XML 89 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
Tax Matters
 9 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]  
Tax Matters
Tax Matters

A. Taxes on Income from Continuing Operations

During the third quarter of 2012, we reached a settlement with the U.S. Internal Revenue Service (IRS) with respect to the audits of the Pfizer Inc. tax returns for the years 2006 through 2008. The IRS concluded the examination of the aforementioned tax years and issued a final Revenue Agent's Report (RAR). We agreed with all the adjustments and computations contained in the RAR. As a result of settling these audit years, in the third quarter of 2012 we recorded a tax benefit of approximately $1.1 billion representing tax and interest.

Our effective tax rate for continuing operations was (4.0)% for the third quarter of 2012, compared to 34.3% for the third quarter of 2011, and in the first nine months of 2012 was 19.0%, compared to 31.2% in the first nine months of 2011. The effective tax rates for the third quarter and first nine months of 2012 were favorably impacted by the aforementioned settlement with the IRS. The tax rates in both periods in 2012 compared to the same periods in 2011 were also favorably impacted by the resolution of foreign audits pertaining to multiple tax years and the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, partially offset by the unfavorable impact of the non-deductibility of a $491 million charge resulting from an agreement-in-principle with the DOJ to resolve an investigation into Wyeth's historical promotional practices in connection with Rapamune, as well as the expiration of the U.S. research and development tax credit.



B. Taxes on Items of Other Comprehensive Income/(Loss)

The following table provides the components of tax benefit on Other comprehensive income/(loss):
 
 
Three Months Ended
 
Nine Months Ended
(MILLIONS OF DOLLARS)
 
September 30,
2012

 
October 2,
2011

 
September 30,
2012

 
October 2,
2011

Tax Expense/(Benefit) on Other Comprehensive Income/(Loss)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments(a)
 
$
(23
)
 
$
(60
)
 
$
14

 
$
(70
)
Unrealized holding gains/(losses) on derivative financial instruments
 
137

 
(419
)
 
80

 
(212
)
Reclassification adjustments for realized (gains)/losses
 
(52
)
 
250

 
(34
)
 
(31
)
 
 
85

 
(169
)
 
46

 
(243
)
Unrealized gains/(losses) on available-for-sale securities
 
4

 
(18
)
 
17

 
(18
)
Reclassification adjustments for realized losses
 
3

 
3

 
8

 
4

 
 
7

 
(15
)
 
25

 
(14
)
Benefit plans: Actuarial gains/(losses)
 
(39
)
 
1

 
(157
)
 
1

Reclassification adjustments related to amortization
 
44

 
24

 
129

 
74

Reclassification adjustments related to curtailments and settlements, net
 
20

 
28

 
59

 
89

Other
 
(12
)
 
(12
)
 
5

 
(71
)
 
 
13

 
41

 
36

 
93

Benefit plan: Prior service (costs)/credits and other
 
(2
)
 
—

 
6

 
—

Reclassification adjustments related to amortization
 
(7
)
 
(7
)
 
(21
)
 
(21
)
Reclassification adjustments related to curtailments and settlements, net
 
(2
)
 
(7
)
 
(34
)
 
(20
)
Other
 
2

 
1

 
—

 
(1
)
 
 
(9
)
 
(13
)
 
(49
)
 
(42
)
Tax provision/(benefit) on other comprehensive income/(loss)
 
$
73

 
$
(216
)
 
$
72

 
$
(276
)
(a) 
Taxes are not provided for foreign currency translation relating to permanent investments in international subsidiaries.

C. Tax Contingencies

We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or litigation. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire. We treat these events as discrete items in the period of resolution.

The United States is our primary tax jurisdiction and we are regularly audited by the U.S. Internal Revenue Service (IRS):
•
During the third quarter of 2012, we reached a settlement with the IRS with respect to the audits of the Pfizer Inc. tax returns for the years 2006 through 2008. The IRS concluded the examination of the aforementioned tax years and issued a final Revenue Agent's Report (RAR). We agreed with all the adjustments and computations contained in the RAR. As a result of settling these audit years, in the third quarter of 2012 we recorded a tax benefit of approximately $1.1 billion representing tax and interest.
•
With respect to Pfizer Inc., tax years 2009-2010 are currently under audit. Tax years 2011-2012 are not under audit. All other tax years are closed.
•
With respect to Wyeth, tax years 2006 through the Wyeth acquisition date (October 15, 2009) are currently under audit. All other tax years are closed.
•
With respect to King, the audit for tax year 2008 has been effectively settled, and for Alpharma Inc. (a subsidiary of King), tax years 2005-2007 are currently under audit. For King, tax years 2009 through the date of acquisition (January 31, 2011) are open but not under audit. All other tax years are closed. The open tax years and audits for King and its subsidiaries are not considered material to Pfizer.

In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2001-2012), Japan (2007-2012), Europe (2007-2012, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), and Puerto Rico (2007-2012).