|12 Months Ended|
Dec. 31, 2022
|Income Tax Disclosure [Abstract]|
|Income Taxes||Income TaxesIncome before income taxes consists of the following:
The income tax provision (benefit) consists of:
The table below displays the reconciliation between statutory federal income taxes and the total income tax provision (benefit).
The Company recorded an income tax benefit of $122 million in 2022 and an income tax provision of $513 million in 2021, representing effective tax rates of (10%) and 14%, respectively. The reduction in income tax expense in 2022 was primarily due to the lower pre-tax income coupled with a $261 million FDII tax benefit and $241 million of research and development (R&D) tax credits.
Beginning in 2022, provisions in the U.S. Tax Cuts and Jobs Act of 2017 require the Company to capitalize and amortize R&D expenditures rather than deducting the costs as incurred. The capitalization resulted in an increase in 2022 taxable income which also increased the income eligible for the FDII tax benefit. Additionally, there was a pre-tax loss incurred outside of the U.S. primarily due to the GAAP amortization of Xilinx acquisition-related items and therefore, the Company recorded a corresponding tax benefit associated with the reversal of the previously established GILTI deferred tax liability.
As a part of the Xilinx acquisition and as a result of certain employment and operational commitments the Company has made in Singapore, the Company has been granted a Development and Expansion Incentive (DEI) that is effective through 2031. The DEI reduces the local tax on Singapore income from a statutory rate of 17% to 5% through 2031. Due to the current year pre-tax loss, the Company did not receive any income tax or EPS benefit.
The Company recorded an income tax provision of $513 million in 2021 and an income tax benefit of $1.2 billion in 2020, representing effective tax rates of 14% and (95)% respectively. The income tax provision in 2021 was a result of higher income in the U.S. and increase in foreign taxes, partially offset by $147 million of FDII benefit, $78 million of R&D tax credits, and $125 million of excess tax benefit for stock-based compensation net of non-deductible officers’ compensation.
The income tax benefit in 2020 was primarily due to $1.3 billion of tax benefit from the valuation allowance release in the U.S. This benefit was partially offset by approximately $10 million of withholding tax expense related to cross-border transactions, $13 million of state and foreign taxes and $75 million increase in valuation allowance against certain state and foreign tax credits, which are reflected as part of the state taxes and foreign rate benefit in the reconciliation table above.
Deferred income taxes reflect the net tax effects of tax carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the balances for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and December 25, 2021 were as follows:
As a result of the acquisition of Xilinx, the Company recorded $4.3 billion of net deferred tax liabilities primarily on the excess of book basis over the tax basis of the acquired intangible assets, including $857 million of GILTI net deferred tax liability.
Additionally, as the result of the new R&D capitalization tax law effective in 2022, the capitalized amounts resulted in increased current year taxable income, but which are deductible as amortized in future periods. Therefore, the Company recorded a deferred tax asset for the capitalized R&D expenditures.
The movement in the deferred tax valuation allowance was as follows:
Under current U.S. tax law, the impact of future distributions of undistributed earnings that are indefinitely reinvested are anticipated to be subject to withholding taxes from local jurisdictions and non-conforming U.S. state jurisdictions. The amount of cumulative undistributed earnings that are permanently reinvested that could be subject to withholding taxes are $460 million as of December 31, 2022.
Through the end of fiscal year 2022, the Company continued to maintain a valuation allowance of approximately $2.1 billion for certain federal, state, and foreign tax attributes. The federal valuation allowance maintained is due to limitations under Internal Revenue Code Section 382 or 383, separate return loss year rules, or dual consolidated loss rules. Certain state and foreign valuation allowance maintained is due to lack of sufficient sources of future taxable income.
The Company’s U.S. federal and state net operating losses carryforwards as of December 31, 2022, were $435 million and $476 million, respectively. Net operating losses (NOLs) may be subject to limitations by the Internal Revenue Code and similar provisions. $71 million of U.S. federal NOLs will expire between 2023 and 2037, and $364 million of federal NOLs have no expiration date, and the state NOLs will expire at various dates through 2042. The difference between the amount of federal NOLs which are recorded on the Company’s balance sheet as deferred tax assets and their related valuation allowance, and the amounts reported on the Company’s tax returns are the result of uncertain tax positions the Company has taken during the current year and for which an income tax reserve has been recorded. The federal tax credits of $12 million will expire at various dates between 2023 and 2042. The state tax credits of $722 million will expire at various dates between 2023 through 2038 except for California R&D credit, which does not expire. The Company also has $595 million of credit carryforward in Canada that will expire between 2026 and 2040.
The Company also recorded $142 million of current tax payable as of the Xilinx acquisition date. Additionally, the Company assumed $203 million of long-term liabilities for uncertain tax positions, including $12 million of interest, as well as $321 million of long-term liabilities for transition tax payable over three years. Included in the assumed liabilities for uncertain tax positions is a tax position with respect to whether stock-based compensation from Xilinx’s cost sharing arrangement should be shared among cost share participants. The Company has concluded that the law was unsettled and believes the current uncertain tax position liability is sufficient and will continue to monitor developments in relevant tax court cases.
A reconciliation of the Company's gross unrecognized tax benefits was as follows:
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized was $1.2 billion, $215 million and $77 million as of December 31, 2022, December 25, 2021 and December 26, 2020, respectively. The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the Consolidated Statements of Operations. The Company had $81.3 million of accrued penalties and interest related to unrecognized tax benefits as of December 31, 2022 including $12 million assumed from the Xilinx acquisition. The Company had no material amounts of accrued interest and accrued penalties related to unrecognized tax benefits as of December 25, 2021 and December 26, 2020. As of December 31, 2022 and December 25, 2021, the Company had long-term income tax liabilities of $1.3 billion and $189 million, respectively, recorded under Other long-term liabilities in the Consolidated Balance Sheets.
The Company is subject to taxation in the U.S. and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The material jurisdiction in which the Company is subject to potential examination by the taxing authority is the United States, where tax years from 2008 are open for audit. Pre-acquisition Xilinx U.S. tax returns for fiscal years 2018 and 2019 are currently under audit by the IRS.It is possible the Company may have tax audits close in the next 12 months that could materially change the balance of the uncertain tax benefits; however, the timing of tax audit closures and settlements are highly uncertain. The Company and its subsidiaries have several foreign and U.S. state audits in process at any one point in time.
No definition available.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef