
(In millions)	2019		2018		2017

Current Income Tax Provision
Federal	$	267	$	165	$	1,259
Non-U.S.	544		574		576
State	62		59		62

	873		798		1,897

Deferred Income Tax Provision (Benefit)
Federal	$	(222)	$	(258)	$	(1,437)
Non-U.S.	(252)		(187)		(271)
State	(25)		(29)		12

	(499)		(474)		(1,696)

Provision for Income Taxes	$	374	$	324	$	201

The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate to income from continuing operations before provision for income taxes due to the following:


(In millions)	2019			2018			2017

Statutory Federal Income Tax Rate	21		%	21		%	35		%

Provision for Income Taxes at Statutory Rate	$	855		$	685		$	850

Increases (Decreases) Resulting From:
Foreign rate differential	(204)			(375)			(380)
Foreign exchange loss on inter-company debt refinancing	(62)			—			(237)
Income tax credits	(379)			(349)			(273)

Withholding taxes	38			31			55
Global intangible low-taxed income	258			167			—
Foreign-derived intangible income	(111)			(47)			—

Impact of change in tax laws and apportionment on deferred taxes	6			(12)			(1,121)
Transition tax and other impacts of U.S. tax reform	8			117			1,250

Provision for (reversal of) tax reserves, net	62			(49)			99
Excess tax benefits from stock options and restricted stock units	(80)			(77)			(65)
Basis difference on disposal of business	73			—			—

Valuation allowance	(4)			260			7

Intra-entity transfers	(79)			—			—
Other, net	(7)			(27)			16

Provision for Income Taxes	$	374		$	324		$	201

The company has operations and a taxable presence in approximately 50 countries outside the U.S. The company's effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, and foreign taxes that are different than the U.S. federal statutory rate.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was enacted. The Tax Act includes significant changes to existing U.S. tax laws that affect the company, including a reduction of the U.S. corporate income tax rate from 35% to 21% beginning in 2018 and creation of a territorial tax system with a one-time transition tax on deemed repatriated earnings and profits of foreign subsidiaries (transition tax). As detailed below, the company recognized a net charge of $204 million for certain aspects of the Tax Act in its 2017 financial statements for which the accounting was provisional, but a reasonable

estimate could be determined. During 2018, the company completed its accounting for the income tax effects of the Tax Act and recognized net adjustments (detailed below) to the provisional amounts, totaling a net charge of $68 million, as a component of income tax expense.

The transition tax is based on the company's total post-1986 earnings and profits, the tax on which was previously deferred from U.S. income taxes under U.S. law. The company recorded a provisional amount for the transition tax liability for each of the foreign subsidiaries, resulting in a total transition liability of $1.25 billion at December 31, 2017. After further analysis of new U.S. Treasury guidance, available tax accounting methods and elections, legislative updates, regulations, earnings and profits computations and foreign taxes, the company finalized the calculations of the transition tax liability during 2018. The increase in the liability for the transition tax in 2018 consisted of an incremental provision of $117 million offset in part by a $49 million reduction of related unrecognized tax benefits established in 2017.

In 2017, as a result of the Tax Act, the company remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21%), by recording a provisional tax benefit of $1.06 billion. During 2018, no material changes to this provisional amount were made.

During 2019, the company recorded a net tax provision of $1 million to adjust the impacts of U.S. tax reform based on final regulations issued by the U.S. Treasury in 2019. The income tax provision consists of an incremental charge of $8 million offset by a $7 million reduction of related unrecognized tax benefits.

In 2019, the company recorded a $62 million income tax benefit, including both U.S. federal and state taxes, related to a foreign exchange loss for tax purposes on certain intercompany financing arrangements as well as a tax provision of $191 million related to the gain on the sale of the Anatomical Pathology business. Also in 2019, the company recorded a $79 million benefit related to the deferred tax implications of intra-entity transactions which included a tax benefit to release a valuation allowance against net operating losses previously determined to be unrealizable.

In 2018, the provision for income taxes also included a $71 million charge to establish a valuation allowance against net operating losses that will not be utilized as a result of the 2019 sale of the Anatomical Pathology business (Note 2).

The foreign tax credits discussed below are the result of foreign earnings and profits remitted or deemed remitted to the U.S. during the reporting year and the U.S. treatment of taxes paid in the foreign jurisdictions in the years those profits were originally earned.

In 2017, the company continued to implement tax planning initiatives related to non U.S. subsidiaries. These non-U.S. subsidiaries incurred foreign tax obligations, and made cash and deemed distributions to the company’s U.S. operations which resulted in no net tax cost. As a result of these distributions, the company benefited from U.S. foreign tax credits of $86 million, offset in part by additional U.S. income taxes of $53 million on the related foreign income (which reduced the benefit from the foreign rate differential in 2017). The company also implemented foreign tax credit planning in Sweden which resulted in $20 million of foreign tax credits, with no related incremental U.S. income tax expense. In 2017, the company refinanced certain long term inter-company debt which resulted in an income tax benefit of $237 million related to a foreign exchange loss recognized for income tax purposes.

