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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
Note 12 - Income Taxes
The U.S. and foreign components of income (loss) before provision for (benefit from) income taxes for the years ended December 31, 2019, 2020 and 2021 are as follows (in millions):
Year Ended December 31,
201920202021
U.S.$(4,926)$(3,518)$(340)
Foreign(3,507)(3,428)(685)
Loss before income taxes and loss from equity method investments$(8,433)$(6,946)$(1,025)
The components of the provision for (benefit from) income taxes for the years ended December 31, 2019, 2020 and 2021 are as follows (in millions):
Year Ended December 31,
201920202021
Current
Federal$1 $— $— 
State— 11 4 
Foreign132 63 196 
Total current tax expense$133 $74 $200 
Deferred
Federal(77)(97)(76)
State8 (7)19 
Foreign(19)(162)(635)
Total deferred tax expense (benefit)(88)(266)(692)
Total provision for (benefit from) income taxes$45 $(192)$(492)
The following is a reconciliation of the statutory federal income tax rate to our effective tax rate for the years ended December 31, 2019, 2020 and 2021:
Year Ended December 31,
201920202021
Federal statutory income tax rate21.0 %21.0 %21.0 %
State income tax expense(0.1)(0.1)(2.3)
Foreign rate differential(3.8)10.8 10.3 
Non-deductible expenses(1.3)(1.3)(5.2)
Stock-based compensation1.2 1.3 4.5 
Interest on convertible notes(0.3)— (0.1)
Gain on convertible notes1.1 — — 
Federal research and development credits3.1 2.9 7.8 
Deferred tax on investments (1)
— 0.9 48.7 
Entity restructuring (2)
92.3 (1.7)(2.0)
Change in unrecognized tax benefits(17.0)(3.7)(27.8)
Valuation allowance(97.3)(45.8)(33.7)
US tax on foreign income(1.6)— (10.8)
Tax rate change— 14.4 22.4 
Other interest1.8 3.2 16.8 
Other, net0.4 0.9 (1.6)
Effective income tax rate(0.5)%2.8 %48.0 %
(1) The 2020 rate impact for “Deferred tax on investments” was primarily driven by the deferred U.S. tax impact and the deferred China tax impact of the impairment charge related to our investment in Didi.
The 2021 rate impact for “Deferred tax on investments” was primarily driven by the deferred China and U.S. tax impact related to our investment in Didi and the deferred U.S. tax impact related to our investments in Aurora, Grab, and Zomato.
(2) The 2019 rate impact for “Entity restructuring” is related to a series of transactions resulting in changes to our international legal structure, including a redomiciliation of a subsidiary to the Netherlands and a transfer of certain intellectual property rights among wholly owned subsidiaries, primarily to align its evolving operations. The redomiciliation resulted in a step-up in the tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets in an amount of $6.4 billion, net of a reserve for uncertain tax positions of $1.4 billion (refer to the 2019 rate impact for “Change in unrecognized tax benefits”). Based on available objective evidence, management believed it was not more-likely-than-not that these additional foreign deferred tax assets will be realizable as of December 31, 2019 and, therefore, were offset by a full valuation allowance (refer to the 2019 rate impact for “Valuation allowance”) to the extent not offset by reserves for uncertain tax positions. The corresponding deferred tax asset and valuation allowance balance were included in the “Fixed assets and intangible assets” and “Valuation allowance” lines, respectively, in the table below.
In the second quarter of 2020, we transferred certain intangible assets among our wholly-owned subsidiaries to align our structure to our evolving operations. The transaction resulted in the establishment of deferred tax assets of $354 million; however, there was no financial statement benefit recognized since the deferred tax asset was offset by a full valuation allowance.
To align our structure to our evolving operations, in the second and fourth quarters of 2021, we completed intercompany transfers of certain intangible assets. These intercompany transfers did not have a material impact to the financial statements.
The components of deferred tax assets and liabilities as of December 31, 2020 and 2021 are as follows (in millions):
As of December 31,
20202021
Deferred tax assets
Net operating loss carryforwards$4,949 $5,992 
Research and development credits857 1,020 
Stock-based compensation125 66 
Accruals and reserves227 290 
Accrued legal95 119 
Fixed assets and intangible assets6,936 6,753 
Investment in partnership254 — 
Lease liability460 455 
Interest limitation carryforwards562 629 
Other58 107 
Total deferred tax assets14,523 15,431 
Less: Valuation allowance(13,410)(13,920)
Total deferred tax assets, net of valuation allowance1,113 1,511 
Deferred tax liabilities
Indefinite lived deferred tax liability (1)
1,502 1,451 
ROU assets322 334 
Other68 29 
Total deferred tax liabilities1,892 1,814 
Net deferred tax liabilities$779 $303 
(1) The $1.5 billion indefinite-lived deferred tax liability represents the deferred U.S. income tax expense, which will be incurred upon the eventual disposition of the shares underlying our investments in Didi, Aurora, Grab, and Zomato. The current year tax expense and any subsequent changes in the recognition or measurement of this deferred tax liability will be recorded in continuing operations.
Based on available evidence, management believes it is not more-likely-than-not that the net U.S., Netherlands, and other non-material jurisdictions’ deferred tax assets will be fully realizable. In these jurisdictions, we have recorded a valuation allowance against net deferred tax assets. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax planning strategies by jurisdiction. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute our business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed. We had a valuation allowance against net deferred tax assets of $13.4 billion and $13.9 billion as of December 31, 2020 and 2021, respectively. In 2021, the increase in the valuation allowance was primarily attributable to a tax rate increase in the Netherlands, an increase in U.S. federal, state and Netherlands deferred tax assets resulting from the loss from operations, and tax credits generated during the year, offset partially by the release of the valuation allowance due to deferred tax liabilities recorded as a result of the acquisitions providing an additional source of taxable income to support the realizability of pre-existing deferred tax assets.
The indefinite carryforward period for net operating losses ("NOLs") means that indefinite-lived deferred tax liabilities can be considered as support for realization of deferred tax assets, which can affect the need to record or maintain a valuation allowance for deferred tax assets. As of December 31, 2020 and 2021, we realized approximately $744 million and $1.2 billion, respectively, of our U.S. federal and state deferred tax assets as a result of our indefinite-lived deferred tax liabilities being used as a source of income.
As of December 31, 2021, we had U.S. federal NOL carryforwards of $3.2 billion that begin to expire in 2031 and $11.7 billion that have an unlimited carryover period. As of December 31, 2021, we had U.S. state NOL carryforwards of $10.2 billion that begin to expire in 2022 and $2.2 billion that have an unlimited carryover period. As of December 31, 2021, we had foreign NOL carryforwards of $507 million that begin to expire in 2023 and $10.1 billion that have an unlimited carryover period.
As of December 31, 2021, we had U.S. federal research tax credit carryforwards of $785 million that begin to expire in 2028. We had U.S. state research tax credit carryforwards of $13 million that begin to expire in 2032 and $521 million that have an unlimited carryover period.
In the event we experience an ownership change within the meaning of Section 382 of the Internal Revenue Code (“IRC”), our ability to utilize net operating losses, tax credits and other tax attributes may be limited. The most recent analysis of our historical ownership changes was completed through December 31, 2021. Based on the analysis, we do not anticipate a current limitation on the tax attributes.
The following table reflects changes in gross unrecognized tax benefits (in millions):
Year Ended December 31,
201920202021
Unrecognized tax benefits at beginning of year$394 $1,797 $2,293 
Gross increases - current year tax positions1,566 353 239 
Gross increases - prior year tax positions16 191 134 
Gross decreases - prior year tax positions(36)(48)(9)
Gross decreases - settlements with tax authorities(143)— — 
Unrecognized tax benefits at end of year$1,797 $2,293 $2,657 
As of December 31, 2021, approximately $204 million of unrecognized tax benefits, if recognized, would impact the effective tax rate. The remaining $2.5 billion of the unrecognized tax benefits would not impact the effective tax rate due to the valuation allowance against certain deferred tax assets.
We recognize accrued interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations. The amount of interest and penalties accrued as of December 31, 2020 and 2021 was $12 million and $18 million, respectively.
Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. Given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. Any changes to unrecognized tax benefits recorded as of December 31, 2021 that are reasonably possible to occur within the next 12 months are not expected to be material.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. We are also under various state and other foreign income tax examinations. We believe that adequate amounts have been reserved in these jurisdictions. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the federal, state or foreign tax authorities to the extent utilized in a future period.
As of December 31, 2021, the open tax years for our major tax jurisdictions are as follows:
JurisdictionTax Years
U.S. Federal2011 - 2021
U.S. States2004 - 2021
Brazil2016 - 2021
Netherlands2018 - 2021
Australia2017 - 2021
As of December 31, 2021, the amount of accumulated foreign earnings of certain foreign subsidiaries that we intend to indefinitely reinvest is not material.