Income Taxes

9 Months Ended

Sep. 30, 2019

Tax Rate

A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
State taxes	0.9		0.6		0.7		0.7
Taxes on foreign earnings	(5.0	)	(0.5	)	(4.7	)	(1.3	)
Credits and net operating loss utilization	(1.5	)	(1.0	)	(1.0	)	(0.8	)
Purchased intangible assets	0.4		0.3		0.4		0.5
Divestiture of Denmark manufacturing operations	—		—		1.5		—
Internal reorganization of certain intellectual property rights	(1.5	)	—		(2.1	)	—
GILTI	1.6		1.3		1.6		1.4
U.S. tax reform	—		(0.6	)	—		(0.3	)
Swiss tax reform	(3.1	)	—		(1.0	)	—
Other permanent items	(0.1	)	0.3		0.2		0.3
Other	(0.8	)	(1.0	)	(0.3	)	(0.2	)
Effective tax rate	11.9	%	20.4	%	16.3	%	21.3	%

Changes in Tax Rate

For the three months ended September 30, 2019, compared to the same period in 2018, the decrease in our effective tax rate was primarily due to the enactment of a new taxing regime in the country and certain cantons of Switzerland, which we refer to as Swiss Tax Reform. As a result of the impact of Swiss Tax Reform, in the three months ended September 30, 2019, we recorded an income tax benefit of approximately $54.3 million, resulting from a remeasurement of our deferred tax assets and liabilities. In addition, in the three months ended September 30, 2019, we recognized a net benefit for the impact of the internal reorganization of certain intellectual property rights and a net benefit of $15.8 million resulting from the finalization of tax returns in various jurisdictions related to the 2018 fiscal year. We also had a higher effective tax rate in 2018 resulting from our sale of inventory, the tax effect of which had been included within prepaid taxes at January 1, 2018, at a higher effective tax rate than the 2018 statutory tax rate.

For the nine months ended September 30, 2019, compared to the same period in 2018, the decrease in our effective tax rate was primarily due to the combination of the internal reorganization of certain intellectual property rights and the impact of Swiss Tax Reform. This decrease was partially offset by a $64.7 million tax expense related to the divestiture of our subsidiary that owned our Hillerød, Denmark manufacturing operations. We also had a higher effective tax rate in 2018 resulting from our sale of inventory, the tax effect of which had been included within prepaid taxes at January 1, 2018, at a higher effective tax rate than the 2018 statutory tax rate.

Although we are recognizing a loss on the divestiture of our Hillerød, Denmark manufacturing operations, the divestiture requires us to write off certain deferred tax assets and resulted in a taxable gain in certain jurisdictions.

As a result of the internal reorganization of certain intellectual property rights, as of September 30, 2019, we recorded a deferred tax asset of $754.2 million and a deferred tax liability of $603.4 million.

Accounting for Uncertainty in Income Taxes

We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in various U.S. states and in U.S. federal and other foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal tax examination for years before 2013 or state, local or non-U.S. income tax examinations for years before 2010.

The U.S. Internal Revenue Service and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.

Federal and State Uncertain Tax Positions

It is reasonably possible that we will adjust the value of our uncertain tax positions related to certain transfer pricing, collaboration and other issues as we receive additional information from various taxing authorities, including reaching settlements with such authorities.