Tax Matters

A. Taxes on Income from Continuing Operations

Our effective tax rate for continuing operations was 17.7% for the third quarter of 2016, compared to 21.0% for the third quarter of 2015 and was 15.8% for the first nine months of 2016, compared to 23.4% for the first nine months of 2015.

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


•	a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; 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:


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


•	the unfavorable tax effects of an impairment charge related to the write-down of HIS net assets to fair value less estimated costs to sell, mainly related to goodwill, which is not deductible for tax purposes, and the jurisdictional mix of intangible assets.

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


•	a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business;


•	benefits related to the final resolution of an agreement in principle reached in February 2016 and finalized in April 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; as well as


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

partially offset by:


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


•	the unfavorable tax effects of an impairment charge related to the write-down of HIS net assets to fair value less estimated costs to sell, mainly related to goodwill, which is not deductible for tax purposes, and the jurisdictional mix of intangible assets.

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 IRS:


•	With respect to Pfizer, the IRS has issued a 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, the federal income tax audit of tax years 2010-2011 was effectively settled in the second quarter of 2016. The IRS is currently auditing tax years 2012-2013 and 2014 through short-year 2015. All other tax years are closed. The tax years under audit for Hospira are not considered material to Pfizer.


•	With respect to Anacor and Medivation, the open tax years 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 Income/(Loss)



The following table provides the components of Tax provision/(benefit) on other comprehensive income/(loss):
	Three Months Ended						Nine Months Ended
(MILLIONS OF DOLLARS)	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015
Foreign currency translation adjustments, net^(a)	$	—		$	(7	)	$	(15	)	$	90
Unrealized holding losses on derivative financial instruments, net	—			(57		)	(192		)	(160		)
Reclassification adjustments for realized (gains)/losses	32			15			81			43
	32			(42		)	(112		)	(117		)
Unrealized holding gains/(losses) on available-for-sale securities, net	40			6			106			(63		)
Reclassification adjustments for realized (gains)/losses	(14		)	1			(16		)	63
	26			7			90			—
Benefit plans: actuarial losses, net	(31		)	(51		)	(39		)	(43		)
Reclassification adjustments related to amortization	47			43			140			133
Reclassification adjustments related to settlements, net	10			12			27			35
Other	14			(9		)	5			29
	40			(4		)	133			154
Benefit plans: prior service credits and other, net	35			(4		)	66			188
Reclassification adjustments related to amortization	(17		)	(36		)	(47		)	(42		)
Reclassification adjustments related to curtailments, net	(3		)	18			(5		)	(8		)
Other	2			2			1			2
	18			(19		)	15			139
Tax provision/(benefit) on other comprehensive income/(loss)	$	116		$	(65	)	$	111		$	267


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