Tax Matters

3 Months Ended

Apr. 03, 2022

Income Tax Disclosure [Abstract]

Tax Matters

Tax Matters

A. Taxes on Income from Continuing Operations

Our effective tax rate for continuing operations was 12.9% for the first quarter of 2022, compared to 14.2% for the first quarter of 2021. The lower effective tax rate for the first quarter of 2022 was primarily due to the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.

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 fourth annual installment of this liability was paid by its April 18, 2022 due date and is reported in current Income taxes payable and the remaining liability is reported in noncurrent Other taxes payable as of April 3, 2022. 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.

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 2019-2022 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 dating back to 2011.

For additional information, see Note 5D in our 2021 Form 10-K.

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

Components of Tax provision/(benefit) on other comprehensive income/(loss) include:
	Three Months Ended
(MILLIONS)	April 3, 2022		April 4, 2021
Foreign currency translation adjustments, net(a)	$	(72)	$	21
Unrealized holding gains/(losses) on derivative financial instruments, net	32		59
Reclassification adjustments for (gains)/losses included in net income	(22)		34
	10		93
Unrealized holding gains/(losses) on available-for-sale securities, net	(17)		10
Reclassification adjustments for (gains)/losses included in net income	29		(30)
	12		(20)
Reclassification adjustments related to amortization of prior service costs and other, net	(9)		(10)
Reclassification adjustments related to curtailments of prior service costs and other, net	(2)		—
Other	—		—
	(11)		(10)
Tax provision/(benefit) on other comprehensive income/(loss)	$	(60)	$	84

(a)Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that we intend to hold indefinitely.