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Financial Review
Pfizer Inc. and Subsidiary Companies
2012 Financial Report
33
PROVISION FOR TAXES ON INCOME
Year Ended December 31, % Change
(MILLIONS OF DOLLARS) 2012 2011 2010 12/11 11/10
Provision for taxes on income $2,562 $3,909 $1,153 (34)239
Effective tax rate on continuing operations 21.2%31.8%12.2%
During the third quarter of 2012, we reached a multi-year settlement with the U.S. Internal Revenue Service (IRS) with respect to the audits of
the Pfizer Inc. tax returns for the years 2006 through 2008. The IRS concluded the examination of the aforementioned tax years and issued a
final Revenue Agent's Report (RAR). We agreed with all the adjustments and computations contained in the RAR. As a result of settling these
audit years, we recorded a tax benefit of approximately $1.1 billion, representing tax and interest (see Notes to Consolidated Financial
Statements—Note 5A. Tax Matters: Taxes on Income from Continuing Operations).
During the fourth quarter of 2010, we reached a multi-year settlement with the IRS related to issues we had appealed with respect to the
audits of the Pfizer Inc. tax returns for the years 2002 through 2005, as well as the Pharmacia audit for the year 2003 through the date of
merger with Pfizer (April 16, 2003). The IRS concluded its examination of the aforementioned tax years and issued a final RAR. We agreed
with all of the adjustments and computations contained in the RAR. As a result of settling these audit years, we recorded a tax benefit of
approximately $2.0 billion, representing tax and interest (see Notes to Consolidated Financial Statements—Note 5A. Tax Matters: Taxes on
Income from Continuing Operations).
2012 v. 2011
The lower effective tax rate in 2012 compared to 2011 is primarily the result of:
•a multi-year settlement with the IRS in 2012 that resulted in a tax benefit of approximately $1.1 billion, representing tax and interest; and
•the resolution of certain prior-period tax positions in 2012 with various foreign tax authorities, and from the expiration of certain statutes of
limitations that resulted in tax benefits of approximately $310 million, representing tax and interest,
partially offset by:
•the impact of the expiration of the U.S. research and development tax credit on December 31, 2011; and
•the non-deductibility of the 2012 legal charge related to Rapamune (see the "Other Deductions—Net" section of this Financial Review).
For additional details about the resolution of certain tax positions, see Notes to Consolidated Financial Statements—Note 5A. Tax Matters:
Taxes on Income from Continuing Operations.
2011 v. 2010
The higher effective tax rate in 2011 compared to 2010 is primarily the result of:
• the non-recurrence of a multi-year settlement with the IRS that resulted in a tax benefit in 2010 of approximately $2.0 billion, representing
tax and interest; and
• the non-recurrence of a $460 million tax benefit, representing tax and interest, related to the resolution of certain prior-period tax
positions in 2010 with various foreign tax authorities, as well as from the expiration of the statutes of limitations,
partially offset by:
• the decrease and jurisdictional mix of certain impairment charges related to assets acquired in connection with the Wyeth acquisition; and
• the change in the jurisdictional mix of earnings.
For additional details about the resolution of certain tax positions, see Notes to Consolidated Financial Statements—Note 5A. Tax Matters:
Taxes on Income from Continuing Operations.
Changes in Tax Laws and Tax Rulings
We have been granted an incentive tax ruling in Belgium, effective December 1, 2012, that provides for incentive tax rates on certain of our
Belgium earnings through 2017. The expected impact in 2013 is not significant and is reflected in our financial guidance for 2013.
On January 3, 2013, the President of the United States signed into law the American Taxpayer Relief Act of 2012 (the 2012 Act), which
extends the U.S. research and development tax credit for tax years 2012 and 2013, as well as other provisions. Given the enactment date of
the 2012 Act, the 2012 Act had no impact on our 2012 results. The expected impact in 2013 is not significant and is reflected in our financial
guidance for 2013.
On August 10, 2010, the President of the United States signed into law the Education Jobs and Medicaid Assistance Act of 2010 (the 2010
Act), which includes education and Medicaid funding provisions, the cost of which is offset with revenues that result from changes to certain
aspects of the tax treatment of the foreign-source income of U.S.-based companies. Given the effective dates of the various provisions of the
2010 Act, it had no impact on our 2010 results. The 2010 Act did not have a significant negative impact on our results in 2011 or 2012 and is