Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

16.   Income Taxes

For the three and nine months ended September 30, 2011, our effective tax rate was 26.4% and 26.0%, respectively, compared to 40.1% and 28.7%, respectively, in the prior year comparative periods.

The decrease in our tax rate for the three and nine months ended September 30, 2011, compared to the same periods in 2010, was primarily due to our 2010 license and collaboration agreement with Knopp Neurosciences, Inc., which negatively impacted our effective tax rate for the three and nine months ended September 30, 2010, due to the attribution to noncontrolling interest of $145.0 million of the associated IPR&D charge. As such, the attributed amount did not generate a tax deduction, causing our tax rate to be unfavorably impacted by 13.5% and 2.7%, respectively. In addition, during 2011, we experienced an increase in research and development expenditures eligible for the orphan drug credit and a lower effective state tax rate resulting from a change in state law and the settlement of outstanding IRS audit matters in the first and third quarters of 2011, offset by a higher percentage of our 2011 profits being earned in higher tax rate jurisdictions, principally the U.S.

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

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
State taxes		1.3			2.4			1.4			2.0
Taxes on foreign earnings		(3.8	)		(13.6	)		(5.4	)		(10.8	)
Credits and net operating loss utilization		(5.1	)		(4.3	)		(3.8	)		(2.2	)
Purchased intangible assets		1.1			2.9			1.3			1.8
IPR&D		—			21.6			—			5.2
Permanent items		(1.2	)		(3.8	)		(1.2	)		(2.1	)
Other		(0.9	)		(0.1	)		(1.3	)		(0.2	)
Effective tax rate		26.4	%		40.1	%		26.0	%		28.7	%

Accounting for Uncertainty in Income Taxes

We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal tax examination for years before 2007 or state, local, or non-U.S. income tax examinations by tax authorities for years before 2004. During the year, we adjusted our unrecognized tax benefits to reflect new information arising during our ongoing audit examinations.

In October 2011, in conjunction with our examination, the IRS has proposed a disallowance of approximately $130.0 million in deductions for tax years 2007, 2008 and 2009 related to payments for services from our Danish contract manufacturing affiliate. We believe that these deductions represent valid deductible business expenses and will vigorously defend our position.

Contingencies

In 2006, the Massachusetts Department of Revenue (DOR) issued a Notice of Assessment against Biogen Idec MA Inc. (BIMA), one of our wholly-owned subsidiaries, for $38.9 million of corporate excise tax for 2002, which includes associated interest and penalties. The assessment asserted that the portion of sales attributable to Massachusetts (sales factor), the computation of BIMA’s research and development credits and certain deductions claimed by BIMA were not appropriate, resulting in unpaid taxes for 2002. We filed an abatement application with the DOR seeking abatements for 2001, 2002 and 2003. Our abatement application was denied and on July 25, 2007, we filed a petition with the Massachusetts Appellate Tax Board (the Massachusetts ATB) seeking, among other items, abatements of corporate excise tax for 2001, 2002 and 2003 and adjustments in certain credits and credit carry forwards for 2001, 2002 and 2003. On August 18, 2011, we reached a settlement with the DOR under which we agreed to pay $7.0 million in taxes, plus $5.0 million of interest, and agreed on the nature and amount of tax credits carried forward into 2004. This resolution did not have a significant impact on our results of operations, is related only to the 2001, 2002 and 2003 tax years, and does not resolve matters in dispute for subsequent periods.

On June 8, 2010, we received Notices of Assessment from the DOR against BIMA for $103.5 million of corporate excise tax, including associated interest and penalties, related to our 2004, 2005 and 2006 tax filings. We believe the asserted basis for these assessments is consistent with that for 2002. Assessments related to periods under dispute, including associated interest and penalties, total $142.4 million. We filed an abatement application with the DOR seeking abatement for 2004, 2005 and 2006. Our abatement application was denied in December 2010, and we filed a petition appealing the denial with the ATB on February 3, 2011. For all periods under dispute, we believe that positions taken in our tax filings are valid and believe that we have meritorious defenses in these disputes. We are contesting these matters vigorously.

Our tax filings for 2007 and 2008 have not yet been audited by the DOR but have been prepared in a manner consistent with prior filings which may result in an assessment for those years. Due to tax law changes effective January 1, 2009, the computation and deductions at issue in previous tax filings have not been part of our tax filings in Massachusetts starting in 2009.

We believe that these assessments do not impact the level of liabilities for income tax contingencies. However, there is a possibility that we may not prevail in defending all of our assertions with the DOR. If these matters are resolved unfavorably in the future, the resolution could have a material adverse impact on the effective tax rate and our results of operations.