Tax Matters

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Tax Matters

Tax Matters

A. Taxes on Income from Continuing Operations

Components of Income from continuing operations before provision/(benefit) for taxes on income include:
	Year Ended December 31,
(MILLIONS)	2021		2020		2019
United States	$	6,064	$	(2,887)	$	7,332
International	18,247		9,924		3,988
Income from continuing operations before provision/(benefit) for taxes on income(a), (b)	$	24,311	$	7,036	$	11,321

(a)2021 v. 2020––The domestic income in 2021 versus domestic loss in 2020 was mainly related to Comirnaty income, lower asset impairment charges, net periodic benefit credits in 2021 versus net periodic benefit costs in 2020 and higher net gains from equity securities, partially offset by higher R&D expenses. The increase in the international income was primarily related to Comirnaty income, net periodic benefit credits in 2021 versus net periodic benefit costs in 2020 and lower asset impairment charges.

(b)2020 v. 2019––The domestic loss in 2020 versus domestic income in 2019 was mainly related to the non-recurrence of the gain on the completion of the Consumer Healthcare JV transaction as well as higher asset impairment charges and higher R&D expenses. The increase in the international income was primarily related to the non-recurrence of the write off of assets contributed to the Consumer Healthcare JV as well as lower asset impairment charges and lower amortization of intangible assets.

Components of Provision/(benefit) for taxes on income based on the location of the taxing authorities include:
	Year Ended December 31,
(MILLIONS)	2021		2020		2019
United States
Current income taxes:
Federal	$	3,342	$	372	$	(1,887)
State and local	34		56		(186)
Deferred income taxes:
Federal	(3,850)		(1,164)		1,254
State and local	(491)		(131)		276
Total U.S. tax benefit	(964)		(867)		(543)
TCJA
Current income taxes	—		—		(135)
Deferred Income taxes	—		—		(187)
Total TCJA tax benefit	—		—		(323)
International
Current income taxes	2,769		1,517		2,418
Deferred income taxes	48		(279)		(969)
Total international tax provision	2,816		1,237		1,449
Provision/(benefit) for taxes on income	$	1,852	$	370	$	583

Amounts discussed below are rounded to the nearest hundred million and represent approximations.

We elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, to pay our initial estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings over eight years through 2026. The third annual installment of this liability was paid by its April 15, 2021 due date. The fourth annual installment is due April 18, 2022 and is reported in current Income taxes payable as of December 31, 2021. The remaining liability is reported in noncurrent Other taxes payable. 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.

The changes in Provision/(benefit) for taxes on income impacting the effective tax rate year-over-year are summarized below:

2021 v. 2020

The higher effective tax rate in 2021 was mainly the result of:

•the change in the jurisdictional mix of earnings primarily related to Comirnaty; and

•lower tax benefits related to the impairment of intangible assets,

partially offset by:

•certain initiatives executed in the third quarter of 2021 associated with our investment in the Consumer Healthcare JV with GSK based on estimates and assumptions that we believe to be reasonable.

2020 v. 2019

The higher effective tax rate in 2020 was mainly the result of:

•the non-recurrence of the $1.4 billion tax benefits, representing taxes and interest, recorded in 2019 due to the favorable settlement of an IRS audit for multiple tax years;

•the non-recurrence of the tax benefits related to certain tax initiatives associated with the implementation of our then new business structure; and

•the non-recurrence of the tax benefits recorded in 2019 as a result of additional guidance issued by the U.S. Department of Treasury related to the TCJA, as well as:

•lower tax benefits related to the impairment of intangible assets,

partially offset by:

•the non-recurrence of the tax expense of $2.7 billion recorded in the third quarter of 2019 associated with the gain on the completion of the Consumer Healthcare JV transaction; and

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

In all years, federal, state and international net tax liabilities assumed or established as part of a business acquisition are not included in Provision/(benefit) for taxes on income (see Note 2A).

B. 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,
	2021		2020		2019
U.S. statutory income tax rate	21.0	%	21.0	%	21.0	%
TCJA impact(a)	—		—		(2.9)
Taxation of non-U.S. operations (b), (c)	(4.3)		(9.9)		(4.7)
Tax settlements and resolution of certain tax positions(a)	(0.4)		(2.7)		(14.0)
Completion of Consumer Healthcare JV transaction(a)	—		—		8.3
Certain Consumer Healthcare JV initiatives(a)	(6.0)		—		—
U.S. R&D tax credit	(0.5)		(1.4)		(0.8)
Interest(d)	0.4		1.1		0.6
All other, net(e)	(2.6)		(2.8)		(2.3)
Effective tax rate for income from continuing operations	7.6	%	5.3	%	5.2	%

(a)See Note 5A.

