8. Income Taxes Temporary differences and carry forwards for 2010 and 2009 are as follows: The provision for taxes on income consists of: A comparison of income tax expense at the U.S. statutory rate of 35% in 2010, 2009 and 2008, to the Company’s effective tax rate is as follows: The Company has subsidiaries manufacturing in Ireland under an incentive tax rate. In addition, the Company has subsidiaries operat- ing in Puerto Rico under various tax incentive grants. The decrease in the 2010 tax rate was primarily due to decreases in taxable income in higher tax jurisdictions relative to taxable income in lower tax jurisdictions and certain U.S. tax adjustments. The decrease in the 2009 tax rate was primarily due to increases in taxable income in lower tax jurisdictions relative to taxable income in higher tax jurisdictions. The Company had $2.3 billion, $2.4 billion and $2.0 billion of unrec- ognized tax benefits as of January 2, 2011, January 3, 2010 and December 28, 2008, respectively. All of the unrecognized tax bene- fits of $2.3 billion at January 2, 2011, if recognized, would affect the Company’s annual effective tax rate. The Company conducts busi- ness and files tax returns in numerous countries and currently has tax audits in progress with a number of tax authorities. The U.S. Internal Revenue Service (IRS) has completed its audit for the tax years through 2005; however, there are a limited number of issues remaining open for prior tax years going back to 1999. In other major jurisdictions where the Company conducts business, the years remain open generally back to the year 2003. The Company does not expect that the total amount of unrecognized tax benefits will significantly change over the next twelve months. The Company is not able to provide a reasonably reliable estimate of the timing of any other future tax payments relating to uncertain tax positions. The difference between the net deferred tax on income per the bal- ance sheet and the net deferred tax above is included in taxes on income on the balance sheet. The 2009 deferred tax Miscellaneous U.S. includes current year tax receivables. The Company has a wholly-owned international subsidiary that has cumulative net losses. The Company believes that it is more likely than not that this subsidiary will realize future taxable income sufficient to utilize these deferred tax assets. The following table summarizes the activity related to unrecog- nized tax benefits: JOHNSON & JOHNSON 2010 ANNUAL REPORT 52 (Dollars in Millions) 2010 2009 2008 Currently payable: U.S. taxes $2,063 2,410 2,334 International taxes 1,194 1,515 1,624 Total currently payable 3,257 3,925 3,958 Deferred: U.S. taxes (4) 187 126 International taxes 360 (623) (104) Total deferred 356 (436) 22 Provision for taxes on income $3,613 3,489 3,980 2010 2009 Deferred Tax Deferred Tax ____________________ ____________________ (Dollars in Millions) Asset Liability Asset Liability Employee related obligations $2,211 2,153 Stock based compensation 1,225 1,291 Depreciation (769) (661) Non-deductible intangibles (2,725) (2,377) International R&D capitalized for tax 1,857 1,989 Reserves & liabilities 948 1,014 Income reported for tax purposes 691 648 Net operating loss carryforward international 738 615 Miscellaneous international 1,326 (106) 1,474 (110) Miscellaneous U.S. 470 799 Total deferred income taxes $9,466 (3,600) 9,983 (3,148) (Dollars in Millions) 2010 2009 2008 U.S. $ 6,392 7,141 6,579 International 10,555 8,614 10,350 Earnings before taxes on income $16,947 15,755 16,929 Tax rates: U.S. statutory rate 35.0% 35.0 35.0 Ireland and Puerto Rico operations (5.1) (5.1) (6.8) Research and orphan drug tax credits (0.6) (0.6) (0.6) U.S. state and local 1.0 1.8 1.6 International subsidiaries excluding Ireland (7.5) (6.7) (5.6) U.S. manufacturing deduction (0.5) (0.4) (0.4) In-process research and development (IPR&D) — — 0.4 U.S. Tax international income (0.6) (1.6) (0.5) All other (0.4) (0.3) 0.4 Effective tax rate 21.3% 22.1 23.5 (Dollars in Millions) 2010 2009 2008 Beginning of year $2,403 1,978 1,653 Increases related to current year tax positions 465 555 545 Increases related to prior period tax positions 68 203 87 Decreases related to prior period tax positions (431) (163) (142) Settlements (186) (87) (137) Lapse of statute of limitations (12) (83) (28) End of year $2,307 2,403 1,978