The company generally receives a tax deduction upon the exercise of non-qualified stock options by employees, or the vesting of restricted stock units held by employees, for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The company uses the incremental tax benefit approach for utilization of tax attributes. These excess tax benefits reduce the tax provision. In 2019, 2018 and 2017, the company's tax provision was reduced by $80 million, $77 million and $65 million, respectively, of such benefits.


(In millions)	2019		2018

Deferred Tax Asset (Liability)
Depreciation and amortization	$	(3,084)	$	(3,444)
Net operating loss and credit carryforwards	1,231		1,311
Reserves and accruals	144		148
Accrued compensation	261		250
Inventory basis difference	99		105
Other capitalized costs	71		103
Unrealized losses on hedging instruments	10		23
Other, net	57		143

Deferred tax assets (liabilities), net before valuation allowance	(1,211)		(1,361)
Less: Valuation allowance	408		471

Deferred tax assets (liabilities), net	$	(1,619)	$	(1,832)

The company estimates the degree to which tax assets and loss and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction and provides a valuation allowance for tax assets and loss and credit carryforwards that it believes will more likely than not expire unutilized. At December 31, 2019, all of the company’s valuation allowance relates to deferred tax assets, primarily net operating losses, for which any subsequently recognized tax benefits will reduce income tax expense.


	Year Ended December 31,
(In millions)	2019		2018		2017

Beginning Balance	$	471	$	256	$	113
(Reductions) additions charged to income tax provision, net	(27)		223		28
Additions due to acquisitions	—		17		108
Reduction due to a divestiture	(33)		—		—
Deductions	—		(15)		—
Currency translation and other	(3)		(10)		7

Ending Balance	$	408	$	471	$	256

At December 31, 2019, the company had federal, state and non-U.S. net operating loss carryforwards of $282 million, $1.73 billion and $4.82 billion, respectively. Use of the carryforwards is limited based on the future income of certain subsidiaries. The federal and state net operating loss carryforwards expire in the years 2020 through 2039. Of the non-U.S. net operating loss carryforwards, $1.98 billion expire in the years 2024 through 2039, and the remainder do not expire.

As a result of the Tax Act, U.S. federal taxes have been recorded on $15 billion of undistributed foreign earnings as of December 31, 2019. A provision has not been made for certain U.S. state income taxes or additional non-U.S. taxes that would be due when cash is repatriated to the U.S. as the company’s undistributed foreign earnings are intended to be reinvested outside of the U.S. indefinitely. The determination of the amount of the unrecognized deferred tax liability related to the undistributed foreign earnings is not practicable due to the uncertainty in the manner in which these earnings will be distributed. The company’s intent is to only make distributions from non-U.S. subsidiaries in the future when they can be made at no net tax cost.


(In millions)	2019		2018		2017

Beginning Balance	$	1,442	$	1,409	$	802
Additions due to acquisitions	—		—		31
Reductions due to acquisitions	—		(5)		—
Additions for tax positions of current year	53		48		565
Additions for tax positions of prior years	69		82		51
Reductions for tax positions of prior years	(7)		—		—
Closure of tax years	—		(5)		—
Settlements	(5)		(87)		(40)

Ending Balance	$	1,552	$	1,442	$	1,409

Substantially all of the total $1.55 billion liability is classified as a long-term liability. The company does not expect its unrecognized tax benefits to change significantly over the next twelve months.

During 2019, the company’s unrecognized tax benefits increased $70 million as a result of uncertain tax positions relating to foreign tax positions and $45 million relating to U.S. federal and state tax positions.

During 2018, the company's unrecognized tax benefits increased $85 million as a result of uncertain tax positions relating to foreign tax positions and $45 million relating to U.S. federal and state tax positions.

During 2017, the company’s unrecognized tax benefits provisionally increased $511 million as a result of uncertain tax positions relating to the scope of the Tax Act’s one-time transition tax, $54 million relating to foreign tax positions, $43 million as a result of a foreign exchange loss recognized on the refinancing of certain long term inter-company debt and $31 million due to an acquisition.

The company classified interest and penalties related to unrecognized tax benefits as income tax expense. The total amount of interest and penalties related to uncertain tax positions and recognized in the balance sheet as of December 31, 2019 and 2018 was $67 million and $59 million, respectively.

The company conducts business globally and, as a result, Thermo Fisher or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, China, Denmark, Finland, France, Germany, Japan, Singapore, Sweden, the United Kingdom and the United States. With few exceptions, the company is no longer subject to U.S. federal, state and local, or non-U.S., income tax examinations for years before 2011.