(b)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 U.S. tax cost on our international operations, changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions,” as well as changes in valuation allowances. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year, 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 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; (iii) the impact of certain tax initiatives; and (iv) 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 the U.S. tax cost on our international operations, can vary 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/(benefit) for taxes on income, which is based on the location of the taxing authorities, and for information about settlements and other items impacting Provision/(benefit) for taxes on income.

(c)In all years, the reduction in our effective tax rate is a result of the jurisdictional location of earnings and is largely due to lower tax rates in certain jurisdictions, as well as manufacturing and other incentives for our subsidiaries in Singapore and, to a lesser extent, in Puerto Rico. We benefit from Puerto Rican tax incentives pursuant to a grant that expires during 2029. Under such grant, we are partially exempt from income, property and municipal taxes. In Singapore, we benefit from incentive tax rates effective through 2047 on income from manufacturing and other operations.

(d)Includes changes in interest related to our uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions”.

(e)All other, net is primarily due to routine business operations.

C. Deferred Taxes

Components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
	2021 Deferred Tax*				2020 Deferred Tax*
(MILLIONS)	Assets		(Liabilities)		Assets		(Liabilities)
Prepaid/deferred items(a)	$	4,086	$	(456)	$	3,114	$	(336)
Inventories	408		(56)		276		(25)
Intangible assets(b)	1,778		(4,577)		793		(5,355)
Property, plant and equipment(c)	117		(1,647)		211		(1,220)
Employee benefits(d)	1,594		(178)		1,981		(124)
Restructurings and other charges	303		—		291		—
Legal and product liability reserves	373		—		382		—
Net operating loss/tax credit carryforwards(e)	1,431		—		1,761		—
Unremitted earnings	—		(45)		—		(46)
State and local tax adjustments	197		—		171		—
Investments(f)	70		(689)		130		(3,545)
All other	89		(68)		80		(76)
	10,446		(7,714)		9,190		(10,726)
Valuation allowances	(1,462)		—		(1,586)		—
Total deferred taxes	$	8,983	$	(7,714)	$	7,604	$	(10,726)
Net deferred tax asset/(liability)(g)	$	1,269					$	(3,123)

*The deferred tax assets and liabilities associated with global intangible low-taxed income are included in the relevant categories. See Note 1Q.

(a)The increase in net deferred tax assets in 2021 is primarily related to temporary differences associated with Comirnaty royalty accruals and the result of operating lease ROU liabilities recognized during the period.

(b)The increase in the deferred tax assets is primarily due to the acquisition of intangible assets relating to Trillium and the decrease in the 2021 deferred tax liabilities is primarily the result of amortization of intangible assets.

(c)The increase in net deferred tax liabilities in 2021 is primarily the result of operating lease ROU assets recognized during the period. See Note 15.

(d)The decrease in net deferred tax assets in 2021 is primarily the result of favorable pension plan asset performance reported in the period. See Note 11A.

(e)The amounts in 2021 and 2020 are reduced for unrecognized tax benefits of $3.0 billion and $3.0 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.

(f)The decrease in net deferred tax liabilities in 2021 is primarily due to certain initiatives executed in the third quarter of 2021 associated with our investment in the Consumer Healthcare JV.

(g)In 2021, Noncurrent deferred tax assets and other noncurrent tax assets ($1.6 billion), and Noncurrent deferred tax liabilities ($0.3 billion). In 2020, Noncurrent deferred tax assets and other noncurrent tax assets ($0.9 billion), and Noncurrent deferred tax liabilities ($4.1 billion).

We have carryforwards, primarily related to net operating and capital losses, general business credits, foreign tax credits and charitable contributions, which are available to reduce future U.S. federal and/or state, as well as international, income taxes payable with either an indefinite life or expiring at various times from 2022 to 2041. Certain of our U.S. net operating losses and general business credits are subject to limitations under IRC Section 382.

As of December 31, 2021, we have not made a U.S. tax provision on $55.0 billion of unremitted earnings of our international subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred tax liability as of December 31, 2021 is not practicable. The amount of indefinitely reinvested earnings is based on estimates and assumptions and subject to management evaluation, and is subject to change in the normal course of business based on operational cash flow, completion of local statutory financial statements and the finalization of tax returns and audits, among other things. Accordingly, we regularly update our earnings and profits analysis for such events.

D. Tax Contingencies

For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1Q.

Uncertain Tax Positions

As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon audit. As of December 31, 2021, we had $4.5 billion and as of December 31, 2020, we had $4.3 billion in net unrecognized tax benefits, excluding associated interest.

