Pfizer 2013 Annual Report Download - page 80

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2013 Financial Report 79
C. Deferred Taxes
Deferred taxes arise as a result of basis differentials between financial statement accounting and tax amounts.
The components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
2013 Deferred Tax 2012 Deferred Tax
(MILLIONS OF DOLLARS) Assets (Liabilities) Assets (Liabilities)
Prepaid/deferred items $1,668 $(134)$1,762 $(113)
Inventories 277 (216)315 (195)
Intangible assets 1,137 (9,647) 1,602 (12,585)
Property, plant and equipment 376 (1,916) 480 (1,307)
Employee benefits 3,154 (77)4,890 (391)
Restructurings and other charges 453 (396)734 (329)
Legal and product liability reserves 904 —1,909 —
Net operating loss/credit carryforwards(a) 2,043 —3,664 —
Unremitted earnings(b) — (19,399) — (17,077)
State and local tax adjustments 297 —385 —
All other 249 (448)722 (496)
10,558 (32,233) 16,463 (32,493)
Valuation allowances (1,288) — (1,033)—
Total deferred taxes $9,270 $ (32,233) $15,430 $ (32,493)
Net deferred tax liability(c), (d) $ (22,963) $ (17,063)
(a) The amount in 2013 is shown after reduction for unrecognized tax benefits of $2.3 billion, 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. For additional information, see "Adoption of New Accounting Standard" in Note 5D. Tax Matters: Tax Contingencies.
(b) The increase in 2013 reflects additional accruals for certain funds earned outside the U.S. that will not be indefinitely reinvested overseas, virtually all of
which were earned in the current year. For additional information, see Note 5A. Tax Matters: Taxes on Income from Continuing Operations.
(c) 2013 v. 2012––The net deferred tax liability position increased, reflecting an increase in noncurrent deferred tax liabilities related to unremitted earnings, as
well as a decrease in deferred tax assets related to net operating loss and credit carryforwards as a result of the adoption of a new accounting standard, a
decrease in current deferred tax assets related to product liability reserves due to settlements, and the decrease in noncurrent deferred tax assets related to
employee benefits, partially offset by the reduction in noncurrent deferred tax liabilities resulting from the amortization of identifiable intangible assets. For
additional information, see Note 5D. Tax Matters: Tax Contingencies.
(d) In 2013, included in Current deferred tax assets and other current tax assets ($2.1 billion), Noncurrent deferred tax assets and other noncurrent tax assets
($569 million), Other current liabilities ($52 million) and Noncurrent deferred tax liabilities ($25.6 billion). In 2012, included in Current deferred tax assets and
other current tax assets ($3.5 billion), Noncurrent deferred tax assets and other noncurrent tax assets ($611 million) and Noncurrent deferred tax liabilities
($21.2 billion).
We have carryforwards, primarily related to foreign tax credits, net operating and capital losses and charitable contributions, which are
available to reduce future U.S. federal and state, as well as international, income taxes payable with either an indefinite life or expiring at
various times from 2014 to 2033. Certain of our U.S. net operating losses are subject to limitations under Internal Revenue Code Section 382.
Valuation allowances are provided when we believe that our deferred tax assets are not recoverable based on an assessment of estimated
future taxable income that incorporates ongoing, prudent and feasible tax planning strategies, that would be implemented, if necessary, to
realize the deferred tax assets.
As of December 31, 2013, we have not made a U.S. tax provision on approximately $69.0 billion of unremitted earnings of our international
subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred
tax liability as of December 31, 2013, is not practicable.
D. 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.
For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1O. Basis of Presentation and
Significant Accounting Policies: Deferred Tax Assets and Liabilities and Income Tax Contingencies. For a description of the risks associated
with estimates and assumptions, see Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions.