Income Taxes

12 Months Ended

Oct. 28, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company's effective tax rate reflects the applicable tax rate in effect in the various tax jurisdictions around the world where the Company's income is earned. The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense for fiscal 2023, fiscal 2022 and fiscal 2021 is as follows:

	2023			2022			2021
U.S. federal statutory tax rate	21.0		%	21.0		%	21.0		%
Income tax provision reconciliation:
Tax at statutory rate	$	757,681		$	650,737		$	279,030
Net foreign income subject to lower tax rate	(358,944)			(358,725)			(227,470)
State income taxes, net of federal benefit	4,453			(15,615)			(28,052)
Valuation allowance	(6,641)			29,737			13,263
Federal research and development tax credits	(65,391)			(58,625)			(37,902)
Change in uncertain tax positions	17,985			19,394			(1,061)
Amortization of purchased intangibles	142,358			142,375			146,094
Acquisition and integration costs	—			—			11,367
Taxes attributable to the Tax Cuts and Jobs Act of 2017	(81,695)			—			—
U.S. effects of international operations	(98,286)			(47,665)			(24,624)
Windfalls (under ASU 2016-09)	(24,211)			(16,717)			(26,365)
Intra-entity transfer of intangible assets	—			—			(188,804)
Other, net	6,115			5,292			22,816
Total income tax provision (benefit)	$	293,424		$	350,188		$	(61,708)

Income before income taxes for fiscal 2023, fiscal 2022 and fiscal 2021 includes the following components:

Income before income taxes (1)	2023		2022		2021
Domestic	$	846,592	$	958,465	$	508,100
Foreign	2,761,411		2,140,284		820,614
Income before income taxes	$	3,608,003	$	3,098,749	$	1,328,714

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(1)Income before income taxes reflects deemed intercompany royalties in all periods presented.

The components of the provision for (benefit from) income taxes for fiscal 2023, fiscal 2022 and fiscal 2021 are as follows:

	2023		2022		2021
Current:
Federal tax	$	303,146	$	304,556	$	134,652
State	11,772		13,214		7,772
Foreign	431,452		359,173		202,790
Total current	$	746,370	$	676,943	$	345,214
Deferred:
Federal	$	(508,741)	$	(341,777)	$	515,541
State	2,063		(612)		(12,444)
Foreign	53,732		15,634		(910,019)
Total deferred	$	(452,946)	$	(326,755)	$	(406,922)
Provision for (benefit from) income tax	$	293,424	$	350,188	$	(61,708)

The Company’s effective tax rate for fiscal 2023 was impacted by a discrete income tax benefit recorded of $81.7 million resulting from the approval granted by the Joint Committee on Taxation of its federal corporate income tax relief claim which reduced the amount of transition tax owed under the Tax Cuts and Jobs Act.

U.S. tax legislation subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI). Under U.S. GAAP, an accounting policy election can be made to either treat taxes due on the GILTI inclusion as a current period expense or to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years. The Company elected the deferral method and recorded the corresponding GILTI deferred tax assets and liabilities on its Consolidated Balance Sheets.

The Company carries other outside basis differences in its subsidiaries, primarily arising from acquisition accounting adjustments and certain undistributed earnings that are considered indefinitely reinvested. As of October 28, 2023, the Company has not recognized deferred income tax on $33.6 billion of outside basis differences because of its intent and ability to indefinitely reinvest these basis differences. These basis differences could be reversed through a sale of the subsidiaries or the receipt of dividends from the subsidiaries, as well as various other events, none of which are considered probable at this time. Determination of the amount of unrecognized deferred income tax liability related to these outside basis differences is not practicable.

The significant components of the Company’s deferred tax assets and liabilities for fiscal 2023 and fiscal 2022 are as follows:

	2023		2022
Deferred tax assets:
Inventory reserves	$	20,159	$	16,584
Reserves for compensation and benefits	57,603		60,871
Tax credit carryovers	313,891		327,671
Stock-based compensation	10,734		25,059
Net operating losses	42,825		43,696
Intangible assets	1,955,752		1,975,096
Lease liability	82,305		76,709
Capitalization of R&D expenses (1)	421,485		155,099
Other	88,164		93,697
Total gross deferred tax assets	2,992,918		2,774,482
Valuation allowance	(332,464)		(339,105)
Total deferred tax assets	2,660,454		2,435,377
Deferred tax liabilities:
Depreciation	(122,125)		(96,660)
Deferred GILTI tax liabilities	(2,654,817)		(2,824,332)
Right of use asset	(60,343)		(55,858)
Acquisition-related intangibles	(727,749)		(816,177)
Total gross deferred tax liabilities	(3,565,034)		(3,793,027)
Net deferred tax liabilities	$	(904,580)	$	(1,357,650)

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(1) As of October 28, 2023, the Company included the effects of the mandatory capitalization and amortization of research and development expenses which began in fiscal 2023 under the Tax Cuts and Jobs Act.

The valuation allowances of $332.5 million and $339.1 million as of October 28, 2023 and October 29, 2022, respectively, are primarily for the Company’s state R&D credit carryforwards, foreign net operating losses and international credit carryforwards. The Company believes that it is more-likely-than-not that these credit carryovers will not be realized and as a result has recorded a partial valuation allowance.

The federal and state net operating losses of $89.9 million will begin to expire in fiscal 2035 while foreign net operating loss carryovers of $145.2 million have no expiration date. There are also $299.7 million of federal and state credit carryovers and $14.2 million of foreign investment tax credit carryovers that begin to expire in the fiscal year ending November 1, 2025.

As of October 28, 2023 and October 29, 2022, the Company had unrealized tax benefits, net of indirect tax benefits, of $187.4 million and $165.3 million, respectively, which if settled in the Company's favor, would lower the Company's effective tax rate in the period recorded. Liabilities for unrealized tax benefits are primarily classified as non-current because the Company believes that the ultimate payment or settlement of these liabilities will not occur within the next twelve months. As of October 28, 2023 and October 29, 2022, the Company had liabilities of approximately $70.7 million and $45.5 million, respectively, for interest and penalties, which is included within the provision for (benefit from) income taxes in the Consolidated Statements of Income.

The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2021 through fiscal 2023:

	Unrealized Tax Benefits
Balance, October 31, 2020	$	21,291
Additions for tax positions related to current year	4,713
Additions for tax positions related to prior years	19,790
Additions for tax positions related to the Acquisition	91,179
Reductions due to lapse of applicable statute of limitations	(4,452)
Balance, October 30, 2021	$	132,521
Additions for tax positions related to the Acquisition	15,267
Additions for tax positions related to current year	11,800
Additions for tax positions related to prior years	9,704
Reductions due to lapse of applicable statute of limitations	(3,965)
Balance, October 29, 2022	$	165,327
Additions for tax positions related to current year	5,895
Additions for tax positions related to prior years	17,096
Reductions due to lapse of applicable statute of limitations	(903)
Balance, October 28, 2023	$	187,415

In fiscal 2021, the Company acquired $125.5 million in reserves as part of the Acquisition consisting of $91.2 million in tax and $34.3 million in accrued interest.

In fiscal 2023, the Company continued to engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It is reasonably possible that the balance of unrealized tax benefits, including accrued interest and penalties, could decrease by up to $160.0 million within the next twelve months due to the completion of federal tax audits, including any administrative appeals. The $160.0 million primarily relates to matters involving federal taxation of international income and cross-border transactions.

The Company has numerous audits ongoing at any time throughout the world including: an IRS income tax audit for fiscal year ended November 2, 2019 (fiscal 2019) and fiscal year ended November 3, 2018 (fiscal 2018), a pre-Acquisition IRS income tax audit for Maxim's fiscal years ended June 27, 2015 through August 26, 2021, and various U.S. state and local tax audits and international audits, including an Irish corporate tax audit for fiscal 2019. The Company’s U.S. federal tax returns prior to fiscal 2018 are no longer subject to examination, except for the applicable Maxim pre-Acquisition fiscal years noted above.