Pfizer 2011 Annual Report Download - page 74

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
(b) In 2010, the Federal current income tax benefit is primarily due to the tax benefit recorded in connection with our $1.4 billion settlement with the
U.S. Internal Revenue Service and the reversal of $600 million of accruals related to interest on these unrecognized tax benefits. (See below). The
Federal deferred income tax expense includes approximately $2.5 billion as a result of providing U.S. deferred income taxes on certain current-year
funds earned outside of the U.S. that will not be permanently reinvested overseas. (See Note 5C. Taxes on Income: Deferred Taxes).
(c) In 2009, virtually all of the Federal current income tax expense was due to increased tax costs associated with certain business decisions executed
to finance the Wyeth acquisition, including the decision to repatriate certain funds earned outside of the U.S. In addition, virtually all of the Federal
deferred income tax benefit was due to a reduction of deferred tax liabilities recorded in connection with our acquisition of Wyeth. (See Note 2A.
Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisition of Wyeth).
(d) In 2011, federal, state and international net tax liabilities assumed or established on the date of the acquisition primarily of King are excluded. In
2010 and 2009, federal, state and international net tax liabilities assumed or established on the date of the acquisition primarily of Wyeth are
excluded. (See Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisition of Wyeth and Note 2B.
Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Acquisition of King Pharmaceuticals, Inc.)
Settlements and Other Items Impacting Provision for Taxes on Income
In 2011, the Provision for taxes on income was impacted by the following:
•Tax benefits of approximately $190 million resulting from the resolution of certain tax positions pertaining to prior years with various
foreign tax authorities, and from the expiration of certain statutes of limitations, as well as the reversal of approximately $77 million of
accruals related to interest on these unrecognized tax benefits;
•A tax benefit of approximately $80 million, inclusive of interest, resulting from the settlement of certain audits with the U.S. Internal
Revenue Service; and
•Tax benefits of approximately $270 million resulting from charges related to the hormone-therapy litigation.
In 2011, the $248 million fee payable to the federal government, recorded in Selling, informational and administrative expenses, as a
result of the U.S. Healthcare Legislation, is not deductible for U.S. income tax purposes.
In 2010, the Provision for taxes on income was impacted by the following:
•A tax benefit of approximately $1.4 billion recorded in the fourth quarter, related to an audit settlement with the U.S. Internal Revenue
Service and the reversal of approximately $600 million of accruals related to interest on these unrecognized tax benefits;
•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 the provisions of 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;
•Tax benefits of approximately $320 million resulting from the resolution of certain tax positions pertaining to prior years with various
foreign tax authorities, and the expiration of certain statute of limitations, as well as the reversal of approximately $140 million of
accruals related to interest on these unrecognized tax benefits; and
•Tax benefits of approximately $506 million resulting from charges for asbestos litigation related to our wholly owned subsidiary, Quigley
Company, Inc.
In 2009, the Provision for taxes on income was impacted by the following:
•A tax benefit of approximately $174 million, recorded in the third quarter, 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; and
•A tax benefit of approximately $556 million related to the sale of one of our biopharmaceutical companies, Vicuron Pharmaceuticals,
Inc. The sale, for nominal consideration, resulted in a loss for tax purposes. This tax benefit is a result of the significant initial investment
in the entity at the time of acquisition, primarily reported as an income statement charge for IPR&D at acquisition date.
In 2009, we incurred certain costs associated with the Wyeth acquisition that are not deductible for tax purposes.
See also Note 5D.Taxes on Income: Tax Contingencies.
B. Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations follows:
YEAR ENDED DECEMBER 31,
2011 2010 2009
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Taxation of non-U.S. operations (a) (3.3) 2.2 (9.4)
Resolution of certain tax positions(b) (2.7) (26.4) —
Sales of biopharmaceutical companies(c) 0.2 — (5.1)
U.S. Healthcare Legislation(c) 0.7 2.8 —
U.S. research tax credit and manufacturing deduction (0.9) (2.3) (1.3)
Legal settlements(c) —0.4 (1.6)
Acquired IPR&D(d) —0.5 0.2
Wyeth acquisition-related costs(c) —0.5 2.4
All other—net 2.5 (1.2) (0.1)
Effective tax rate for income from continuing operations 31.5% 11.5% 20.1%
(a) For taxation of non-U.S. operations, this rate impact reflects the fact that we operate manufacturing subsidiaries in Puerto Rico, Ireland, and
Singapore. We benefit from a Puerto Rican incentive grant that expires in 2029. Under the grant, we are partially exempt from income, property and
2011 Financial Report 73