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Taxes on Income
9 Months Ended
Sep. 30, 2017
Income Tax Disclosure [Abstract]  
Taxes on Income
Taxes on Income
The effective income tax rates of 125.5% and 24.2% for the third quarter of 2017 and 2016, respectively, and 25.5% and 24.7% for the first nine months of 2017 and 2016, respectively, reflect the impacts of acquisition and divestiture-related costs and restructuring costs, partially offset by the beneficial impact of foreign earnings. In addition, the effective income tax rates for the third quarter and first nine months of 2017 reflect the unfavorable impact of a $2.35 billion aggregate pretax charge recorded in connection with the formation of an oncology collaboration with AstraZeneca for which no tax benefit was recognized, partially offset by the favorable impact of a net tax benefit of $234 million related to the settlement of certain federal income tax issues (discussed below). The effective income tax rate for the first nine months of 2017 also includes a benefit of $88 million related to the settlement of a state income tax issue. The effective income tax rate for the first nine months of 2016 also reflects the beneficial impact of orphan drug federal income tax credits, primarily for Keytruda.
In the third quarter of 2017, the Internal Revenue Service concluded its examinations of Merck’s 2006-2011 U.S. federal income tax returns. As a result, the Company was required to make a payment of approximately $2.8 billion. The Company’s reserves for unrecognized tax benefits for the years under examination exceeded the adjustments relating to this examination period and therefore the Company recorded a net $234 million tax provision benefit in the third quarter of 2017. This net benefit reflects reductions in reserves for unrecognized tax benefits for tax positions relating to the years that were under examination, partially offset by additional reserves for tax positions not previously reserved for, as well as adjustments to reserves for unrecognized tax benefits relating to years which remain open to examination that are affected by this settlement.