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Tax Matters (Tables)
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Schedule of Income before Income Tax, Domestic and Foreign
The following table provides the components of Income from continuing operations before provision for taxes on income:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2016

 
2015

 
2014

United States
 
$
(8,534
)
 
$
(6,809
)
 
$
(4,744
)
International
 
16,886

 
15,773

 
16,984

Income from continuing operations before provision for taxes on income(a), (b)
 
$
8,351

 
$
8,965

 
$
12,240

(a) 
2016 v. 2015––The increase in the domestic loss was primarily due to a charge related to the write-down of HIS net assets to fair value less estimated costs to sell, higher asset impairments, and higher restructuring charges and certain acquisition-related costs, partially offset by the inclusion of a full year of legacy U.S. Hospira operations as compared to four months of U.S. operations in 2015, and lower charges for legal matters. The increase in international income is primarily due to the non-recurrence of a foreign currency loss related to Venezuela partially offset by a charge related to the write-down of HIS net assets to fair value less estimated costs to sell, and higher restructuring charges and certain acquisition-related costs.
(b) 
2015 v. 2014––The increase in the domestic loss was primarily due to the loss of exclusivity for Celebrex and Zyvox, higher restructuring charges and higher selling, informational and administrative expenses, partially offset by the performance of certain products including Prevnar 13 and Ibrance, and the impact of Hospira operations. The decrease in international income was primarily due to a foreign currency loss related to Venezuela, higher asset impairments, and the loss of exclusivity for Lyrica in certain developed markets, partially offset by lower R&D costs.
Schedule of Provision for Taxes on Income
The following table provides the components of Provision for taxes on income based on the location of the taxing authorities:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2016

 
2015

 
2014

United States
 
 
 
 
 
 
Current income taxes:
 
 
 
 
 
 
Federal
 
$
342

 
$
67

 
$
393

State and local
 
(52
)
 
(8
)
 
85

Deferred income taxes:
 
 
 
 
 
 
Federal
 
(419
)
 
300

 
725

State and local
 
(106
)
 
(36
)
 
(256
)
Total U.S. tax provision
 
(235
)
 
323

 
948

International
 
 
 
 
 
 
Current income taxes
 
1,532

 
1,951

 
2,321

Deferred income taxes
 
(175
)
 
(284
)
 
(149
)
Total international tax provision
 
1,358

 
1,667

 
2,172

Provision for taxes on income
 
$
1,123

 
$
1,990

 
$
3,120
Schedule of Effective Income Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations follows:
 
 
Year Ended December 31,
 
 
2016

 
2015

 
2014

U.S. statutory income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
Taxation of non-U.S. operations(a), (b), (c)
 
(13.8
)
 
(9.6
)
 
(7.4
)
Tax settlements and resolution of certain tax positions(d)
 
(5.5
)
 
(4.0
)
 
(2.9
)
U.S. Healthcare Legislation(d)
 
1.3

 
0.9

 
1.0

U.S. R&D tax credit and manufacturing deduction(d)
 
(1.0
)
 
(1.0
)
 
(0.9
)
Certain legal settlements and charges(d)
 
(2.9
)
 
3.1

 
—

All other, net(e)
 
0.3

 
(2.1
)
 
0.5

Effective tax rate for income from continuing operations
 
13.4
 %
 
22.2
 %
 
25.5
 %
(a) 
For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the U.S., together with the cost of repatriation decisions, as well as changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions”. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year as tax rates outside the U.S. are generally lower than the U.S. statutory income tax rate, and the rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the cost of repatriation decisions, and other U.S. tax implications of our foreign operations, is a significant component of our effective tax rate each year and generally offsets some of the reduction to our effective tax rate each year resulting from the jurisdictional location of earnings; and (iii) the impact of changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs, can vary as a result of the repatriation decisions, as a result of operating fluctuations in the normal course of business and as a result of the extent and location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See also Note 5A for the components of pre-tax income and Provision for taxes on income, which is based on the location of the taxing authorities, and for information about settlements and other items impacting Provision for taxes on income.
(b) 
In all periods presented, the reduction in our effective tax rate resulting from the jurisdictional location of earnings is largely due to generally lower tax rates, as well as manufacturing and other incentives associated with our subsidiaries in Puerto Rico, Singapore, Costa Rica, and the Dominican Republic. We benefit from a Puerto Rican incentive grant that expires in 2029. Under the grant, we are partially exempt from income, property and municipal taxes. In Singapore, we benefit from incentive tax rates effective through 2031 on income from manufacturing and other operations. Hospira’s infusion technologies business benefits from income tax exemptions in Costa Rica and the Dominican Republic through 2028 and 2019, respectively.
(c) 
The favorable rate impact in 2016 also includes the non-recurrence of the non-deductibility of a foreign currency loss related to Venezuela. The rate impact in 2015 also includes the non-deductibility of a foreign currency loss related to Venezuela. The favorable rate impact in 2014 also includes the decline in the non-tax deductible loss recorded in 2013 related to an option to acquire the remaining interest in Teuto, since we expected to retain the investment indefinitely. For additional information, see Note 2E.
(d) 
For a discussion about tax settlements and resolution of certain tax positions, the impact of U.S. Healthcare Legislation, the U.S. R&D tax credit and the impact of certain legal settlements and charges, see Note 5A.
(e) 
All other, net in 2015 primarily relates to tax benefits associated with certain tax initiatives in the normal course of business.
Schedule of Deferred Tax Assets and Liabilities
The components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
 
 
2016 Deferred Tax
 
2015 Deferred Tax
(MILLIONS OF DOLLARS)
 
Assets
 
(Liabilities)
 
