Pfizer 2010 Annual Report Download - page 73

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
In the fourth-quarter of 2010, we recorded a tax benefit of approximately $1.4 billion related to an audit settlement with the U.S.
Internal Revenue Service. The 2010 U.S. income tax was also favorably impacted by the reversal of approximately $600 million of
accruals related to interest on these unrecognized tax benefits. 2010 U.S. income tax was negatively impacted by the write-off of
approximately $270 million of deferred tax assets related to the Medicare Part D subsidy for retiree prescription drug coverage,
resulting from changes in the U.S. healthcare legislation enacted in March 2010 concerning the tax treatment of that subsidy
effective for tax years beginning after December 31, 2012. During 2010, we also recognized $320 million in international tax benefits
for the resolution of certain tax positions pertaining to prior years with various foreign tax authorities, as well as from the expiration of
the statute of limitations. The 2010 international provision was also favorably impacted by $140 million related to the reversal of
accruals for interest on these unrecognized tax benefits (See “Tax Contingencies” below for additional information on audit
settlements).
In the third-quarter of 2009, we recorded a tax benefit of $174 million related to the final resolution of an agreement-in-principle with
the DOJ to settle investigations of past promotional practices concerning Bextra and certain other investigations. This resulted in the
receipt of information that raised our assessment of the likelihood of prevailing on the technical merits of our tax position. In 2009
and 2008, we sold two of our biopharmaceutical companies, Vicuron Pharmaceuticals, Inc. (Vicuron) and Esperion Therapeutics,
Inc. (Esperion), respectively. Both sales, for nominal consideration, resulted in a loss for tax purposes that reduced our U.S. tax
expense by $556 million in 2009 and $426 million in 2008. These tax benefits are a result of the significant initial investment in these
entities at the time of acquisition, primarily reported as an income statement charge for IPR&D at acquisition date. These tax
benefits were offset by certain costs associated with the Wyeth acquisition that are not deductible. In 2008, we effectively settled
certain issues common among multinational corporations with various foreign tax authorities relating to multiple prior years. As a
result, in 2008 we recognized $305 million in tax benefits. 2008 also reflects the impact of the third-quarter 2008 provision for the
proposed resolution of certain Bextra and Celebrex civil litigation and the impact of the fourth-quarter 2008 provision for the
proposed resolution of certain investigations, which were either not deductible or deductible at lower tax rates.
Amounts reflected in the preceding tables are based on the location of the taxing authorities.
B. 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,
2010 2009 2008
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Earnings taxed at other than U.S. statutory rate 2.5 (9.3) (20.2)
Resolution of certain tax positions (26.4) — (3.1)
Sales of biopharmaceutical companies —(5.1) (4.3)
U.S. healthcare legislation 2.8 ——
U.S. research tax credit and manufacturing deduction (2.3) (1.3) (1.2)
Legal settlements 0.4 (1.6) 9.0
Acquired IPR&D 0.5 0.2 2.1
Wyeth acquisition-related costs 0.5 2.4 —
All other—net (1.1) — (0.3)
Effective tax rate for income from continuing operations 11.9% 20.3% 17.0%
For earnings taxed at other than the U.S. statutory 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 2013 and 2029. Under the
grants, we are partially exempt from income, property and municipal taxes. In Ireland, we benefited 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. The rate impact also reflects the jurisdictional location of earnings and the costs of
certain repatriation decisions and uncertain tax positions. In 2008, the rate impact also reflects the realization of approximately $711
million (tax effect) in net operating losses.
For a discussion about the resolution of certain tax positions, see the “Tax Contingencies” section below. For a discussion about the
sales of the biopharmaceutical companies, legal settlements, and Wyeth acquisition related costs and about the impact of U.S.
healthcare legislation, see the “Taxes on Income” section above. The charges for acquired IPR&D in 2010, 2009 and 2008 are
primarily not deductible.
2010 Financial Report 71