SEC Filings

10-Q
MEDTRONIC PLC filed this Form 10-Q on 12/04/2017
Entire Document
 


INCOME TAXES
 
Three months ended
 
Six months ended
(in millions)
October 27, 2017
 
October 28, 2016
 
October 27, 2017
 
October 28, 2016
Income tax (benefit) provision
$
(285
)
 
$
101

 
$
(99
)
 
$
160

Income before income taxes
1,728

 
1,212

 
2,923

 
2,200

Effective tax rate
(16.5
)%
 
8.3
%
 
(3.4
)%
 
7.3
%
 
 
 
 
 
 
 
 
Non-GAAP income tax provision
$
256

 
$
268

 
$
486

 
$
538

Non-GAAP income before income taxes
1,708

 
1,825

 
3,472

 
3,538

Non-GAAP Nominal Tax Rate
15.0
 %
 
14.7
%
 
14.0
 %
 
15.2
%
 
 
 
 
 
 
 
 
Difference between the effective tax rate and Non-GAAP Nominal Tax Rate
31.5
 %
 
6.4
%
 
17.4
 %
 
7.9
%
Many of the countries we operate in have statutory tax rates lower than the U.S., thereby resulting in an overall effective tax rate less than the U.S. statutory rate of 35 percent. A significant portion of our earnings are generated from operations in Puerto Rico, Switzerland, and Ireland. The statutory tax rates for these jurisdictions range from 12.5 percent to 39.0 percent. Our earnings in Puerto Rico and Switzerland are subject to certain tax incentive grants which provide for tax rates lower than the country statutory tax rates. Unless our tax incentive grants are extended, they will expire between fiscal years 2018 and 2029. The tax incentive grants scheduled to expire during fiscal year 2018 are not expected to have a material impact on our financial results. See Note 15 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 28, 2017 for additional information.
Our effective tax rate for the three and six months ended October 27, 2017 was (16.5) percent and (3.4) percent, respectively, as compared to 8.3 percent and 7.3 percent for the three and six months ended October 28, 2016, respectively. The decrease in our effective tax rate for the three and six months ended October 27, 2017 was primarily due to the impacts from the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses, the utilization of non-U.S. special deductions, and the tax effect from the intercompany sales of certain intellectual property.
Our Non-GAAP Nominal Tax Rate for the three and six months ended October 27, 2017 was 15.0 percent and 14.0 percent, respectively, as compared to 14.7 percent and 15.2 percent for the three and six months ended October 28, 2016, respectively. The change in our Non-GAAP Nominal Tax Rate was primarily due to the finalization of certain tax audits, the lapse of a statute of limitations for federal purposes, excess tax benefits related to stock based compensation due to the adoption of new guidance and year-over-year changes in operational results by jurisdiction. An increase in our Non-GAAP Nominal Tax Rate of 1 percent would result in an additional income tax provision for the three and six months ended October 27, 2017 of approximately $17 million and $35 million, respectively.
Certain Tax Adjustments In August 2017, we received a tax ruling confirming the treatment of various intercompany transactions which have the effect of utilizing the $12.0 billion of non-U.S. special deductions previously disclosed in our Annual Report on Form 10-K for the fiscal year ended April 28, 2017. The ruling allowed us to offset a portion of the gain on the sale of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses as well as recognize a net income tax benefit associated with an intercompany sale of intellectual property and the associated elimination of a deferred tax liability.
During the six months ended October 27, 2017, we recognized a $344 million net benefit comprised of a $398 million net tax benefit associated with the intercompany sales of certain intellectual property and a $54 million net tax charge primarily associated with the sale of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. Inclusive of the tax adjustments recorded during the fourth quarter of fiscal year 2017 and the six months ended October 27, 2017, the tax adjustment related to the divestiture of our Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses was a net income tax charge of $175 million. These net benefits were recorded within income tax (benefit) provision in the consolidated statement of income for the six months ended October 27, 2017.
During the six months ended October 28, 2016, we recognized a $31 million net benefit from certain tax adjustments. A $431 million tax benefit was recognized as a result of the resolution of Covidien's previously disclosed Tyco International plc intercompany debt issues with the U.S. Tax Court and the Appeals Division of the U.S. Internal Revenue Service (IRS). This benefit was partially offset by a $371 million charge associated with the expected resolution with the IRS for the for the Ardian, CoreValve, Inc. and Ablation Frontiers, Inc. acquisition-related issues and the allocation of income between Medtronic, Inc. and its wholly owned subsidiary operating in Puerto Rico for certain businesses. This resolution did not include the businesses that are the subject of the Medtronic, Inc. U.S. Tax Court case for fiscal years 2005 and 2006. In addition, we recognized a $29 million

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