v3.25.4
Tax Matters
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Tax Matters Tax Matters
As a result of the prospective adoption of ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), certain tables are presented in a different format not comparable to prior year disclosures, and certain data contained within the tables may be presented differently than in prior years.
A. Taxes on Income from Continuing Operations
Components of Income from continuing operations before provision/(benefit) for taxes on income include:
 Year Ended December 31,
(MILLIONS)202520242023
United States$776 $(637)$(4,411)
International6,744 8,660 5,469 
Income from continuing operations before provision/(benefit) for taxes on income(a), (b)
$7,520 $8,023 $1,058 
(a)2025 v. 2024––The domestic income in 2025 versus the domestic loss in 2024 is primarily attributable to a reduction in operating expenses and restructuring charges, partially offset by higher asset impairment and legal charges. The decrease in the international income in 2025 versus international income in 2024 is primarily attributable to higher asset impairment charges. For 2025, the data in this table conforms to the updated income tax disclosure guidance in accordance with ASU 2023-09.
(b)2024 v. 2023––The reduction in the domestic loss in 2024 versus the domestic loss in 2023 is primarily attributable to increased revenues offset by higher restructuring charges and asset impairment charges. The increase in the international income is primarily attributable to lower: Cost of Sales, Restructuring charges and certain acquisition-related costs and asset impairment charges.
Components of Provision/(benefit) for taxes on income based on the location of the taxing authorities include:
 Year Ended December 31,
(MILLIONS)202520242023
Current tax expense (benefit):
U.S. Federal
$384 $453 $1,321 
U.S. State and local
172 32 (135)
Foreign
1,310 1,588 1,142 
Total current tax expense (benefit)
$1,866 $2,074 $2,328 
Deferred tax expense (benefit):
U.S. Federal
$(1,826)$(1,909)$(2,606)
U.S. State and local
(61)(293)(184)
Foreign
(246)100 (652)
Total deferred tax expense (benefit)
$(2,133)$(2,102)$(3,442)
Total income tax expense (benefit)
U.S. Federal
$(1,442)$(1,456)$(1,285)
U.S. State and local
112 (261)(319)
 Foreign
1,064 1,689 490 
Provision/(benefit) for taxes on income
$(266)$(28)$(1,115)
The changes in Provision/(benefit) for taxes on income impacting the effective tax rate year-over-year are summarized below:
2025 v. 2024
The tax benefit of $266 million for 2025 compared to the tax benefit of $28 million for 2024 was primarily due to a favorable change in the jurisdictional mix of earnings, tax benefits related to global income tax resolutions in multiple tax jurisdictions spanning multiple tax years, and the remeasurement of deferred tax liabilities due to the enactment of the OBBBA on July 4, 2025.
2024 v. 2023
The tax benefit of $28 million for 2024 compared to the tax benefit of $1.1 billion for 2023 was primarily a result of changes in the jurisdictional mix of earnings partially offset by a tax benefit related to the Transition Tax liability under the TCJA.
In all years, federal, state and international net tax liabilities assumed or established as part of a business acquisition are not included in Provision/(benefit) for taxes on income (see Note 2A).
We elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, to pay our initial estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings (Transition Tax liability) over eight years through 2026. The seventh annual installment was paid by its April 15, 2025 due date. The eighth and final annual installment is due April 15, 2026 and is reported in current Income taxes payable as of December 31, 2025. Our obligations may vary due to the availability of attributes such as foreign tax and other credit carryforwards or carrybacks.
