Pfizer 2011 Annual Report Download - page 75

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
municipal taxes. In Ireland, we benefited from an incentive tax rate effective through 2010 on income from manufacturing operations. In Singapore,
we benefit from incentive tax rates effective through 2031 on income from manufacturing operations. The rate impact also reflects the jurisdictional
location of earnings, the costs of certain repatriation decisions and uncertain tax positions.
(b) For a discussion about the resolution of certain tax positions, see Note 5D. Taxes on Income: Tax Contingencies.
(c) For a discussion about the sales of the biopharmaceutical companies, the impact of U.S. Healthcare Legislation, legal settlements and Wyeth
acquisition related costs, see Note 5A. Taxes on Income: Taxes on Income.
(d) The charges for acquired IPR&D are primarily not deductible for tax purposes.
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:
2011 DEFERRED TAX 2010 DEFERRED TAX
(MILLIONS OF DOLLARS) ASSETS (LIABILITIES) ASSETS (LIABILITIES)
Prepaid/deferred items $ 1,611 $ (211) $ 1,321 $ (112)
Inventories 324 (52) 132 (59)
Intangibles 1,713 (16,014) 1,165 (17,104)
Property, plant and equipment 226 (1,326) 420 (2,146)
Employee benefits 4,285 (524) 4,479 (56)
Restructurings and other charges 554 (95) 1,359 (70)
Legal and product liability reserves 1,812 — 1,411 —
Net operating loss/credit carryforwards 4,414 — 4,575 —
Unremitted earnings — (11,699) — (9,524)
State and local tax adjustments 476 — 452 —
All other 1,197 (125) 601 (554)
Subtotal 16,612 (30,046) 15,915 (29,625)
Valuation allowance (1,201) — (894) —
Total deferred taxes $15,411 $(30,046) $15,021 $(29,625)
Net deferred tax liability(a), (b) $(14,635) $(14,604)
(a) 2011 vs. 2010—The net deferred tax liability position in 2011 was about the same as 2010 and reflects an increase in noncurrent deferred tax
liabilities related to intangibles established in connection with our acquisition of King and an increase in noncurrent deferred tax liabilities on
unremitted earnings, partially offset by the reduction in noncurrent deferred tax liabilities related to the amortization of identifiable intangibles, and an
increase in current deferred tax assets established as a result of litigation charges related to hormone therapy.
(b) In 2011, included in Taxes and other current assets ($4.0 billion), Taxes and other noncurrent assets ($1.2 billion), Other current liabilities ($291
million) and Noncurrent deferred tax liabilities ($19.6 billion). In 2010, included in Taxes and other current assets ($3.0 billion), Taxes and other
noncurrent assets ($1.2 billion), Other current liabilities ($108 million) and Noncurrent deferred tax liabilities ($18.6 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 2012 to 2031. 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.
As of December 31, 2011, we have not made a U.S. tax provision on approximately $63.0 billion of unremitted earnings of our
international subsidiaries. As of December 31, 2011, as these earnings are intended to be permanently reinvested overseas, the
determination of a hypothetical unrecognized deferred tax liability 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. For a description of our accounting policies associated with accounting for income tax contingencies, see Note
1O. 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. Significant Accounting Policies: Estimates and Assumptions.
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, 2011 and 2010, we had approximately $6.1 billion and $5.8 billion, respectively, in net liabilities
associated with uncertain tax positions, 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
74 2011 Financial Report