Taxes on Earnings

9 Months Ended

Sep. 30, 2013

Taxes on Earnings

Taxes on Earnings

Note 5 — Taxes on Earnings

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.  In the third quarter of 2013 taxes on earnings reflect the recognition of $241 million of tax benefits in continuing operations as the result of the favorable resolution of various tax positions pertaining to prior years.  2013 Earnings from Discontinued Operations, net of tax, reflect the recognition of $193 million of tax benefits as a result of the favorable resolution of various tax positions related to AbbVie's operations prior to separation.  The conclusion of these tax matters decreased the gross amount of unrecognized tax benefits by approximately $560 million. In addition, as a result of the American Taxpayer Relief Act of 2012 signed into law in January 2013, Abbott recorded a tax benefit to taxes on continuing operations of approximately $103 million in the first quarter of 2013 for the retroactive extension of the research tax credit and the look-through rules of section 954(c)(6) of the Internal Revenue Code to the beginning of 2012.  Taxes on earnings on continuing operations in 2012 reflect the recognition of $196 million of tax benefits in the third quarter as a result of the favorable resolution of various tax positions pertaining to a prior year.

Exclusive of these discrete items, the effective tax rates are less than the statutory U.S. federal income tax rate principally due to the benefit of lower statutory tax rates and tax exemptions in several foreign taxing jurisdictions.  Tax authorities in various jurisdictions regularly review Abbott’s income tax filings.  Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $400 million to $450 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.