Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.4
Income Taxes
12 Months Ended
Dec. 28, 2024
Income Tax Disclosure [Abstract]  
Income Taxes [Text Block]
Note 8 : Income Taxes
Provision for (Benefit From) Taxes
Years Ended ($ In Millions) Dec 28, 2024 Dec 30, 2023 Dec 31, 2022
Income (losses) before taxes:
US $ (13,450) $ (4,749) $ (1,161)
Non-US 2,241  5,511  8,929 
Total income before taxes $ (11,210) $ 762  $ 7,768 
Provision for (benefit from) taxes:
Current:
Federal $ 600  $ 538  $ 4,106 
State (8) 23  68 
Non-US 1,364  535  735 
Total current provision for (benefit from) taxes 1,956  1,096  4,909 
Deferred:
Federal 6,192  (2,048) (5,806)
State 67  (21) (40)
Non-US (192) 60  688 
Total deferred provision for (benefit from) taxes 6,067  (2,009) (5,158)
Total provision for (benefit from) taxes $ 8,023  $ (913) $ (249)
Effective tax rate 71.6  % (119.8) % (3.2) %
The difference between the tax provision (benefit) 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 28, 2024 Dec 30, 2023 Dec 31, 2022
Expected provision (benefit) at statutory federal income tax rate
(21.0) % 21.0  % 21.0  %
Increase (reduction) in rate resulting from:
Federal valuation allowance
93.2  —  — 
Goodwill impairment
2.1  —  — 
Share-based compensation
4.2  34.3  3.0 
Unrecognized tax benefits and settlements 1.3  16.3  4.5 
Non-US income taxed at different rates (5.3) (60.6) (13.4)
Research and development tax credits (5.6) (99.0) (11.4)
Foreign derived intangible income benefit
—  (25.1) (9.7)
Restructuring of certain non-US subsidiaries
—  (15.8) (2.2)
Non-deductibility of European Commission fine
—  11.1  (4.1)
Other 2.7  (2.0) 9.1 
Effective tax rate 71.6  % (119.8) % (3.2) %
Our effective tax rate increased in 2024 compared to 2023, primarily driven by the effects associated with the establishment of a valuation allowance against our US federal deferred tax assets in 2024. We assess the recoverability of our deferred tax assets quarterly, weighing available positive and negative evidence. As a result of our assessment in the third quarter of 2024, we determined it was more likely than not that the deferred tax assets will not be recoverable based upon our three-year cumulative historical loss position as of the third quarter of 2024, largely resulting from the asset impairment and restructuring and other charges incurred during 2024. Additionally, our 2024 provision for taxes and 2023 benefit from taxes included 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.
Our effective tax rate decreased in 2023 compared to 2022, primarily driven by our R&D tax credits and a higher proportion of our income being taxed in non-US jurisdictions.
We derive the effective tax rate benefit, or detriment, 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, if available. In 2024 the tax benefit specifically attributable to tax holidays was $67 million ($129 million in 2023 and $220 million in 2022) with a $0.02 impact on diluted earnings per share ($0.03 in 2023 and $0.05 in 2022).
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:
Years Ended (In Millions)
Dec 28, 2024 Dec 30, 2023
Deferred tax assets:
R&D expenditures capitalization $ 10,709  $ 7,726 
State credits and net operating losses 2,830  2,624 
Inventory 1,054  1,430 
Accrued compensation and other benefits 970  931 
Share-based compensation 444  586 
Litigation charge 447  308 
Other, net 1,510  926 
Gross deferred tax assets 17,964  14,531 
Valuation allowance (13,974) (3,047)
Total deferred tax assets 3,990  11,484 
Deferred tax liabilities:
Property, plant, and equipment
(4,063) (5,156)
Licenses and intangibles (159) (494)
Unrealized gains on investments and derivatives (224) (358)
Other, net (403) (203)
Total deferred tax liabilities (4,849) (6,211)
Net deferred tax assets (liabilities) $ (859) $ 5,273 
Reported as:
Deferred tax assets 603  5,459 
Deferred tax liabilities (1,462) (186)
Net deferred tax assets (liabilities) $ (859) $ 5,273 
Changes in the valuation allowance for deferred tax assets were as follows:
Years Ended (In Millions) Dec 28, 2024 Dec 30, 2023
Valuation allowance for deferred tax assets:
Balance at Beginning of Year
$ 3,047  $ 2,586 
Additions Charged to Expenses/Other Accounts
10,927  461 
(Deductions) Recoveries, Net
—  — 
Balance at End of Year
$ 13,974  $ 3,047 
Deferred tax assets are included within other long-term assets on the Consolidated Balance Sheets.
The $10.9 billion change in valuation allowance from December 30, 2023 to December 28, 2024 is largely attributable to the uncertainty regarding the realizability of the US deferred tax assets.
As of December 28, 2024, our federal and non-US net operating loss carryforwards for income tax purposes were $279 million and $2.7 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.
As of December 28, 2024, we have undistributed earnings of certain foreign subsidiaries of approximately $21.0 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 $2.6 billion as of December 28, 2024 ($59 million as of December 30, 2023) are included in other current assets.
Long-term income taxes payable of $1.6 billion as of December 28, 2024 ($2.6 billion as of December 30, 2023) 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
Years Ended (In Millions)
Dec 28, 2024 Dec 30, 2023 Dec 31, 2022
Beginning gross unrecognized tax benefits $ 1,124  $ 1,229  $ 1,020 
Settlements and effective settlements with tax authorities (59) (288) (18)
Changes in balances related to tax position taken during prior periods (8) —  (120)
Changes in balances related to tax position taken during current period 73  183 347
Ending gross unrecognized tax benefits $ 1,130  $ 1,124  $ 1,229 
If the remaining balance of unrecognized tax benefits were recognized in a future period, it would result in a tax benefit of $946 million as of December 28, 2024 ($962 million as of December 30, 2023) 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 28, 2024, 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.