Consistent with the disclosure requirements of ASU 2023-09, the table below summarizes income taxes paid (net of refunds received):
Year Ended December 31,
(MILLIONS)2025
U.S. Federal taxes
$2,729 
U.S. State and local taxes
101 
Foreign taxes
Ireland
1,016 
Other foreign jurisdictions
842 
Total income taxes paid
$4,688 
Consistent with our previous cash tax disclosures, the table below summarizes, cash taxes paid, net of refunds:
Year Ended December 31,
(MILLIONS)20242023
United States$2,593 $1,923 
International1,012 1,224 
Total$3,605 $3,147 
B. Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations reflecting the requirements of ASU 2023-09, as adopted prospectively, follows:
2025
Millions
Percentage
U.S. federal statutory income tax
$1,579 21.0 %
Domestic federal
Changes in tax laws or rates enacted in the current period
(153)(2.0)
Cross border tax laws
Branches
(432)(5.7)
Foreign-derived deduction-eligible income (FDDEI)
(172)(2.3)
GILTI (NCTI)187 2.5 
Other(a)
(71)(0.9)
Non-taxable or non-deductible items
Charitable contributions
(99)(1.3)
Compensation109 1.4 
Other(a)
79 1.1 
Tax credits
GILTI (NCTI)(868)(11.5)
Subpart-F income
(369)(4.9)
R&D(109)(1.5)
Other(a)
(16)(0.2)
Other reconciling items
Intercompany license agreement(s)
(221)(2.9)
Other(a)
(10)(0.1)
State income taxes, net of federal effects(b)
(4)(0.1)
Foreign
India
Change in valuation allowance
(91)(1.2)
Other(a)
(3)— 
Ireland
Statutory income tax rate differential
(268)(3.6)
Intercompany license agreement(s)
118 1.6 
Other(a)
57 0.8 
Puerto Rico(c)
(81)(1.1)
Singapore(d)
Varied income tax rates
(315)(4.2)
Non-deductible interest expense
345 4.6 
Other(a)
89 1.2 
Other foreign jurisdictions
276 3.7 
Worldwide changes in unrecognized tax benefits
177 2.4 
Total$(266)(3.5)%
(a)Primarily comprises items which, individually, do not require separate disclosure pursuant to guidance provided in ASU 2023-09.
(b)State taxes in California, Kentucky and Tennessee make up the majority of the tax effect in this category.
(c)We have tax incentives pursuant to a grant that expires during 2053. Under such grant, we are partially exempt from income, property and municipal taxes.
(d)We have grants and incentive tax rates effective through 2048 on income from manufacturing and other operations.
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations, prior to the adoption of ASU 2023-09 and as previously disclosed, follows:
2024
2023^
U.S. statutory income tax rate21.0 %21.0 %
Taxation of non-U.S. operations(a), (b)
(7.9)(21.1)
Transition tax liability(c)
(6.0)— 
Tax settlements and resolution of certain tax positions(c)
(2.4)(40.3)
Foreign-derived intangible income deduction
(1.2)(33.1)
State & local taxes(d)
(2.5)(22.4)
Charitable contributions
(1.7)(7.3)
U.S. R&D tax credit(1.8)(15.8)
Interest(e)
2.2 13.5 
All other, net(f)
0.1 0.2 
Effective tax rate for income from continuing operations
(0.4)%(105.4)%
^ The higher rate percentages for the 2023 reconciling items are significantly impacted by the lower domestic and international Income from continuing operations before provision/(benefit) for taxes on income (see Note 5A).
(a)For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the U.S., together with the U.S. tax cost on our international operations, changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions,” as well as changes in valuation allowances. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year, and the rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the U.S. tax implications of our foreign operations is a significant component of our effective tax rate each year and generally offsets some of the reduction to our effective tax rate each year resulting from the jurisdictional location of earnings; (iii) the impact of certain tax initiatives; and (iv) the impact of changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as the U.S. tax cost on our international operations, can vary as a result of operating fluctuations in the normal course of business and as a result of the extent and location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See also Note 5A for the components of pre-tax income and Provision/(benefit) for taxes on income, which is based on the location of the taxing authorities, and for information about settlements and other items impacting Provision/(benefit) for taxes on income.
(b)In both years, the reduction in our effective tax rate is a result of the jurisdictional location of earnings and is largely due to lower tax rates in certain jurisdictions, as well as manufacturing and other incentives for our subsidiaries in Singapore and, to a lesser extent, in Puerto Rico. We have Puerto Rican tax incentives pursuant to a grant that expires during 2053. Under such grant, we are partially exempt from income, property and municipal taxes. In Singapore, we have incentive tax rates effective through 2048 on income from manufacturing and other operations.
(c)See Note 5A.
(d)Includes the impact of U.S. state and local taxes and changes in the state valuation allowances including those related to the acquisition of Seagen.
(e)Includes changes in interest related to our uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions”.
(f)All other, net is primarily due to routine business operations.
