Pfizer 2008 Annual Report Download - page 63

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
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, feasible tax planning strategies.
As of December 31, 2008, we have not made a U.S. tax provision on approximately $63.1 billion of unremitted earnings of our
international subsidiaries. As of December 31, 2008, these earnings are intended to be permanently reinvested overseas; as such, it
is not practical to compute the estimated deferred tax liability on these permanently reinvested earnings.
Deferred tax assets and liabilities in the preceding table, netted by taxing jurisdiction, are in the following captions in our
consolidated balance sheets:
AS OF DECEMBER 31,
(MILLIONS OF DOLLARS) 2008 2007
Current deferred tax asset(a) $ 1,143 $ 1,664
Noncurrent deferred tax asset(b) 1,256 2,441
Current deferred tax liability(c) (414) (30)
Noncurrent deferred tax liability(d) (2,959) (7,696)
Net deferred tax liability $ (974) $(3,621)
(a) Included in Taxes and other current assets.
(b) Included in Other assets, deferred taxes and deferred charges.
(c) Included in Other current liabilities.
(d) Included in Deferred taxes.
E. 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. For a description of our accounting policy associated with accounting for income tax
contingencies, see Note 1O. Significant Accounting Policies: Income Tax Contingencies. All of our tax positions are subject to audit
by the local taxing authorities in each tax jurisdiction. Tax audits can involve complex issues and the resolution of issues may span
multiple years, particularly if subject to negotiation or litigation.
The United States is one of our major tax jurisdictions. We are currently appealing two issues related to the IRS’ audits of the Pfizer
Inc. tax returns for the years 2002 through 2005. The 2006, 2007 and 2008 tax years are currently under audit as part of the IRS
Compliance Assurance Process, a real-time audit process. All other tax years in the U.S. for Pfizer Inc. are closed under the statute
of limitations. With respect to Pharmacia Corporation, the IRS is currently conducting an audit for the year 2003 through the date of
merger with Pfizer (April 16, 2003). In addition to the open audit years in the U.S., we have open audit years in other major tax
jurisdictions, such as Canada (1998-2008), Japan (2006-2008), Europe (1996-2008, primarily reflecting Ireland, the U.K., France,
Italy, Spain and Germany) and Puerto Rico (2004-2008).
We regularly reevaluate our tax positions based on the results of audits of federal, state and foreign income tax filings, statute of
limitations expirations, and changes in tax law that would either increase or decrease the technical merits of a position relative to the
‘more-likely-than-not’ standard. We believe that our accruals for tax liabilities are adequate for all open years. Many factors are
considered in making these evaluations, including past history, recent interpretations of tax law, and the specifics of each matter.
Because tax laws and regulations are subject to interpretation and tax litigation is inherently uncertain, these evaluations can involve
a series of complex judgments about future events and can rely heavily on estimates and assumptions (see Note 1C. Significant
Accounting Policies: Estimates and Assumptions). Our evaluations are based on estimates and assumptions that have been
deemed reasonable by management. However, if our estimates and assumptions are not representative of actual outcomes, our
results could be materially impacted.
In 2008, we effectively settled certain issues common among multinational corporations with various foreign tax authorities primarily
relating to tax years 2000 to 2005. As a result, we recognized $305 million in tax benefits.
Because tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be
sustained upon audit. The amounts associated with uncertain tax positions in 2008 and 2007 are as follows:
AS OF DECEMBER 31,
(MILLIONS OF DOLLARS) 2008 2007
Noncurrent deferred tax assets(a) $ 589 $ 529
Other tax assets(a) 809 890
Income taxes payable(b)(c) (129) (408)
Other taxes payable(b) (6,568) (6,246)
Total amounts associated with uncertain tax positions $(5,299) $(5,235)
(a) Included in Other assets, deferred taxes and deferred charges.
(b) Includes gross accrued interest of $1.3 billion as of December 31, 2008, and $1.2 billion as of December 31, 2007. Accrued penalties are not
significant.
(c) As of December 31, 2008, included in Income taxes payable ($85 million) and Taxes and other current assets ($44 million). As of December 31,
2007, included in Income taxes payable ($358 million) and Taxes and other current assets ($50 million).
2008 Financial Report 61