Assets
 
(Liabilities)
Prepaid/deferred items
 
$
2,180

 
$
(68
)
 
$
2,247

 
$
(38
)
Inventories
 
366

 
(47
)
 
381

 
(190
)
Intangible assets
 
1,139

 
(15,172
)
 
1,063

 
(10,885
)
Property, plant and equipment
 
92

 
(982
)
 
65

 
(1,096
)
Employee benefits
 
3,356

 
(74
)
 
3,302

 
(167
)
Restructurings and other charges
 
458

 
(2
)
 
318

 
(20
)
Legal and product liability reserves
 
650

 
—

 
730

 
—

Net operating loss/tax credit carryforwards(a)
 
2,957

 
—

 
3,808

 
—

Unremitted earnings(b)
 
—

 
(23,108
)
 
—

 
(23,626
)
State and local tax adjustments
 
301

 
—

 
328

 
—

All other
 
306

 
(503
)
 
310

 
(646
)
 
 
11,806

 
(39,956
)
 
12,552

 
(36,668
)
Valuation allowances
 
(1,949
)
 
—

 
(2,029
)
 
—

Total deferred taxes
 
$
9,857

 
$
(39,956
)
 
$
10,523

 
$
(36,668
)
Net deferred tax liability (c)
 
 
 
$
(30,099
)
 
 
 
$
(26,145
)
(a) 
The amounts in 2016 and 2015 are reduced for unrecognized tax benefits of $3.0 billion and $2.9 billion, respectively, where we have net operating loss carryforwards, similar tax losses, and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to settle any additional income taxes that would result from the disallowance of a tax position.
(b) 
The decrease in 2016 reflects the reversal of certain prior year accruals for earnings outside the U.S. that were not indefinitely reinvested overseas, partially offset by additional accruals for certain funds earned outside the U.S. in the current year that will not be indefinitely reinvested overseas. For additional information, see Note 5A.
(c)
In 2016, Noncurrent deferred tax assets and other noncurrent tax assets ($654 million), and Noncurrent deferred tax liabilities ($30.8 billion). In 2015, Noncurrent deferred tax assets and other noncurrent tax assets ($732 million), and Noncurrent deferred tax liabilities ($26.8 billion).
Schedule of Unrecognized Tax Benefits Roll Forward
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS OF DOLLARS)
 
2016

 
2015

 
2014

Balance, beginning
 
$
(5,919
)
 
$
(6,182
)
 
$
(6,087
)
Acquisitions(a)
 
(83
)
 
(110
)
 
—

Increases based on tax positions taken during a prior period(b)
 
(11
)
 
(31
)
 
(110
)
Decreases based on tax positions taken during a prior period(b), (c)
 
409

 
496

 
473

Decreases based on settlements for a prior period(d)
 
126

 
64

 
70

Increases based on tax positions taken during the current period(b)
 
(489
)
 
(675
)
 
(795
)
Impact of foreign exchange
 
(5
)
 
319

 
161

Other, net(b), (e)
 
146

 
199

 
106

Balance, ending(f)
 
$
(5,826
)
 
$
(5,919
)
 
$
(6,182
)
(a) 
For 2016, primarily related to the acquisitions of Medivation and Anacor. For 2015, primarily related to the acquisition of Hospira. See also Note 2A.
(b) 
Primarily included in Provision for taxes on income.
(c) 
Primarily related to effectively settling certain tax positions primarily with foreign tax authorities. See also Note 5A.
(d) 
Primarily related to cash payments and reductions of tax attributes.
(e) 
Primarily related to decreases as a result of a lapse of applicable statutes of limitations.
(f) 
In 2016, included in Income taxes payable ($14 million), Current tax assets ($17 million), Noncurrent deferred tax assets and other noncurrent tax assets ($184 million), Noncurrent deferred tax liabilities ($2.8 billion) and Other taxes payable ($2.8 billion). In 2015, included in Income taxes payable ($38 million), Current tax assets ($22 million), Noncurrent deferred tax assets and other noncurrent tax assets ($135 million), Noncurrent deferred tax liabilities ($2.7 billion) and Other taxes payable ($3.0 billion).
Schedule of Other Comprehensive Income (Loss), Components of Income Tax Expense (Benefit)
The following table provides the components of the Tax provision/(benefit) on other comprehensive loss:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2016

 
2015

 
2014

Foreign currency translation adjustments, net(a)
 
$
(15
)
 
$
90

 
$
42

Unrealized holding gains/(losses) on derivative financial instruments, net
 
(75
)
 
(173
)
 
(199
)
Reclassification adjustments for realized (gains)/losses
 
158

 
104

 
262

 
 
83

 
(69
)
 
63

Unrealized holding gains/(losses) on available-for-sale securities, net
 
49

 
(104
)
 
(56
)
Reclassification adjustments for realized (gains)/losses
 
(15
)
 
59

 
10

 
 
34

 
(45
)
 
(46
)
Benefit plans: actuarial losses, net
 
(535
)
 
(23
)
 
(1,416
)
Reclassification adjustments related to amortization
 
186

 
183

 
61

Reclassification adjustments related to settlements, net
 
45

 
237

 
35

Other
 
36

 
66

 
61

 
 
(269
)
 
462

 
(1,258
)
Benefit plans: prior service credits and other, net
 
67

 
160

 
281

Reclassification adjustments related to amortization
 
(64
)
 
(59
)
 
(28
)
Reclassification adjustments related to curtailments, net
 
(10
)
 
(12
)
 
—

Other
 
(1
)
 
—

 
(1
)
 
 
(7
)
 
89

 
253

Tax provision/(benefit) on other comprehensive loss
 
$
(174
)
 
$
528

 
$
(946
)
(a) 
Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.