•Tax assets for uncertain tax positions primarily represent our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another tax jurisdiction. These potential benefits generally result from cooperative efforts among taxing authorities, as required by tax treaties to minimize double taxation, commonly referred to as the competent authority process. The recoverability of these assets, which we believe to be more likely than not, is dependent upon the actual payment of taxes in one tax jurisdiction and, in some cases, the successful petition for recovery in another tax jurisdiction. As of December 31, 2021, we had $1.5 billion in assets associated with uncertain tax positions. These amounts were included in Noncurrent deferred tax assets and other noncurrent tax assets ($1.4 billion) and Other taxes payable ($105 million). As of December 31, 2020, we had $1.3 billion in assets associated with uncertain tax positions. These amounts were included in Noncurrent deferred tax assets and other noncurrent tax assets ($1.1 billion), Noncurrent deferred tax liabilities ($122 million) and Other taxes payable ($46 million).

•Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate.

The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS)	2021		2020		2019
Balance, beginning	$	(5,595)	$	(5,381)	$	(6,259)
Acquisitions	—		37		(44)
Divestitures(a)	—		265		—
Increases based on tax positions taken during a prior period(b)	(111)		(232)		(36)
Decreases based on tax positions taken during a prior period(b), (c)	103		64		1,109
Decreases based on settlements for a prior period(d)	24		15		100
Increases based on tax positions taken during the current period(b)	(550)		(411)		(383)
Impact of foreign exchange	22		(72)		25
Other, net(b), (e)	40		120		107
Balance, ending(f)	$	(6,068)	$	(5,595)	$	(5,381)

(a)For 2020, related to the separation of Upjohn. See Note 2B.

(b)Primarily included in Provision/(benefit) for taxes on income.

(c)Primarily related to effectively settling certain issues with the U.S. and foreign tax authorities. See 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 2021, included in Income taxes payable ($19 million), Other current assets ($42 million) Noncurrent deferred tax assets and other noncurrent tax assets ($3.0 billion), Noncurrent deferred tax liabilities ($5 million) and Other taxes payable ($3.0 billion). In 2020, included in Income taxes payable ($34 million), Noncurrent deferred tax assets and other noncurrent tax assets ($18 million), Noncurrent deferred tax liabilities ($3.0 billion) and Other taxes payable ($2.5 billion).

•Interest related to our unrecognized tax benefits is recorded in accordance with the laws of each jurisdiction and is recorded primarily in Provision/(benefit) for taxes on income. In 2021 and 2020, we recorded net increases in interest of $108 million and $89 million, respectively. In 2019, we recorded a net decrease in interest of $564 million, resulting primarily from a settlement with the IRS. Gross accrued interest totaled $601 million as of December 31, 2021 (reflecting a decrease of $1 million as a result of cash payments) and gross

accrued interest totaled $493 million as of December 31, 2020 (reflecting a decrease of $5 million as a result of cash payments and a decrease of $75 million relating to the separation of Upjohn). In 2021 and 2020, these amounts were substantially all included in Other taxes payable. Accrued penalties are not significant. See also Note 5A.

Status of Tax Audits and Potential Impact on Accruals for Uncertain Tax Positions

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 Revenue Agent’s Reports (RARs) for tax years 2011-2013 and 2014-2015. We are not in agreement with the RARs and are currently appealing certain disputed issues. Tax years 2016-2018 are currently under audit. Tax years 2019-2021 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 certain major international tax jurisdictions such as Canada (2013-2021), Europe (2011-2021, primarily reflecting Ireland, the U.K., France, Italy, Spain and Germany), Asia Pacific (2011-2021, primarily reflecting China, Japan and Singapore) and Latin America (1998-2021, primarily reflecting Brazil).

Any settlements or statutes of limitations expirations could result in a significant decrease in our uncertain tax positions. We estimate that it is reasonably possible that within the next 12 months, our gross unrecognized tax benefits, exclusive of interest, could decrease by as much as $75 million, as a result of settlements with taxing authorities or the expiration of the statutes of limitations. 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. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.

E. Tax Provision/(Benefit) on Other Comprehensive Income/(Loss)

Components of the Tax provision/(benefit) on other comprehensive income/(loss) include:
	Year Ended December 31,
(MILLIONS)	2021		2020		2019
Foreign currency translation adjustments, net(a)	$	43	$	(119)	$	260
Unrealized holding gains/(losses) on derivative financial instruments, net	84		(88)		83
Reclassification adjustments for (gains)/losses included in net income	29		(25)		(125)
	114		(113)		(42)
Unrealized holding gains/(losses) on available-for-sale securities, net	(44)		45		—
Reclassification adjustments for (gains)/losses included in net income	(4)		(24)		5
	(48)		22		5
Benefit plans: prior service (costs)/credits and other, net	27		12		(1)
Reclassification adjustments related to amortization of prior service costs and other, net	(47)		(31)		(43)
Reclassification adjustments related to curtailments of prior service costs and other, net	(17)		—		(1)
Other	(1)		1		—
	(38)		(17)		(45)
Tax provision/(benefit) on other comprehensive income/(loss)	$	71	$	(227)	$	178

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