Income Taxes

12 Months Ended

Oct. 29, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before income taxes for each fiscal year were as follows:

 

	2023		2022		2021
	(In millions)
U.S.	$	1,234	$	1,171	$	512
Foreign	6,482		6,428		6,259
	$	7,716	$	7,599	$	6,771

The components of the provision for income taxes for each fiscal year were as follows:

	2023		2022		2021
	(In millions)
Current:
U.S.	$	708	$	590	$	462
Foreign	456		275		344
State	54		14		17
	1,218		879		823
Deferred:
U.S.	(255)		(62)		(3)
Foreign	(61)		265		67
State	(42)		(8)		(4)
	(358)		195		60
	$	860	$	1,074	$	883

A reconciliation between the statutory U.S. federal income tax rate and our actual effective income tax rate for each fiscal year is presented below:

 

	2023		2022		2021
Tax provision at U.S. statutory rate	21.0	%	21.0	%	21.0	%
Effect of foreign operations taxed at various rates	(8.2)		(4.4)		(7.0)
Changes in prior years’ unrecognized tax benefits	(0.2)		(0.9)		0.2
Resolutions of prior years’ income tax filings	(0.1)		(0.2)		(0.1)
Research and other tax credits	(1.6)		(1.0)		(0.9)
Other	0.2		(0.4)		(0.2)
	11.1	%	14.1	%	13.0	%

Our provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affected by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings.

Our effective tax rate for fiscal 2023 was lower than fiscal 2022 primarily due to a reduction of deferred tax assets that occurred in fiscal 2022, related to a new tax incentive in Singapore. Our effective tax rate for fiscal 2022 was higher than fiscal 2021 primarily due to a reduction of deferred tax assets related to a new tax incentive in Singapore, partially offset by changes in uncertain tax positions.

In the reconciliation between the statutory U.S. federal income tax rate and the effective income tax rate, the effect of foreign operations taxed at various rates represents the difference between an income tax provision at the U.S. federal statutory income tax rate and the recorded income tax provision, with the difference expressed as a percentage of worldwide income before income taxes. This effect is substantially related to the tax effect of pre-tax income in jurisdictions with lower statutory tax rates. The foreign operations with the most significant effective tax rate impact are in Singapore. The statutory tax rate for fiscal 2023 for Singapore is 17%. We have been granted conditional reduced tax rates that expire beginning in fiscal 2025, excluding potential renewal and subject to certain conditions with which we expect to comply. The tax benefits arising from these tax rates were $369 million or $0.44 per diluted share and $232 million or $0.26 per diluted share and $370 million or $0.40 per diluted share for fiscal 2023, 2022 and 2021, respectively.

Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. The components of deferred income tax assets and liabilities were as follows: 

	October 29, 2023		October 30, 2022
	(In millions)
Deferred tax assets:
Capitalized R&D expenses	$	83	$	—
Allowance for doubtful accounts	4		5
Inventory reserves and basis difference	125		131
Installation and warranty reserves	35		29
Intangible assets	1,031		984
Accrued liabilities	19		35
Deferred revenue	72		82
Tax credits	536		453
Deferred compensation	217		125
Share-based compensation	50		42
Property, plant and equipment	9		—
Lease liability	98		81
Other	96		67
Gross deferred tax assets	2,375		2,034
Valuation allowance	(530)		(460)
Total deferred tax assets	1,845		1,574
Deferred tax liabilities:
Property, plant and equipment	—		(111)
Right of use assets	(103)		(80)
Undistributed foreign earnings	(23)		(39)
Total deferred tax liabilities	(126)		(230)
Net deferred tax assets	$	1,719	$	1,344

A valuation allowance is recorded to reflect the estimated amount of net deferred tax assets that may not be realized. Changes in the valuation allowance in each fiscal year were as follows:

	2023		2022		2021
	(In millions)
Beginning balance	$	460	$	361	$	314
Increases	70		99		47
Ending balance	$	530	$	460	$	361

At October 29, 2023, we have state research and development tax credit carryforwards of $536 million, including $501 million of credits that are carried over until exhausted and $32 million that are carried over for 15 years and begin to expire in fiscal 2033. It is more likely than not that all tax credit carryforwards, net of valuation allowance, will be utilized.

We maintain liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored based on the best information available. Gross unrecognized tax benefits are classified as non-current income taxes payable or as a reduction in deferred tax assets. A reconciliation of the beginning and ending balances of gross unrecognized tax benefits in each fiscal year is as follows: 

	2023		2022		2021
	(In millions)
Beginning balance of gross unrecognized tax benefits	$	498	$	537	$	496
Settlements with tax authorities	—		(25)		—
Lapses of statutes of limitation	—		—		(4)
Increases in tax positions for current year	28		26		26
Increases in tax positions for prior years	—		28		23
Decreases in tax positions for prior years	(16)		(68)		(4)
Ending balance of gross unrecognized tax benefits	$	510	$	498	$	537

Tax expense for interest and penalties on unrecognized tax benefits for fiscal 2023, 2022 and 2021 was $34 million, $14 million and $14 million, respectively. The income tax liability for interest and penalties for fiscal 2023, 2022 and 2021 was $136 million, $103 million and $88 million, respectively, and was classified as non-current income taxes payable.

Included in the balance of unrecognized tax benefits for fiscal 2023, 2022 and 2021 are $386 million, $388 million, and $442 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

Our tax returns remain subject to examination by taxing authorities. These include U.S. returns for fiscal 2015 and later years, and foreign tax returns for fiscal 2011 and later years.

The timing of the resolution of income tax examinations, as well as the amounts and timing of various tax payments that may be part of the settlement process, is highly uncertain. This could cause fluctuations in our financial condition and results of operations. We continue to have ongoing negotiations with various taxing authorities throughout the year, and evaluate all domestic and foreign tax audit issues in the aggregate, along with the expiration of applicable statutes of limitations.

We believe it is reasonably possible that the amount of gross unrecognized tax benefits related to foreign operations could be reduced by up to $200 million in the next 12 months as a result of the resolution of tax matters or the lapse of statute of limitations.