Tax Matters (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of Income before Income Tax, Domestic and Foreign


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.

Schedule of Provision for Taxes on Income


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

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,
	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.

Schedule of Deferred Tax Assets and Liabilities


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).

Schedule of Unrecognized Tax Benefits Roll Forward


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).

Schedule of Other Comprehensive Income (Loss), Components of Income Tax Expense (Benefit)


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.