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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income before provision for income taxes are as follows:
(In millions)202220212020
U.S.$3,859 $3,340 $4,762 
Non-U.S.3,976 5,501 2,468 
Income before income taxes
$7,835 $8,841 $7,230 
The components of the provision for income taxes are as follows:
(In millions)202220212020
Current income tax provision
Federal$813 $446 $521 
Non-U.S.633 1,148 423 
State254 160 175 
1,700 1,754 1,119 
Deferred income tax provision (benefit)
Federal$(611)$(227)$(237)
Non-U.S.(314)(399)(18)
State(72)(19)(14)
 (997)(645)(269)
Provision for income taxes
$703 $1,109 $850 
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 before income taxes due to the following:
(In millions)202220212020
Statutory federal income tax rate
21 %21 %21 %
Provision for income taxes at statutory rate
$1,645 $1,857 $1,518 
Increases (decreases) resulting from:
Foreign rate differential
(329)(255)(223)
Income tax credits
(202)(315)(335)
Global intangible low-taxed income
96 76 86 
Foreign-derived intangible income
(149)(119)(156)
Excess tax benefits from stock options and restricted stock units
(80)(124)(114)
Provision for (reversal of) tax reserves, net
(544)(17)(26)
Intra-entity transfers
(18)(284)— 
Domestication transaction— — (263)
Valuation allowances
344 36 379 
Withholding taxes
84 164 115 
Tax return reassessments and settlements
(210)1 (196)
State income taxes, net of federal tax111 82 147 
Other, net
(45)7 (82)
Provision for income taxes
$703 $1,109 $850 
The company has operations and a taxable presence in approximately 70 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.
During 2022, the company settled an IRS audit relating to the 2017 and 2018 tax years. The company recorded a $208 million net tax benefit primarily from this settlement and related impacts, which resulted in a decrease in the company’s unrecognized tax benefits of $658 million. The company recorded $49 million of charges for expired tax credits and other related components of the settlement. The company recorded a charge of $395 million to establish a valuation allowance against
certain U.S. foreign tax credits which the company believes will more likely than not expire unutilized. The company also recorded $101 million of additional net unrecognized tax benefit liabilities related to other tax audits.
During 2021, the company recorded a $188 million income tax benefit related to the deferred tax implications of an intra-entity transfer of assets. Also in 2021, the company recorded a $96 million income tax benefit related to a capital loss resulting from certain intra-entity transactions.
During 2020, the company settled an IRS audit relating to the 2014, 2015, and 2016 tax years. The company recorded a $25 million net tax benefit primarily from this settlement and related impacts, which resulted in a decrease in the company’s unrecognized tax benefits of $378 million, of which $144 million was reclassified to income taxes payable. The company recorded $53 million of charges for expired tax credits and other related components of the settlement. The company recorded a charge of $156 million to establish a valuation allowance against certain U.S. foreign tax credits which the company believes will more likely than not expire unutilized.
In 2020, the company recorded a $263 million income tax benefit related to a domestication transaction involving the transfer of certain non-U.S. subsidiaries to the U.S., including interest expense of those subsidiaries. The company also recorded a valuation allowance of $212 million against the amount of interest expense that the company believes will more likely than not go unused.
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 2020, the company implemented foreign tax credit planning in Sweden which resulted in $96 million of foreign tax credits, with no related incremental U.S. income tax expense.
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 2022, 2021 and 2020, the company's tax provision was reduced by $80 million, $124 million and $114 million, respectively, of such benefits.
Net deferred tax asset (liability) in the accompanying balance sheet consists of the following:
(In millions)20222021
Deferred tax asset (liability)
Depreciation and amortization
$(4,277)$(4,687)
Net operating loss and credit carryforwards
1,951 1,652 
Reserves and accruals
140 162 
Accrued compensation
259 318 
Inventory basis difference
364 181 
Deferred interest445 295 
Research and development and other capitalized costs
220 — 
Unrealized (gains) losses on hedging instruments
(199)(33)
Other, net
435 251 
Deferred tax liabilities, net before valuation allowance
(662)(1,861)
Less: Valuation allowance
1,322 968 
Deferred tax liabilities, net
$(1,984)$(2,829)
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, 2022, all of the company’s valuation allowance relates to deferred tax assets, primarily net operating losses and disallowed interest expense carryforward, for which any subsequently recognized tax benefits will reduce income tax expense.
The changes in the valuation allowance are as follows:
 Year Ended December 31,
(In millions)202220212020
Beginning balance
$968 $933 $408 
Additions (reductions) charged to income tax provision, net
344 24 514 
Additions due to acquisitions
14 30 — 
Currency translation and other
(4)(19)11 
Ending balance$1,322 $968 $933 
At December 31, 2022, the company had net federal, state and non-U.S. net operating loss carryforwards of $68 million, $97 million and $1.16 billion, respectively. Use of the carryforwards is limited based on the future income of certain subsidiaries. Of the federal net operating loss carryforwards, $33 million expire in the years 2023 through 2037, and the remainder do not expire. The state net operating loss carryforwards expire in the years 2023 through 2042. Of the net non-U.S. net operating loss carryforwards, $422 million expire in the years 2025 through 2042, and the remainder do not expire.
At December 31, 2022, the company had foreign tax credit carryforwards of $551 million and deferred interest carryforwards of $445 million. The foreign tax credit carryforwards will expire in the years 2025 through 2032 while deferred interest carryforwards do not expire.
U.S. federal taxes have been recorded on approximately $29 billion of undistributed foreign earnings as of December 31, 2022. 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.
Unrecognized Tax Benefits
As of December 31, 2022, the company had $0.57 billion of unrecognized tax benefits substantially all of which, if recognized, would reduce the effective tax rate.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(In millions)202220212020
Beginning balance
$1,124 $1,091 $1,552 
Additions due to acquisitions
15 26 — 
Additions for tax positions of current year
104 32 8 
Additions for tax positions of prior years
24 60 — 
Reductions for tax positions of prior years
(659)(5)(296)
Closure of tax years
(4)(27)— 
Settlements
(32)(53)(173)
Ending balance
$572 $1,124 $1,091 
Substantially all of the unrecognized tax benefits are classified as long-term liabilities. The company does not expect its unrecognized tax benefits to change significantly over the next twelve months.
During 2022, the company’s unrecognized tax benefits increased by $143 million as a result of uncertain tax positions relating to foreign tax positions and decreased $610 million relating to U.S. federal and state tax positions which included $658 million from the settlement of the IRS audit of the 2017 and 2018 tax years. The company also assumed $15 million of uncertain tax benefits as part of the acquisition of PPD.
During 2021, the company’s unrecognized tax benefits increased by $80 million as a result of uncertain tax positions relating to foreign tax positions and decreased $75 million relating to U.S. federal and state tax positions. The company also assumed $26 million of uncertain tax benefits as part of the acquisition of PPD.
During 2020, the company’s unrecognized tax benefits decreased $51 million as a result of uncertain tax positions relating to foreign tax positions and $410 million relating to U.S. federal and state tax positions which included $378 million from the settlement of the IRS audit of the 2014, 2015 and 2016 tax years.
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, 2022 and 2021 was $74 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. state and local or non-U.S. income tax examinations for years before 2012 and no longer subject to U.S. federal income tax examinations for years before 2019.