Pfizer 2015 Annual Report Download - page 92

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2015 Financial Report
91
C. Deferred Taxes
On December 31, 2015, we adopted a new accounting standard that requires all deferred tax assets and liabilities to be classified as
noncurrent in the balance sheet. We elected to apply this new standard retrospectively. The impact of the change in presentation is that all
deferred tax assets and liabilities that were previously reported in current assets and current liabilities, totaling net current deferred tax assets
of $2.1 billion as of December 31, 2014 have been reclassified to noncurrent assets and noncurrent liabilities, as appropriate.
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:
2015 Deferred Tax 2014 Deferred Tax
(MILLIONS OF DOLLARS) Assets (Liabilities) Assets (Liabilities)
Prepaid/deferred items $2,247 $(38)$1,995 $(53)
Inventories 381 (190)219 (56)
Intangible assets 1,063 (10,885) 969 (9,224)
Property, plant and equipment 65 (1,096) 174 (1,242)
Employee benefits 3,302 (167)3,950 (154)
Restructurings and other charges 318 (20)114 (28)
Legal and product liability reserves 730 —1,010 —
Net operating loss/tax credit carryforwards(a) 3,808 —2,918 —
Unremitted earnings(b) — (23,626) — (21,174)
State and local tax adjustments 328 —295 —
All other 310 (646)283 (783)
12,552 (36,668) 11,927 (32,714)
Valuation allowances (2,029) — (1,615)—
Total deferred taxes $10,523 $ (36,668) $10,312 $ (32,714)
Net deferred tax liability (c) $ (26,145) $ (22,402)
(a) The amounts in 2015 and 2014 are reduced for unrecognized tax benefits of $2.9 billion and $2.6 billion, respectively, 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.
(b) The increase in 2015 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.
(c) In 2015, Noncurrent deferred tax assets and other noncurrent tax assets ($732 million),and Noncurrent deferred tax liabilities ($26.8 billion). In 2014,
Noncurrent deferred tax assets and other noncurrent tax assets ($915 million), and Noncurrent deferred tax liabilities ($23.3 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 2016 to 2035. 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, 2015, we have not made a U.S. tax provision on approximately $80.0 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, 2015, 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. For a description of the
risks associated with estimates and assumptions, see Note 1C.