Note 5. Tax Matters

A. Taxes on Income from Continuing Operations

Our effective tax rate for continuing operations was 29.4% for the first quarter of 2012, compared to 28.7% for the first quarter of 2011. The higher tax rate for the first quarter of 2012 is primarily due to a change in the jurisdictional mix of earnings and the impact of the expiration of the U.S. research and development tax credit.

B. Taxes on Items of Other Comprehensive Income

The components of taxes on Other comprehensive income follow:

	Three Months Ended
(millions of dollars)	April 1, 2012			April 3, 2011

Taxes on Other Comprehensive Income
Foreign currency translation adjustments(a)	$	67		$	40

Unrealized holding gains/(losses) on derivative financial instruments		159			126
Reclassification adjustments for realized gains		(115	)		(194	)
		44			(68	)

Unrealized gains/(losses) on available-for-sale securities		14			(3	)
Reclassification adjustments for realized losses		7			1
		21			(2	)

Benefit plans: Actuarial gains/(losses)		––			––
Reclassification adjustments related to amortization		44			25
Reclassification adjustments related to curtailments and settlements, net		43			19
Other		(1	)		(27	)
		86			17

Benefit plan: Prior service (costs)/credits and other		––			––
Reclassification adjustments related to amortization		(8	)		(7	)
Reclassification adjustments related to curtailments and settlements, net		(4	)		(4	)
Other		(2	)		(4	)
		(14	)		(15	)

Tax expense/(benefit) on other comprehensive income	$	204		$	(28	)

(a)	Taxes are not provided for foreign currency translation relating to permanent investments in international subsidiaries.

C. 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 United States is one of our major tax jurisdictions and we are regularly audited by the U.S. Internal Revenue Service (IRS):

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With respect to Pfizer Inc., tax years 2006-2010 are currently under audit. Tax years 2011-2012 are not yet under audit. All other tax years are closed.

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With respect to Wyeth, tax years 2006 through the Wyeth acquisition date (October 15, 2009) are currently under audit. All other tax years are closed.

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With respect to King Pharmaceuticals, Inc. (King), tax year 2008 is currently under audit, and for Alpharma Inc. (a subsidiary of King) tax years 2005-2007 are currently under audit. Tax years 2009 through the date of acquisition (January 31, 2011) are open but not under audit. All other tax years are closed. The open tax years and audits for King and its subsidiaries are not considered material to Pfizer.

In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (1998-2012), Japan (2006-2012), Europe (2002-2012, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany) and Puerto Rico (2007-2012).