment will result in impacts to deferred tax assets and the corresponding impacts on the effective income tax rate. Valuation allowances were recorded to reduce deferred tax assets to an amount that will, more likely than not, be realized in the future. The total tax benefit of carryforwards at year-end 2021 and 2020 were $363 million and $329 million, respectively, with related valuation allowances at year-end 2021 and 2020 of $248 million and $192 million, respectively. Of the total carryforwards at year-end 2021, $23 million expire in 5 years or less, $75 million expire in 2027 and later, and $265 million do not expire.
The following table provides an analysis of the Company’s deferred tax assets and liabilities as of year-end 2021 and 2020:
  
Deferred tax
assets		Deferred tax
liabilities
(millions)2021202020212020
U.S. state income taxes$— $7 $11 $— 
Advertising and promotion-related14 13 — — 
Wages and payroll taxes27 26 — — 
Inventory valuation16 17 — — 
Employee benefits19 118 — — 
Operating loss, credit and other carryforwards363 329 — — 
Hedging transactions13 49 — — 
Depreciation and asset disposals— — 264 234 
Operating lease right-of-use assets— — 146 141 
Operating lease liabilities144 136 — — 
Trademarks and other intangibles— — 540 527 
Deferred compensation19 18 — — 
Stock options33 32 — — 
Other54 41 — — 
702 786 961 902 
Less valuation allowance(248)(192)— — 
Total deferred taxes$454 $594 $961 $902 
Net deferred tax asset (liability)$(507)$(308)  
Classified in balance sheet as:
Other assets$215 $254 
Other liabilities(722)(562)  
Net deferred tax asset (liability)$(507)$(308)  
The change in valuation allowance reducing deferred tax assets was:
(millions)202120202019
Balance at beginning of year$192 $146 $166 
Additions charged to income tax expense (b)59 62 25 
Reductions credited to income tax expense (a)(6)(24)(47)
Acquisition of noncontrolling interest13 —  — 
Currency translation adjustments(10)8 2 
Balance at end of year$248 $192 $146 
(a) During 2019, the Company decreased the valuation allowance by $32 million related to the revaluation of its investment in a foreign subsidiary.
(b) During 2021, the Company increased the valuation allowance $20 million to fully reserve for net deferred tax assets of a foreign subsidiary. During 2020, the Company increased the valuation allowance by $41 million related to the revaluation of its investment in a foreign subsidiary.

Uncertain tax positions
The Company is subject to federal income taxes in the U.S. as well as various state, local, and foreign jurisdictions. The Company’s 2021 provision for U.S. federal income taxes represents approximately 50% of the Company’s consolidated income tax provision. The Company was chosen to participate in the Internal Revenue Service (IRS) Compliance Assurance Program (CAP) beginning with the 2008 tax year. As a result, with limited exceptions, the Company is no longer subject to U.S. federal examinations by the IRS for years prior to 2020. The Company is under examination for income and non-income tax filings in various state and foreign jurisdictions.

As of January 1, 2022, the Company has classified $16 million of unrecognized tax benefits as a current tax liability. Managements estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability expected to be settled within one year, offset by approximately $4 million of projected additions during the next twelve months related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals, or other material deviation in this estimate.
Following is a reconciliation of the Company’s total gross unrecognized tax benefits as of the years ended January 1, 2022, January 2, 2021 and December 28, 2019. For the 2021 year, approximately $43 million represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.
(millions)202120202019
Balance at beginning of year$65 $90 $97 
Tax positions related to current year:
Additions5 5 5 
Tax positions related to prior years:
Additions5 8 4 
Reductions (a)(13)(35)(14)
Settlements(9)(2)(1)
Lapses in statutes of limitation(3)(1)(1)
Balance at end of year$50 $65 $90 
(a) During the third quarter of 2020, the Company released $32 million of tax reserves as a result of finalization of an IRS tax examination.
During the year ended January 1, 2022, the Company paid tax-related interest totaling $2 million and recognized $(4) million of tax related interest, decreasing the balance to $7 million at year-end. During the year ended January 2, 2021, the Company paid tax-related interest totaling $1 million and recognized $3 million of tax related interest, increasing the balance to $13 million at year-end. During the year ended December 28, 2019, the Company settled certain tax matters resulting in an $11 million net reduction of the tax interest accrual, decreasing the balance to $11 million at year-end.