Tax Matters

9 Months Ended

Sep. 29, 2019

A. Taxes on Income from Continuing Operations

During the second quarter of 2019, Pfizer reached settlement of disputed issues at the IRS Office of Appeals, thereby settling all issues related to U.S. tax returns of Pfizer for the years 2009-2010. As a result of settling these years, in the second quarter of 2019 we recorded a benefit of approximately $1.4 billion, representing tax and interest.

Our effective tax rate for continuing operations was 28.4% for the third quarter of 2019, compared to 1.6% for the third quarter of 2018 and was 13.4% for the first nine months of 2019, compared to 9.9% for the first nine months of 2018.

The higher effective tax rate for the third quarter of 2019 in comparison with the same period in 2018 was primarily due to:


•	the tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK;


•	the non-recurrence of certain tax initiatives and favorable adjustments to the provisional estimate of the legislation commonly referred to as the TCJA; and


•	a decrease in tax 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.

The higher effective tax rate for the first nine months of 2019 in comparison with the same period in 2018 was primarily due to:


•	the tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK; and


•	the non-recurrence of certain tax initiatives and favorable adjustments to the provisional estimate of the TCJA,

partially offset by:


•	an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years, primarily resulting from the aforementioned favorable settlement with the IRS; and


•	the tax benefit recorded as a result of additional guidance issued by the U.S. Department of Treasury related to the enactment of the TCJA.

Our estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, payment over eight years through 2026 is reported in current Income taxes payable (approximately $750 million) and the remaining liability is reported in noncurrent Other taxes payable in our consolidated balance sheet as of September 29, 2019. The first installment of $750 million was paid in April 2019. Our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards.

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:


•	During the second quarter of 2019, Pfizer reached settlement of disputed issues at the IRS Office of Appeals, thereby settling all issues related to U.S. tax returns of Pfizer for the years 2009-2010. As a result of settling these years, in the second quarter of 2019 we recorded a benefit of approximately $1.4 billion, representing tax and interest.


•	With respect to Pfizer, tax years 2011-2015 are currently under audit. Tax years 2016-2019 are open, but not under audit. All other tax years are closed.

In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2013-2019), Japan (2017-2019), Europe (2011-2019, primarily reflecting Ireland, the U.K., France, Italy, Spain and Germany), Latin America (1998-2019, primarily reflecting Brazil) and Puerto Rico (2015-2019).

C. Tax Provision on Other Comprehensive Loss



The following table provides the components of Tax provision on other comprehensive loss:
	Three Months Ended						Nine Months Ended
(MILLIONS OF DOLLARS)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Foreign currency translation adjustments, net^(a)	$	86		$	14		$	96		$	82
Unrealized holding gains on derivative financial instruments, net	31			35			37			39
Reclassification adjustments for (gains)/losses included in net income	(3		)	(28		)	(62		)	36
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			—			—			1
	28			7			(24		)	77
Unrealized holding gains/(losses) on available-for-sale securities, net	2			20			6			(8		)
Reclassification adjustments for (gains)/losses included in net income	(1		)	(6		)	4			(8		)
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings^(c)	—			—			—			(45		)
	1			14			10			(62		)
Benefit plans: actuarial gains/(losses), net	(41		)	2			(42		)	27
Reclassification adjustments related to amortization	23			15			41			43
Reclassification adjustments related to settlements, net	9			10			10			25
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			—			—			637
Other	(1		)	11			2			18
	(10		)	38			12			750
Benefit plans: prior service costs and other, net	—			—			—			—
Reclassification adjustments related to amortization of prior service costs and other, net	(11		)	(11		)	(33		)	(33		)
Reclassification adjustments related to curtailments of prior service costs and other, net	(11		)	(1		)	(11		)	(4		)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings^(b)	—			—			—			(144		)
Other	1			1			1			1
	(21		)	(11		)	(43		)	(179		)
Tax provision on other comprehensive loss	$	84		$	62		$	50		$	667


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


^(b)	For additional information on the adoption of a new accounting standard related to reclassification of certain tax effects from AOCI, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.

^(c)

For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.