Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes [Text Block]
Note 8 : Income Taxes
Provision for (Benefit From) Taxes
Years Ended (In Millions) Dec 31, 2022 Dec 25, 2021 Dec 26, 2020
Income before taxes:
US $ (1,161) $ 9,361  $ 15,452 
Non-US 8,929  12,342  9,626 
Total income before taxes 7,768  21,703  25,078 
Provision for (benefit from) taxes:
Current:
Federal 4,106  1,304  1,120 
State 68  75  46 
Non-US 735  1,198  1,244 
Total current provision for (benefit from) taxes 4,909  2,577  2,410 
Deferred:
Federal (5,806) (863) 1,369 
State (40) (25) 25 
Non-US 688  146  375 
Total deferred provision for (benefit from) taxes (5,158) (742) 1,769 
Total provision for (benefit from) taxes $ (249) $ 1,835  $ 4,179 
Effective tax rate (3.2) % 8.5  % 16.7  %
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 31, 2022 Dec 25, 2021 Dec 26, 2020
Statutory federal income tax rate 21.0  % 21.0  % 21.0  %
Increase (reduction) in rate resulting from:
Non-US income taxed at different rates (13.4) (5.9) (3.7)
Research and development tax credits (11.4) (2.4) (2.1)
Foreign derived intangible income benefit (9.7) (2.2) (1.9)
Unrecognized tax benefits and settlements 4.5  1.1  0.6 
Restructuring of certain non-US subsidiaries —  (3.4) — 
Change in permanent reinvestment assertion —  —  1.6 
Other 5.8  0.3  1.2 
Effective tax rate (3.2) % 8.5  % 16.7  %
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.

Our effective tax rate decreased in 2021 compared to 2020, primarily driven by one-time tax benefits due to the restructuring of certain non-US subsidiaries as well as a higher proportion of our income in non-US jurisdictions. As a result of the restructuring, we established deferred tax assets and released the valuation allowances of certain foreign deferred tax assets. The majority of these deferred tax assets established in 2021 fully offset the deferred tax liabilities recognized in 2020 driven by a change in our permanent reinvestment assertion with respect to undistributed earnings in China, as a result of the divestiture of our NAND memory business.
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 2022, the tax benefit specifically attributable to tax holidays was $220 million ($187 million for 2021 and $134 million for 2020) with a $0.05 impact on diluted earnings per share ($0.05 for 2021 and $0.03 for 2020).
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 31, 2022 Dec 25, 2021
Deferred tax assets:
R&D expenditures capitalization $ 5,067  $ 519 
State credits and net operating losses 2,259  2,010 
Inventory 1,788  914 
Accrued compensation and other benefits 1,031  1,019 
Share-based compensation 557  477 
Litigation charge 470  467 
Other, net 709  819 
Gross deferred tax assets 11,881  6,225 
Valuation allowance (2,586) (2,259)
Total deferred tax assets 9,295  3,966 
Deferred tax liabilities:
Property, plant and equipment (4,776) (4,213)
Licenses and intangibles (386) (486)
Unrealized gains on investments and derivatives (415) (819)
Other, net (470) (241)
Total deferred tax liabilities (6,047) (5,759)
Net deferred tax assets (liabilities) $ 3,248  $ (1,793)
Reported as:
Deferred tax assets 3,450  874 
Deferred tax liabilities (202) (2,667)
Net deferred tax assets (liabilities) $ 3,248  $ (1,793)
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 31, 2022 $ 2,259  $ 401  $ (74) $ 2,586 
December 25, 2021 $ 1,963  $ 442  $ (146) $ 2,259 
December 26, 2020 $ 1,534  $ 378  $ 51  $ 1,963 
Deferred tax assets are included within other long-term assets on the Consolidated Balance Sheets.
The valuation allowance as of December 31, 2022 included allowances primarily related to unrealized state credit carryforwards of $2.3 billion.
As of December 31, 2022, our federal and non-US net operating loss carryforwards for income tax purposes were $379 million and $478 million, 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 $442 million, respectively, that is not likely to be recovered and has been reduced by a valuation allowance.
As of December 31, 2022, we have undistributed earnings of certain foreign subsidiaries of approximately $19.3 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 $138 million as of December 31, 2022 ($23 million as of December 25, 2021) are included in other current assets.
Long-term income taxes payable of $3.8 billion as of December 31, 2022 ($4.3 billion as of December 25, 2021) is primarily comprised 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 31, 2022 Dec 25, 2021 Dec 26, 2020
Beginning gross unrecognized tax benefits $ 1,020  $ 828  $ 548 
Settlements and effective settlements with tax authorities (18) (25) (142)
Changes in balances related to tax position taken during prior periods (120) (26) 165 
Changes in balances related to tax position taken during current period 347 243 257
Ending gross unrecognized tax benefits $ 1,229  $ 1,020  $ 828 
If the remaining balance of unrecognized tax benefits were recognized in a future period, it would result in a tax benefit of $914 million as of December 31, 2022 ($721 million as of December 25, 2021) 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 31, 2022 could decrease by as much as $366 million in the next 12 months.
We file federal, state, and non-US tax returns. Excluding pre-acquisition Altera tax years, we are no longer subject to US federal and non-US tax examinations for years prior to 2013 and 2012. For US state tax returns, we are no longer subject to tax examination for years prior to 2015.