AMGN » Topics » Income taxes

These excerpts taken from the AMGN 10-K filed Mar 1, 2010.

Income taxes

Our effective tax rate was 11.5%, 19.2% and 18.9% for 2009, 2008 and 2007, respectively. Our effective tax rate for 2009 decreased over 2008 primarily due to: (i) the favorable resolution of certain prior years’ matters with tax authorities, (ii) higher profits and manufacturing in Puerto Rico, which are taxed under an incentive grant, and (iii) a tax benefit from adjustments to previously established deferred taxes arising from changes in California tax law enacted in 2009 and effective for subsequent periods. The resolution of prior years’ tax matters recognized in the year ended December 31, 2009 reduced the effective tax rate by 4.2%.

Our effective tax rate for 2008 remained relatively unchanged from 2007. Although the 2007 effective tax rate benefited from the favorable resolution of certain income tax examinations, this benefit was substantially offset by the write-off of nondeductible acquired IPR&D costs, resulting in a comparable effective tax rate between the two years.

As permitted under U.S. GAAP, we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside of the United States.

(See “Summary of Critical Accounting Policies – Income taxes” and Note 5, “Income taxes” to the Consolidated Financial Statements for further discussion.)

Income taxes

The Company provides for income taxes based on pretax income, applicable tax rates and tax planning opportunities available in the various jurisdictions in which it operates.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements on a particular tax position are measured based on the largest benefit that has greater than a 50% likelihood of being realized upon settlement. The amount of UTBs is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or

 

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resolution of an examination. We believe that our estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of our tax returns. We recognize both accrued interest and penalties, where appropriate, related to UTBs in income tax expense.

Certain items are included in the Company’s tax return at different times than they are reflected in the financial statements. Such timing differences create deferred tax assets and liabilities. Deferred tax assets are generally items that can be used as a tax deduction or credit in the tax return in future years but for which the Company has already recorded the tax benefit in the financial statements. The Company establishes valuation allowances against its deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Deferred tax liabilities are either: (i) a tax expense recognized in the financial statements for which payment has been deferred; or (ii) an expense for which the Company has already taken a deduction on the tax return, but has not yet recognized the expense in the financial statements.

Our effective tax rate reflects the impact of undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are intended to be invested indefinitely outside the United States based on our projected cash flow, working capital and long-term investment requirements of our U.S. and foreign operations. If future events, including material changes in estimates of cash, working capital and long-term investment requirements necessitate that certain assets associated with these earnings be repatriated to the United States, an additional tax provision and related liability would be required at the applicable U.S. and state marginal income tax rates which could materially impact our future effective tax rate.

Our operations are subject to the tax laws, regulations and administrative practices of the United States, U.S. state jurisdictions and other countries in which we do business. Significant changes in these rules could have a material adverse effect on the results of operations. For example, substantial reform of U.S. tax law regarding tax on certain foreign profits could result in an increase in our effective tax rate, which could have a material adverse effect on our financial results.

Income taxes

We provide for income taxes based on pretax income, applicable tax rates and tax planning opportunities available in the various jurisdictions in which we operate.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements on a particular tax position are measured based on the largest benefit that has a greater than a 50% likelihood of being realized upon settlement. The amount of unrecognized tax benefits (“UTBs”) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. We recognize both accrued interest and penalties, where appropriate, related to UTBs in income tax expense. See Note 5, “Income taxes.

These excerpts taken from the AMGN 10-Q filed May 11, 2009.

5.    Income taxes

The effective tax rates for the three months ended March 31, 2009 and March 31, 2008 are different from the statutory rates primarily as a result of indefinitely invested earnings of our foreign operations. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States.

One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely audited by the tax authorities in those jurisdictions. Significant disputes can arise with these tax authorities involving issues of the timing and amount of deductions, the use of tax credits and allocations of income among various tax jurisdictions because of differing interpretations of tax laws and regulations. We are no longer subject to U.S. federal income tax examinations for years ending on or before December 31, 2004 or to California state income tax examinations for years ending on or before December 31, 2003.

The Internal Revenue Service (“IRS”) is currently examining our U.S. income tax returns for the years ended December 31, 2005 and 2006. This examination is currently anticipated to be completed in 2009. As of March 31, 2009, the IRS has proposed certain audit adjustments. The Company is currently evaluating those proposed adjustments to determine if it agrees. If accepted, the Company does not anticipate that the adjustments would result in a material adverse impact to our consolidated financial position, results of operations or cash flows.

 

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AMGEN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

During the three months ended March 31, 2009, the gross amount of our unrecognized tax benefits (“UTBs”) increased approximately $90 million as a result of tax positions taken during the current year. The majority of our UTBs at March 31, 2009, if recognized, would affect our effective tax rate.