C. Deferred Taxes
Components of our deferred tax assets and liabilities, shown before jurisdictional netting, follows:
2025 Deferred Tax^2024 Deferred Tax^
(MILLIONS)Assets(Liabilities)Assets(Liabilities)
Prepaid/deferred items
$3,516 $(635)$3,288 $(847)
Accrued/deferred royalties1,051 — 1,306 — 
Inventories
864 (372)992 (702)
Intangible assets(a)
1,821 (8,810)1,435 (9,066)
Property, plant and equipment249 (1,771)265 (1,751)
Employee benefits
842 (255)1,002 (274)
Restructurings and other charges388 — 462 — 
Legal and product liability reserves428 — 378 — 
Research and development
7,235 — 7,635 — 
Net operating loss/tax credit carryforwards(b)
1,763 — 2,028 — 
Unremitted earnings— (76)— (69)
State and local tax adjustments134 — 161 — 
Investments(c)
234 (36)73 (248)
All other23 (12)87 (66)
18,547 (11,968)19,112 (13,023)
Valuation allowances(1,546)— (1,638)— 
Total deferred taxes$17,001 $(11,968)$17,474 $(13,023)
Net deferred tax asset/(liability)(d), (e)
$5,033 $4,451 
^    The deferred tax assets and liabilities associated with GILTI (NCTI) are included in the relevant categories. See Note 1Q.
(a)The decrease in net deferred tax liabilities in 2025 is primarily due to the amortization of intangible assets and certain impairment charges, partially offset by the acquisition of intangible assets related to Metsera. See Note 2A.
(b)The amounts in 2025 and 2024 are reduced for unrecognized tax benefits of $636 million and $575 million, respectively, where we have net operating loss carryforwards, similar tax losses, and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to settle any additional income taxes that would result from the disallowance of a tax position.
(c)The increase in net deferred tax assets in 2025 is primarily due to the sale of our remaining investment in Haleon. See Note 2C.
(d)In 2025, Noncurrent deferred tax assets and other noncurrent tax assets ($7.4 billion), and Noncurrent deferred tax liabilities ($2.4 billion). In 2024, Noncurrent deferred tax assets and other noncurrent tax assets ($6.6 billion), and Noncurrent deferred tax liabilities ($2.1 billion).
(e)Excludes indefinite- and definite-lived deferred tax assets for certain non-U.S. tax losses and interest carryforwards and U.S. state general business credits, totaling $9.9 billion and $11.3 billion for 2025 and 2024 respectively, given that management has determined based on applicable accounting rules that it is remote that these tax attributes will be utilized. In 2025, the elimination of certain legal entities resulted in the loss of attributes.
We have carryforwards, primarily related to net operating and capital losses, general business credits, foreign tax credits and charitable contributions, which are available to reduce future U.S. federal and/or state, as well as international, income taxes payable with either an indefinite life or expiring at various times from 2026 to 2045. Certain of our U.S. net operating losses and general business credits are subject to limitations under IRC Section 382.
As of December 31, 2025, we have not made a U.S. tax provision on $58.8 billion of unremitted earnings of our international subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred tax liability as of December 31, 2025 is not practicable. The amount of indefinitely reinvested earnings is based on estimates and assumptions and subject to management evaluation, and is subject to change in the normal course of business based on operational cash flow, completion of local statutory financial statements and the finalization of tax returns and audits, among other things. Accordingly, we regularly update our earnings and profits analysis for such events.
D. Tax Contingencies
For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1Q.
Uncertain Tax Positions
As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon audit. As of December 31, 2025, we had $2.2 billion and as of December 31, 2024, we had $2.0 billion in net unrecognized tax benefits, excluding associated interest.
•Tax assets for uncertain tax positions represent our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another tax jurisdiction. These potential benefits generally result from cooperative efforts among taxing authorities, as required by tax treaties to minimize double taxation, commonly referred to as the competent authority process. The recoverability of these assets, which we believe to be more likely than not, is dependent upon the actual payment of taxes in one tax jurisdiction and, in some cases, the successful petition for recovery in another tax jurisdiction. In 2025 and in 2024, tax assets for uncertain tax positions also include the filing of an amended income tax return relating to the Transition Tax liability under the TCJA. As of December 31, 2025, and 2024, we had $2.5 billion in assets associated with uncertain tax positions mainly included in Noncurrent deferred tax assets and other noncurrent tax assets.
