Income Taxes

12 Months Ended

Sep. 02, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our income tax (provision) benefit consisted of the following:

For the year ended	2021		2020		2019
Income (loss) before income taxes, net income (loss) attributable to noncontrolling interests, and equity in net income (loss) of equity method investees
U.S.	$	(211)	$	308	$	(67)
Foreign	6,429		2,675		7,115
	$	6,218	$	2,983	$	7,048
Income tax (provision) benefit
Current
U.S. federal	$	(42)	$	(20)	$	(36)
State	(1)		(2)		(2)
Foreign	(370)		(148)		(319)
	(413)		(170)		(357)
Deferred
U.S. federal	(9)		39		(146)
State	28		23		91
Foreign	—		(172)		(281)
	19		(110)		(336)
Income tax (provision) benefit	$	(394)	$	(280)	$	(693)

The table below reconciles our tax (provision) benefit based on the U.S. federal statutory rate to our effective rate:

For the year ended	2021				2020				2019
U.S. federal income tax (provision) benefit at statutory rate	$	(1,306)	21.0	%	$	(626)	21.0	%	$	(1,480)	21.0	%
Change in unrecognized tax benefits	(238)		3.8	%	(33)		1.1	%	(59)		0.8	%
U.S. tax on foreign operations	(226)		3.6	%	(14)		0.5	%	(327)		4.6	%
Foreign tax rate differential	951		(15.3)	%	253		(8.5)	%	993		(14.1)	%
Debt premium deductions	130		(2.1)	%	—		—	%	—		—	%
Research and development tax credits	123		(2.0)	%	62		(2.1)	%	92		(1.3)	%
Change in valuation allowance	54		(0.9)	%	(20)		0.7	%	(40)		0.6	%
State taxes, net of federal benefit	59		(0.9)	%	23		(0.8)	%	102		(1.4)	%
Foreign derived intangible income deduction	18		(0.3)	%	67		(2.2)	%	—		—	%
Other	41		(0.6)	%	8		(0.3)	%	26		(0.4)	%
Income tax (provision) benefit	$	(394)	6.3	%	$	(280)	9.4	%	$	(693)	9.8	%

We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements. These incentives expire, in whole or in part, at various dates through 2034 and are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements reduced our tax provision by $758 million (benefiting our diluted earnings per share by $0.66) for 2021, by $215 million ($0.19 per diluted share) for 2020, and by $756 million ($0.66 per diluted share) for 2019.

As of September 2, 2021, certain non-U.S. subsidiaries had cumulative undistributed earnings of $3.53 billion that were deemed to be indefinitely reinvested. A provision has not been recognized to the extent that distributions from such subsidiaries are subject to additional foreign withholding or state income tax. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.

Pursuant to SEC Staff Accounting Bulletin No. 118, measurement period adjustments in 2019 related to the Tax Cuts and Jobs Act included $47 million of benefit for the repatriation tax, net of adjustments related to uncertain tax positions. We recognize the foreign minimum tax in the period the tax is incurred.

Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes as well as carryforwards. Deferred tax assets and liabilities consist of the following:

As of	2021		2020
Deferred tax assets
Net operating loss and tax credit carryforwards	$	783	$	912
Accrued salaries, wages, and benefits	206		176
Operating lease liabilities	109		114
Property, plant, and equipment	37		—
Other	115		91
Gross deferred tax assets	1,250		1,293
Less valuation allowance	(233)		(294)
Deferred tax assets, net of valuation allowance	1,017		999
Deferred tax liabilities
Right-of-use assets	(90)		(95)
Product and process technology	(12)		(57)
Property, plant, and equipment	—		(50)
Other	(143)		(99)
Deferred tax liabilities	(245)		(301)
Net deferred tax assets	$	772	$	698
Reported as
Deferred tax assets	$	782	$	707
Deferred tax liabilities (included in other noncurrent liabilities)	(10)		(9)
Net deferred tax assets	$	772	$	698

We assess positive and negative evidence for each jurisdiction to determine whether it is more likely than not that existing deferred tax assets will be realized. As of September 2, 2021, and September 3, 2020, we had a valuation allowance of $233 million and $294 million, respectively, against our net deferred tax assets, primarily related to carryforwards in Malaysia and Japan. Changes in 2021 in the valuation allowance were due to loss expirations during the year, offset by adjustments based on management’s assessment of tax credits, allowances and net operating losses that are more likely than not to be realized.

As of September 2, 2021, our net operating loss carryforward amounts and expiration periods, as reported to tax authorities, were as follows:

Year of Expiration	State		Japan		Malaysia		Singapore		Other		Total
2022 - 2026	$	49	$	617	$	—	$	—	$	1	$	667
2027 - 2031	537		—		—		—		—		537
2032 - 2036	355		—		—		—		—		355
2037 - 2041	61		—		—		—		—		61
Indefinite	1		—		606		477		7		1,091
	$	1,003	$	617	$	606	$	477	$	8	$	2,711

As of September 2, 2021, our federal and state tax credit carryforward amounts and expiration periods, as reported to tax authorities, were as follows:

Year of Tax Credit Expiration	U.S. Federal		State		Total
2022 - 2026	$	—	$	45	$	45
2027 - 2031	—		84		84
2032 - 2036	32		132		164
2037 - 2041	364		5		369
Indefinite	—		104		104
	$	396	$	370	$	766

Below is a reconciliation of the beginning and ending amount of our unrecognized tax benefits:

For the year ended	2021		2020		2019
Beginning unrecognized tax benefits	$	411	$	383	$	261
Increases related to tax positions from prior years	2		14		124
Increases related to tax positions taken in current year	260		27		44
Decreases related to tax positions from prior years	(13)		(13)		(46)
Ending unrecognized tax benefits	$	660	$	411	$	383

As of September 2, 2021, gross unrecognized tax benefits were $660 million, substantially all of which would affect our effective tax rate in the future, if recognized. Increases to unrecognized tax benefits were primarily due to tax return positions taken during 2021. Amounts accrued for interest and penalties related to uncertain tax positions were not significant for any period presented. The resolution of tax audits or expiration of statute of limitations could also reduce our unrecognized tax benefits. Although the timing of final resolution is uncertain, the estimated potential reduction in our unrecognized tax benefits in the next 12 months would not be significant.

We and our subsidiaries file income tax returns with the U.S. federal government, various U.S. states, and various foreign jurisdictions throughout the world. We regularly engage in discussions and negotiations with tax authorities regarding tax matters, including transfer pricing, and we continue to defend any and all such claims presented. Our U.S. federal and state tax returns remain open to examination for 2017 through 2021. We are currently under audit by the Internal Revenue Service for our 2018 and 2019 tax years. In addition, tax returns that remain open to examination in Singapore, Taiwan and Japan range from the years 2015 to 2021. We believe that adequate amounts of taxes and related interest and penalties have been provided, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations, or financial condition.