As of March 31, 2009, we believe that it is reasonably possible that our gross liabilities for UTBs may decrease by $100 million to $275 million within the succeeding twelve months due to potential tax settlements.

Income taxes

Our effective tax rate for the three months ended March 31, 2009 was 17.3% compared to 20.3% for the corresponding period of the prior year. The decrease in our effective tax rate was primarily due to: (i) the inclusion of the benefit of the federal research and experimentation (“R&E”) tax credit in the three months ended March 31, 2009 (the federal R&E credit was not in effect during 2008 until it was retroactively reinstated during the three months ended December 31, 2008) and (ii) a benefit in the three months ended March 31, 2009 relating to adjustments to previously established deferred taxes due to changes in California tax law effective for future periods.

See Note 5, “Income taxes” to the Condensed Consolidated Financial Statements for further discussion.

These excerpts taken from the AMGN 10-K filed Feb 27, 2009.

Income taxes

Our effective tax rate was 20.1%, 20.1% and 26.6% for 2008, 2007 and 2006, respectively. Our effective tax rate for 2008 remained relatively unchanged from 2007. Although the 2007 effective tax rate benefited from the favorable resolution of certain income tax examinations, this benefit was substantially offset by the write-off of nondeductible acquired IPR&D costs, resulting in a comparable effective tax rate between the two years.

Our effective tax rate for 2007 decreased over 2006 primarily due to the lesser amount of the write-off of nondeductible acquired IPR&D costs in 2007 than in 2006 and the greater tax benefit from the favorable resolutions of our prior years’ income tax examinations in 2007 than in 2006.

As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes — Special Areas,” we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside of the United States.

(See Note 5, “Income taxes” to the Consolidated Financial Statements for further discussion.)

Income taxes

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">Our effective tax rate was 20.1%, 20.1% and 26.6% for 2008, 2007 and 2006, respectively. Our effective tax rate for 2008 remained relatively unchanged
from 2007. Although the 2007 effective tax rate benefited from the favorable resolution of certain income tax examinations, this benefit was substantially offset by the write-off of nondeductible acquired IPR&D costs, resulting in a comparable
effective tax rate between the two years.

Our effective tax rate for 2007 decreased over 2006 primarily due to the lesser amount of the
write-off of nondeductible acquired IPR&D costs in 2007 than in 2006 and the greater tax benefit from the favorable resolutions of our prior years’ income tax examinations in 2007 than in 2006.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes — Special Areas,” we
do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside of the United States.

FACE="Times New Roman" SIZE="2">(See Note 5, “Income taxes” to the Consolidated Financial Statements for further discussion.)

This excerpt taken from the AMGN 10-Q filed Nov 7, 2008.

Income taxes

Our effective tax rates for the three and nine months ended September 30, 2008 were 21.3% and 21.0%, respectively, compared with 46.0% and 19.7%, respectively, for the same periods last year. The decrease in our effective tax rate for the three months ended September 30, 2008 compared to the same period last year was primarily due to the non-deductible, acquired IPR&D expense incurred in connection with the acquisitions of Alantos and Ilypsa in 2007, partially offset by expiration of the federal research and experimentation tax credit (“R&D credit”) on December 31, 2007. The increase in our effective tax rate for the nine months ended September 30, 2008 compared to the same period last year was primarily due to the favorable resolution of our prior year’s federal income tax examination in the second quarter of 2007, expiration of federal R&D credit for 2008 that was not extended prior to September 30, 2008, partially offset by the non-deductible, acquired IPR&D expense incurred in connection with Alantos and Ilypsa in 2007.

See Note 4, “Income taxes” to the Condensed Consolidated Financial Statements for further discussion.

 

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This excerpt taken from the AMGN 10-Q filed Aug 8, 2008.

Income taxes

Our effective tax rates for the three and six months ended June 30, 2008 were 20.8% and 20.9%, respectively, compared with 10.4% and 15.8%, respectively, for the same periods last year. The increase in our effective tax rate for the three months and six months ended June 30, 2008 compared to the same periods last year was primarily due to the expiration of the federal research and experimentation tax credit on December 31, 2007, and favorable resolution of our prior year’s federal examination in the second quarter of 2007.

See Note 4, “Income taxes” to the Condensed Consolidated Financial Statements for further discussion.

This excerpt taken from the AMGN 10-Q filed May 12, 2008.

Income taxes

Our effective tax rate for the three months ended March 31, 2008 was 21.0%, compared with 20.3% for the same period last year. The increase in our effective tax rate for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 was primarily due to the expiration of the federal research and experimentation tax credit (“R&E Credit”) on December 31, 2007, partially offset by a proportionate increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States relative to total pretax income.