•The majority of these unrecognized tax benefits, if recognized, would impact our effective income tax rate.
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS)202520242023
Balance, beginning$(4,530)$(4,802)$(4,494)
Acquisitions
(4)8 (46)
Increases based on tax positions taken during a prior period(a), (b)
(298)(934)(158)
Decreases based on tax positions taken during a prior period(a), (c)
197 599 310 
Decreases based on settlements for a prior period(c), (d)
112 911 85 
Increases based on tax positions taken during the current period(a)
(375)(433)(515)
Impact of foreign exchange(54)52 (44)
Other, net(a), (e)
206 70 58 
Balance, ending(f)
$(4,746)$(4,530)$(4,802)
(a)Primarily included in Provision/(benefit) for taxes on income.
(b)In 2024, the amount includes a gross unrecognized tax benefit associated with the filing of an amended income tax return related to the Transition Tax liability under the TCJA.
(c)In 2024, the amount primarily related to effectively settling certain issues with the U.S. and foreign tax authorities. See Note 5A.
(d)Primarily related to cash payments and reductions of tax attributes.
(e)Primarily related to decreases as a result of a lapse of applicable statutes of limitations.
(f)In 2025, included in Income taxes payable ($5 million), Other current assets ($5 million), Noncurrent deferred tax assets and other noncurrent tax assets ($1.6 billion), Noncurrent deferred tax liabilities ($58 million) and Other taxes payable ($3.0 billion). In 2024, included in Income taxes payable ($103 million), Other current assets ($0.4 million), Noncurrent deferred tax assets and other noncurrent tax assets ($1.5 billion), Noncurrent deferred tax liabilities ($3 million) and Other taxes payable ($2.9 billion).
•Interest and penalties related to our unrecognized tax benefits are recorded in accordance with the laws of each jurisdiction and are recorded primarily in Provision/(benefit) for taxes on income. In 2025, we recorded a net increase in interest of $40 million. In 2024, we recorded a net increase in interest of $91 million. In 2023, we recorded a net increase in interest of $64 million. Gross accrued interest totaled $681 million as of December 31, 2025 (reflecting a decrease of $1 million as a result of cash payments) and gross accrued interest
totaled $636 million as of December 31, 2024 (reflecting a decrease of $56 million as a result of cash payments). In 2025 and 2024, these amounts were substantially all included in Other taxes payable. Accrued penalties are not significant. See also Note 5A.
Status of Tax Matters
The U.S. is one of our major tax jurisdictions, and we are regularly audited by the IRS. Tax years 2019-2022 are under audit. Tax years 2023-2025 are open but not under audit. All other tax years are closed. In addition to the open audit years in the U.S., we have open audit years and certain related audits, appeals and investigations in certain major international tax jurisdictions such as Canada (2017-2025), Europe (2016-2025, primarily in Ireland, the U.K., France, Italy, Spain and Germany), Asia Pacific (2015-2025, primarily in Australia, China and Singapore) and Latin America (1998-2025, primarily in Brazil).
E. Tax Provision/(Benefit) on Other Comprehensive Income/(Loss)
Components of the Tax provision/(benefit) on other comprehensive income/(loss) include:
 Year Ended December 31,
(MILLIONS)202520242023
Foreign currency translation adjustments, net(a)
$(357)$156 $(33)
Unrealized holding gains/(losses) on derivative financial instruments, net(46)96 111 
Reclassification adjustments for (gains)/losses included in net income(58)(29)(93)
 (104)67 18 
Unrealized holding gains/(losses) on available-for-sale securities, net12 (19)(15)
Reclassification adjustments for (gains)/losses included in net income(1)5 (18)
 11 (14)(33)
Benefit plans: prior service (costs)/credits and other, net(4)45 (5)
Reclassification adjustments related to amortization of prior service costs and other, net(20)(26)(28)
Reclassification adjustments related to curtailments of prior service costs and other, net(12)2 (4)
 (36)22 (37)
Tax provision/(benefit) on other comprehensive income/(loss)$(486)$231 $(85)
(a)Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that are expected to be held indefinitely.