Income Taxes

9 Months Ended

Sep. 30, 2020

INCOME TAXES

The following table summarizes our income tax expense (benefit) (in millions, except percentages):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Income (loss) before income taxes	$	825		$	(1,501)		$	(145)		$	3,259
Income tax expense (benefit)	$	472		$	(333)		$	1,310		$	584
Effective tax rate	57.2		%	22.2		%	(903.4)		%	17.9		%

Our effective income tax rate of 57.2% for the three months ended September 30, 2020 differed from the U.S. federal statutory rate of 21%, primarily due to $511 million of certain acquired IPR&D charges and $923 million of unfavorable changes in the fair value of our equity investments in Galapagos that are non-deductible for income tax purposes. The three months ended September 30, 2020 also included a $91 million net discrete tax benefit related to a settlement with a taxing authority.

Our effective income tax rate of (903.4)% for the nine months ended September 30, 2020 differed from the U.S. federal statutory rate of 21%, primarily due to a non-deductible $4.5 billion IPR&D charge recorded in connection with our acquisition of Forty Seven, in addition to the above mentioned amounts for the three months ended September 30, 2020.

Our effective income tax rate of 22.2% for the three months ended September 30, 2019 differed from the U.S. federal statutory rate of 21% primarily due to the Global Intangible Low-Taxed Income (“GILTI”) tax, state taxes and our portion of the non-deductible branded prescription drug (“BPD”) fee, partially offset by research tax credits and earnings from non-U.S. subsidiaries that operate in jurisdictions with lower tax rates than the United States.

Our effective income tax rate of 17.9% for the nine months ended September 30, 2019 differed from the U.S. federal statutory rate of 21% primarily due to a $119 million tax benefit related to settlements with taxing authorities, research tax credits and earnings from non-U.S. subsidiaries that operate in jurisdictions with lower tax rates than the United States, partially offset by the GILTI tax, state taxes and our portion of the non-deductible BPD fee.

We are currently under examination by the U.S. Internal Revenue Service for the tax years from 2013 to 2015 and by various state and foreign jurisdictions. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We regularly evaluate our exposures associated with our tax filing positions to determine our assessment of unrecognized tax benefits in accordance with the income tax guidance which clarifies the accounting for uncertainty in income taxes.