See Note 4, “Income taxes” to the Condensed Consolidated Financial Statements for further discussion.

This excerpt taken from the AMGN 10-K filed Feb 28, 2008.

Income taxes

Our effective tax rate was 20.1%, 26.6% and 24.5% for 2007, 2006 and 2005, respectively. The decrease in our effective tax rate for 2007 as compared to 2006 was primarily due to the lesser amount of the write-off of nondeductible acquired IPR&D costs in 2007 than 2006 and the greater tax benefit from the favorable resolutions of our prior years’ income tax examinations in 2007 than 2006.

Our effective tax rate for 2006 increased over 2005 primarily due to the write-off of non-deductible acquired IPR&D costs in connection with the acquisitions of Abgenix and Avidia. The increase in the rate was partially offset by an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States, the absence of tax on the repatriation of foreign earnings in 2005 under the American Jobs Creation Act and favorable audit settlements.

 

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As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes — Special Areas,” we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside of the United States.

(See Note 5, “Income taxes” to the Consolidated Financial Statements for further discussion.)

This excerpt taken from the AMGN 10-Q filed Nov 9, 2007.

Income taxes

Our effective tax rates for the three and nine months ended September 30, 2007 were 46.0% and 19.7%, respectively, compared with 19.0% and 29.2% for the three and nine months ended September 30, 2006, respectively. The increase in our effective tax rate for the three months ended September 30, 2007 was primarily due to the non-deductible, acquired IPR&D incurred in connection with the acquisitions of Alantos and Ilypsa in 2007 and the favorable resolution of prior years’ federal and state examinations in 2006, partially offset by the research and experimentation tax credit (“R&E Credit”) which was re-enacted in the fourth quarter of 2006 and enhanced in 2007, and an increase in the amount of earnings that are intended to be invested indefinitely outside the United States. Our effective tax rate for the nine months ended September 30, 2007 has decreased primarily due to the lower amount of non-deductible, acquired IPR&D written-off in connection with the acquisitions of Alantos and Ilypsa in 2007 compared with the amount written-off in connection with the acquisition of Abgenix in 2006, the greater tax benefit from the favorable resolution of our prior years’ federal examination in 2007 compared with the favorable resolutions in 2006, the re-enacted and enhanced R&E Credit, and an increase in the amount of earnings that are intended to be invested indefinitely outside the United States.

See Note 4, “Income taxes,” to the Condensed Consolidated Financial Statements for further discussion.

This excerpt taken from the AMGN 10-Q filed Aug 9, 2007.

Income taxes

Our effective tax rates for the three and six months ended June 30, 2007 were 10.4% and 15.8%, respectively, compared with 95.6% and 37.7%, respectively, for the same periods last year. Our effective tax rates for the three and six months ended June 30, 2007 have decreased primarily due to the write-off of acquired IPR&D cost in connection with the acquisition of Abgenix in the second quarter of 2006 and the favorable resolution of our prior years’ federal examination in the second quarter of 2007. The resolution of prior years’ tax matters recognized in the three months ended June 30, 2007 impacted the effective tax rates for the three and six months ended June 30, 2007 by (10.6%) and (4.8%), respectively. See Note 3, “Income taxes” to the Condensed Consolidated Financial Statements for further discussion.

 

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This excerpt taken from the AMGN 10-Q filed May 9, 2007.

Income taxes

Our effective tax rate for the three months ended March 31, 2007 was 20.3%, compared with 23.8% for the same period last year. Our effective tax rate for the three months ended March 31, 2007 has decreased primarily due to an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States and the reinstatement of the federal research and experimentation (R&E) credit in the fourth quarter of 2006. The R&E credit expired at December 31, 2005, and was not available for the three months ended March 31, 2006. The rate for the three months ended March 31, 2007 also decreased due to the absence of a one-time taxable dividend that was received in the three months ended March 31, 2006. As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes – Special Areas,” we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States.

See Note 3, “Income taxes” to the Condensed Consolidated Financial Statements for further discussion.

This excerpt taken from the AMGN 10-K filed Feb 28, 2007.

Income taxes

Our effective tax rate was 26.6%, 24.5% and 30.4% for 2006, 2005 and 2004, respectively.

Our effective tax rate for 2006 increased primarily due to the write-off of acquired IPR&D costs in connection with the acquisitions of Abgenix and Avidia, which is not deductible for tax purposes. The increase in the rate was partially offset by an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States and favorable audit settlements. In addition, the 2005 tax rate was negatively impacted by the tax on the repatriation of foreign earnings in 2005 under the American Jobs Creation Act of 2004. As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes — Special Areas,” we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States.

