Pfizer 2008 Annual Report Download - page 62

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
C. Tax Rate Reconciliation
Reconciliation of the U.S. statutory income tax rate to our effective tax rate for income from continuing operations follows:
YEAR ENDED DECEMBER 31,
2008 2007 2006
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Earnings taxed at other than U.S. statutory rate (20.2) (21.6) (15.7)
Sale of biopharmaceutical company (4.3) ——
Resolution of certain tax positions (3.1) — (3.4)
U.S. research tax credit and manufacturing deduction (1.2) (1.5) (0.5)
Proposed legal settlements 9.0 ——
Acquired IPR&D 2.1 1.1 2.2
Tax legislation impact —— (1.7)
Repatriation of foreign earnings —— (1.0)
All other—net (0.3) (2.0) 0.4
Effective tax rate for income from continuing operations 17.0% 11.0% 15.3%
For earnings taxed at other than the U.S. rate, this rate impact reflects the fact that we operate manufacturing subsidiaries in Puerto
Rico, Ireland and Singapore. We benefit from Puerto Rican incentive grants that expire between 2019 and 2029. Under the grants,
we are partially exempt from income, property and municipal taxes. Under Section 936 of the U.S. Internal Revenue Code, Pfizer
was a “grandfathered” entity and was entitled to the benefits under such statute until September 30, 2006. In Ireland, we benefit from
an incentive tax rate effective through 2010 on income from manufacturing operations. In Singapore, we benefit from incentive tax
rates effective through 2031 on income from manufacturing operations. This rate impact also reflects the jurisdictional location of
earnings, realization of approximately $711 million (tax effect) in net operating losses, as well as the costs of certain repatriation
decisions.
For a discussion about the sale of the biopharmaceutical company, proposed legal settlements, the tax legislation impact and the
repatriation of foreign earnings, see Note 7B. Taxes on Income: Taxes on Income. For a discussion about the resolution of certain
tax positions, see Note 7E. Taxes on Income: Tax Contingencies. On October 3, 2008, the Tax Extenders and Alternative Minimum
Tax Relief Act (the Extenders Act) extended the research and development tax credit from January 1, 2008, through December 31,
2009. The charges for acquired IPR&D in 2008, 2007 and 2006 are primarily not deductible.
D. Deferred Taxes
Deferred taxes arise as a result of basis differentials between financial statement accounting and tax amounts.
The tax effect of the major items recorded as deferred tax assets and liabilities, shown before jurisdictional netting, as of
December 31, is as follows:
2008 DEFERRED TAX 2007 DEFERRED TAX
(MILLIONS OF DOLLARS) ASSETS (LIABILITIES) ASSETS (LIABILITIES)
Prepaid/deferred items $ 1,095 $ (256) $1,315 $ (431)
Intangibles 872 (5,727) 897 (6,737)
Property, plant and equipment 205 (996) 300 (957)
Employee benefits 3,414 (585) 2,552 (740)
Restructurings and other charges 1,449 (5) 717 (11)
Net operating loss/credit carryforwards 3,065 — 1,842 —
Unremitted earnings — (4,471) — (3,550)
State and local tax adjustments 585 — 529 —
All other 1,007 (432) 848 (37)
Subtotal 11,692 (12,472) 9,000 (12,463)
Valuation allowance (194) — (158) —
Total deferred taxes $11,498 $(12,472) $8,842 $(12,463)
Net deferred tax liability $ (974) $ (3,621)
The reduction in the net deferred tax liability position in 2008 compared to 2007 is primarily due to amortization of noncurrent
deferred tax liabilities related to identifiable intangibles in connection with our acquisition of Pharmacia in 2003, an increase in the
noncurrent deferred tax asset on employee benefits and net operating loss carryovers, and an increase in the current deferred tax
asset on restructuring charges, partially offset by an increase in the current deferred tax liability on unremitted earnings.
We have carryforwards, primarily related to foreign tax credit carryovers and net operating loss carryovers, which are available to
reduce future U.S. federal and state, as well as international, income with either an indefinite life or expiring at various times
between 2009 and 2028. Certain of our U.S. net operating losses are subject to limitations under Internal Revenue Code
Section 382.
60 2008 Financial Report