Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.4
Income Taxes
 12 Months Ended
Dec. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes [Text Block]
Note 8 : Income Taxes
Provision for (Benefit From) Taxes
Years Ended (In Millions) Dec 30, 2023 Dec 31, 2022 Dec 25, 2021
Income (losses) before taxes:
US $ (4,749) $ (1,161) $ 9,361 
Non-US 5,511  8,929  12,342 
Total income before taxes 762  7,768  21,703 
Provision for (benefit from) taxes:
Current:
Federal 538  4,106  1,304 
State 23  68  75 
Non-US 535  735  1,198 
Total current provision for (benefit from) taxes 1,096  4,909  2,577 
Deferred:
Federal (2,048) (5,806) (863)
State (21) (40) (25)
Non-US 60  688  146 
Total deferred provision for (benefit from) taxes (2,009) (5,158) (742)
Total provision for (benefit from) taxes $ (913) $ (249) $ 1,835 
Effective tax rate (119.8) % (3.2) % 8.5  %
The difference between the tax provision at the statutory federal income tax rate and the tax provision as a percentage of income before income taxes (effective tax rate) for each period was as follows:
Years Ended
 Dec 30, 2023 Dec 31, 2022 Dec 25, 2021
Statutory federal income tax rate 21.0  % 21.0  % 21.0  %
Increase (reduction) in rate resulting from:
Research and development tax credits (99.0) (11.4) (2.4)
Non-US income taxed at different rates (60.6) (13.4) (5.9)
Foreign derived intangible income benefit
 (25.1) (9.7) (2.2)
Restructuring of certain non-US subsidiaries
(15.8) (2.2) (3.4)
Share-based compensation
 34.3  3.0  — 
Unrecognized tax benefits and settlements 16.3  4.5  1.1 
Non-deductibility of European Commission fine
 11.1  (4.1) — 
Other (2.0) 9.1  0.3 
Effective tax rate (119.8) % (3.2) % 8.5  %
Our effective tax rate decreased in 2023 compared to 2022, primarily driven by our R&D tax credits, which provide a tax benefit based on our eligible R&D spending and are not dependent on lower income before taxes, and a higher proportion of our income being taxed in non-US jurisdictions.
Our effective tax rate decreased in 2022 compared to 2021, primarily driven by a higher proportion of our income being taxed in non-US jurisdictions and a change in tax law from 2017 Tax Reform related to the capitalization of R&D expenses that went into effect in January 2022.
We derive the effective tax rate benefit attributed to non-US income taxed at different rates primarily from our operations in Hong Kong, Ireland, Israel, and Malaysia. The statutory tax rates in these jurisdictions range from 12.5% to 24.0%. We are subject to reduced tax rates in Israel and Malaysia as long as we conduct certain eligible activities and make certain capital investments. We have conditional reduced tax rates that expire at various dates through 2056, and we expect to apply for renewals upon expiration. In 2023 the tax benefit specifically attributable to tax holidays was $129 million ($220 million for 2022 and $187 million for 2021) with a $0.03 impact on diluted earnings per share ($0.05 for 2022 and $0.05 for 2021).
Deferred and Current Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities at the end of each period were as follows:
(In Millions)
 Dec 30, 2023 Dec 31, 2022
Deferred tax assets:
R&D expenditures capitalization $ 7,726  $ 5,067 
State credits and net operating losses 2,624  2,259 
Inventory 1,430  1,788 
Accrued compensation and other benefits 931  1,031 
Share-based compensation 586  557 
Litigation charge 308  470 
Other, net 926  709 
Gross deferred tax assets 14,531  11,881 
Valuation allowance (3,047) (2,586)
Total deferred tax assets 11,484  9,295 
Deferred tax liabilities:
Property, plant, and equipment
 (5,156) (4,776)
Licenses and intangibles (494) (386)
Unrealized gains on investments and derivatives (358) (415)
Other, net (203) (470)
Total deferred tax liabilities (6,211) (6,047)
Net deferred tax assets (liabilities) $ 5,273  $ 3,248 
Reported as:
Deferred tax assets 5,459  3,450 
Deferred tax liabilities (186) (202)
Net deferred tax assets (liabilities) $ 5,273  $ 3,248 
Changes in the valuation allowance for deferred tax assets were as follows:
Years Ended (In Millions)
Balance at Beginning of Year
 Additions Charged to Expenses/
Other Accounts		 Net
(Deductions)
Recoveries		 Balance at
End of Year
Valuation allowance for deferred tax assets
December 30, 2023 $ 2,586  $ 461  $ —  $ 3,047 
December 31, 2022 $ 2,259  $ 401  $ (74) $ 2,586 
December 25, 2021 $ 1,963  $ 442  $ (146) $ 2,259 
Deferred tax assets are included within other long-term assets on the Consolidated Balance Sheets.
The valuation allowance as of December 30, 2023 included allowances primarily related to unrealized state credit carryforwards of $2.6 billion.
As of December 30, 2023, our federal and non-US net operating loss carryforwards for income tax purposes were $325 million and $1.7 billion, respectively. The majority of the federal and non-US net operating loss carryforwards have no expiration date. The remaining federal and non-US net operating loss carryforwards expire at various dates through 2040. The federal and non-US net operating loss carryforwards include $141 million and $1.7 billion, respectively, that are not likely to be recovered and have been reduced by a valuation allowance.
As of December 30, 2023, we have undistributed earnings of certain foreign subsidiaries of approximately $19.9 billion that we have indefinitely invested, and on which we have not recognized deferred taxes. Estimating the amount of potential tax is not practicable because of the complexity and variety of assumptions necessary to compute the tax.
Current income taxes receivable of $59 million as of December 30, 2023 ($138 million as of December 31, 2022) are included in other current assets.
Long-term income taxes payable of $2.6 billion as of December 30, 2023 ($3.8 billion as of December 31, 2022) are primarily composed of the transition tax from Tax Reform, which is payable over eight years beginning in 2018, as well as amounts for uncertain tax positions, reduced by the associated deduction for state taxes and non-US tax credits.
Uncertain Tax Positions
(In Millions) Dec 30, 2023 Dec 31, 2022 Dec 25, 2021
Beginning gross unrecognized tax benefits $ 1,229  $ 1,020  $ 828 
Settlements and effective settlements with tax authorities (288) (18) (25)
Changes in balances related to tax position taken during prior periods —  (120) (26)
Changes in balances related to tax position taken during current period 183 347 243
Ending gross unrecognized tax benefits $ 1,124  $ 1,229  $ 1,020 
If the remaining balance of unrecognized tax benefits were recognized in a future period, it would result in a tax benefit of $962 million as of December 30, 2023 ($914 million as of December 31, 2022) and a reduction in the effective tax rate. Interest, penalties, and accrued interest related to unrecognized tax benefits were insignificant in the periods presented.
We regularly engage in discussions and negotiations with tax authorities regarding tax matters in the various jurisdictions in which we conduct business. Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that certain US federal and non-US tax audits may be concluded within the next 12 months, which could increase or decrease the balance of our gross unrecognized tax benefits. We estimate that the unrecognized tax benefits as of December 30, 2023 could decrease by as much as $314 million in the next 12 months.
We file federal, state, and non-US tax returns. We are no longer subject to US federal and non-US tax examinations for years prior to 2018 and 2015, respectively. For US state tax returns, we are no longer subject to tax examination for years prior to 2015.