Pfizer 2013 Annual Report Download - page 81

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
80
2013 Financial Report
Adoption of New Accounting Standard
On December 31, 2013, we changed the presentation of certain unrecognized tax benefits, 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 the tax position. Those unrecognized tax benefits are now presented as a reduction of
the deferred tax assets for such net operating loss/tax credit carryforwards. The impact of the change in presentation is that certain amounts
previously reported in Other taxes payable, approximately $2.3 billion as of December 31, 2013, have been reclassified; virtually all are now
reported in Noncurrent deferred tax liabilities. The adoption impacted Noncurrent deferred tax liabilities as our noncurrent deferred tax assets
for the net operating loss carryforwards, similar tax losses and/or tax credit carryforwards have been netted against the noncurrent deferred
tax liabilities of the same tax jurisdiction.
Uncertain Tax Positions
As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon audit.
As of December 31, 2013 and 2012, we had approximately $4.4 billion and $5.0 billion, respectively, in net unrecognized tax benefits,
excluding associated interest.
• Tax assets associated with uncertain tax positions primarily represent our estimate of the potential tax benefits in one tax jurisdiction that
could result from the payment of income taxes in another tax jurisdiction. These potential benefits generally result from cooperative efforts
among taxing authorities, as required by tax treaties to minimize double taxation, commonly referred to as the competent authority process
and from foreign tax credits that would be generated upon settlement of an uncertain tax position. The recoverability of these assets, which
we believe to be more likely than not, is dependent upon the actual payment of taxes in one tax jurisdiction and, in some cases, the
successful petition for recovery in another tax jurisdiction. As of December 31, 2013 and 2012, we had approximately $1.7 billion and $1.3
billion, respectively, in assets associated with uncertain tax positions. In 2013, these amounts were included in Noncurrent deferred tax
assets and other noncurrent tax assets ($926 million) and Noncurrent deferred tax liabilities ($766 million). In 2012, these amounts were
included in Noncurrent deferred tax assets and other noncurrent tax assets ($887 million) and Noncurrent deferred tax liabilities ($446
million).
• Tax liabilities associated with uncertain tax positions represent unrecognized tax benefits, which arise when the estimated benefit recorded
in our financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described
above. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Substantially all of these
unrecognized tax benefits, if recognized, would impact our effective income tax rate.
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS OF DOLLARS) 2013 2012 2011
Balance, beginning $ (6,315) $(7,309)$ (6,759)
Acquisitions(a) ——(72)
Divestitures(b) 29 85 —
Increases based on tax positions taken during a prior period(c) (205)(139)(502)
Decreases based on tax positions taken during a prior period(c), (d) 876 1,442 271
Decreases based on settlements for a prior period(e) 571 647 575
Increases based on tax positions taken during the current period(c) (1,178) (1,125)(855)
Impact of foreign exchange 38 78 (89)
Other, net(c), (f) 97 6 122
Balance, ending(g) $ (6,087) $(6,315)$ (7,309)
(a) The amount in 2011 primarily relates to the acquisition of King. See also Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method
Investments: Acquisitions.
(b) Primarily relates to the sales of our Nutrition and Animal Health (Zoetis) businesses. See also Note 2B. Acquisitions, Divestitures, Collaborative
Arrangements and Equity-Method Investments: Divestitures.
(c) Primarily included in Provision for taxes on income.
(d) Primarily related to effectively settling certain issues with the U.S. and foreign tax authorities. See also Note 5A. Tax Matters: Taxes on Income from
Continuing Operations.
(e) Primarily related to cash payments.
(f) Includes decreases as a result of a lapse of applicable statutes of limitations.
(g) In 2013, included in Income taxes payable ($51 million), Current deferred tax assets and other current tax assets ($63 million), Noncurrent deferred tax
assets and other noncurrent tax assets ($241 million), Noncurrent deferred tax liabilities ($2.3 billion) and Other taxes payable ($3.4 billion). In 2012,
included in Income taxes payable ($36 million), Current deferred tax assets and other current tax assets ($30 million), Noncurrent deferred tax assets and
other noncurrent tax assets ($169 million), Noncurrent deferred tax liabilities ($231 million) and Other taxes payable ($5.8 billion).
• Interest related to our unrecognized tax benefits is recorded in accordance with the laws of each jurisdiction and is recorded in Provision for
taxes on income in our consolidated statements of income. In 2013, we recorded net interest income of $16 million primarily as a result of
settling certain issues with the U.S. and various foreign tax authorities; in 2012, we recorded net interest income of $120 million primarily as
a result of settling certain issues with the U.S. and various foreign tax authorities; and in 2011, we recorded net interest expense of $203
million. Gross accrued interest totaled $621 million as of December 31, 2013 (reflecting a decrease of approximately $120 million as a result
of cash payments) and $766 million as of December 31, 2012 (reflecting a decrease of approximately $63 million as a result of cash
payments). In 2013, these amounts were included in Income taxes payable ($14 million) and Current deferred tax assets and other current
tax assets ($12 million) and Other taxes payable ($595 million). In 2012, these amounts were included in Current deferred tax assets and