Tax Matters

A. Taxes on Income from Continuing Operations

Our effective tax rate for continuing operations was 15.0% for the first quarter of 2016, compared to 22.9% for the first quarter of 2015.

The lower effective tax rate for the first quarter of 2016 in comparison with the same period in 2015 was primarily due to:


•	benefits related to the final resolution (pending court approval) of an agreement in principle reached in February 2016 to resolve certain claims related to Protonix, which resulted in the receipt of information that raised our assessment of the likelihood of prevailing on the technical merits of our tax position;


•	benefits associated with our Venezuela operations;


•	an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years with various foreign tax authorities, and the expiration of certain statutes of limitations; as well as


•	an increase in benefits associated with the U.S. R&D tax credit, which was not in effect in the prior year quarter but was permanently extended on December 18, 2015,

partially offset by:


•	an unfavorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.

B. 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, as we treat these events as discrete items in the period of resolution.

The U.S. is one of our major tax jurisdictions, and we are regularly audited by the U.S. Internal Revenue Service (IRS):


•	With respect to Pfizer Inc., the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2009-2010. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2011-2013 are currently under audit. Tax years 2014-2016 are open, but not under audit. All other tax years are closed.


•	With respect to Hospira, Inc., the IRS is auditing 2010-2011 and 2012-2013. Tax years 2014-2015 (through date of acquisition) are open but not under audit. All other tax years are closed. The open tax years and audits for Hospira, Inc. 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 (2010-2016), Japan (2015-2016), Europe (2007-2016, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2016, primarily reflecting Brazil) and Puerto Rico (2010-2016).

C. Tax Provision/(Benefit) on Other Comprehensive Loss



The following table provides the components of Tax provision/(benefit) on other comprehensive loss:
	Three Months Ended
(MILLIONS OF DOLLARS)	April 3, 2016			March 29, 2015
Foreign currency translation adjustments, net^(a)	$	(14	)	$	85
Unrealized holding losses on derivative financial instruments, net	(36		)	(224		)
Reclassification adjustments for realized (gains)/losses	(72		)	183
	(108		)	(41		)
Unrealized holding gains/(losses) on available-for-sale securities, net	17			(31		)
Reclassification adjustments for realized losses	26			(1		)
	43			(32		)
Benefit plans: actuarial gains, net	—			12
Reclassification adjustments related to amortization	47			46
Reclassification adjustments related to settlements, net	9			15
Other	(1		)	37
	55			109
Benefit plans: prior service costs and other, net	—			—
Reclassification adjustments related to amortization	(15		)	(13		)
Reclassification adjustments related to curtailments, net	(2		)	(4		)
Other	1			—
	(16		)	(17		)
Tax provision/(benefit) on other comprehensive loss	$	(41	)	$	105


^(a)	Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.