 

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The 2005 effective tax rate was lower than the 2004 effective tax rate due to the favorable resolution of prior year foreign tax credit claims and R&D tax credits with the Internal Revenue Service (“IRS”), and the absence of the write-off of non-deductible IPR&D costs in connection with the acquisition of Tularik in 2004. This decrease was partially offset by the tax on the repatriation of foreign earnings in 2005 under the American Jobs Creation Act. In the fourth quarter of 2005, we repatriated $500 million of foreign earnings, which was the maximum amount of foreign earnings qualifying for the reduced tax rate. The tax expense incurred on the repatriation was approximately $43 million.

(See Note 4, “Income taxes” to the Consolidated Financial Statements for further discussion.)

This excerpt taken from the AMGN 10-Q filed Nov 9, 2006.

Income taxes

Our effective tax rates for the three and nine months ended September 30, 2006 were 19.0% and 29.2%, respectively, compared with 26.3% and 24.2%, respectively, for the same periods last year. The decrease in our effective tax rate for the three months ended September 30, 2006 as compared to the three months ended September 30, 2005 was primarily due to the favorable resolution of prior year federal and state audits and an increase in the amount of earnings intended to be invested indefinitely outside of the United States, partially offset by the expiration of the federal research and experimentation (“R&E”) credit in 2005. Our effective tax rate for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005 has increased primarily due to the write-off of acquired IPR&D costs in connection with the acquisition of Abgenix, and to a lesser degree, the expiration of the federal R&E credit in 2005. The increase in the rates for the nine months ended September 30, 2006 was partially offset by an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States. As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes — Special Areas,” we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States.

See Note 4, “Income taxes,” to the Condensed Consolidated Financial Statements for further discussion.

This excerpt taken from the AMGN 10-Q filed Aug 9, 2006.

Income taxes

 

Our effective tax rates for the three and six months ended June 30, 2006 were 95.6% and 37.7%, respectively, compared with 20.8% and 23.0%, respectively, for the same periods last year. Our effective tax rates for the three and six months ended June 30, 2006 have increased primarily due to the write-off of acquired IPR&D costs in connection with the acquisition of Abgenix and the expiration of the federal research and experimentation (R&E) credit in 2005. Also, the second quarter of 2005 reflected a one-time decrease in the tax rate due to the favorable resolution with the Internal Revenue Service of prior year foreign tax credit claims and research and development tax credits. The increase in the rates for 2006 was partially offset by an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States. As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes – Special Areas”, we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States.

 

See Note 4, “Income taxes”, to the Condensed Consolidated Financial Statements for further discussion.

 

This excerpt taken from the AMGN 10-Q filed May 10, 2006.

Income taxes

 

Our effective tax rate for the three months ended March 31, 2006 was 23.8%, compared with 25.5% for the same period last year. Our effective tax rate for the three months ended March 31, 2006 has decreased primarily due to an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States. This decrease was partially offset by an increase in the rate due to the expiration of the federal research and experimentation (R&E) credit in 2005 and a one-time taxable dividend from a foreign affiliate. As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes – Special Areas”, we do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States.

 

See Note 4, “Income taxes”, to the Condensed Consolidated Financial Statements for further discussion.

 

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This excerpt taken from the AMGN 10-K filed Mar 10, 2006.

Income taxes

Our effective tax rate was 24.5%, 30.4%, and 28.8% for 2005, 2004, and 2003 respectively.

Our effective tax rate for 2005 has decreased primarily due to favorable resolution of prior year foreign tax credit claims and research and development tax credits with the Internal Revenue Service (“IRS”), and the absence of the write-off of non-deductible IPR&D costs in connection with the acquisition of Tularik in 2004. This decrease was partially offset by the tax on the repatriation of foreign earnings in 2005 under the American Jobs Creation Act of 2004.

The 2004 effective tax rate was higher than the 2003 effective tax rate due to the write-off of non-deductible IPR&D costs of $554 million in connection with the acquisition of Tularik. This increase was partially offset by an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States. As permitted in Accounting Principles Board Opinion (“APB”) No. 23, “Accounting for Income Taxes — Special Areas”, we do not provide U.S. income taxes on our controlled foreign corporations’ undistributed earnings that are intended to be invested indefinitely outside the United States.

On October 22, 2004, the President of the United States signed the American Jobs Creation Act, which provided a temporary incentive to repatriate undistributed foreign earnings. One provision of the American Jobs Creation Act effectively reduced the tax rate by providing an 85% dividend-received deduction for certain dividends from controlled foreign corporations. In the fourth quarter of 2005, we repatriated $500 million of foreign earnings, which was the maximum amount of foreign earnings qualifying for the reduced tax rate. The tax expense incurred on the repatriation was approximately $43 million.

(See Note 3, “Income taxes”, to the Consolidated Financial Statements for further discussion.)

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