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Tax Matters | 9 Months Ended
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Sep. 30, 2018
Income Tax Disclosure [Abstract] |
Tax Matters | Tax Matters A. Taxes on Income from Continuing Operations In the fourth quarter of 2017, we recorded an estimate of certain tax effects of the TCJA, including the impact on deferred tax assets and liabilities from the reduction in the U.S. Federal corporate tax rate from 35% to 21%, the impact on valuation allowances and other state income tax considerations, the $15.2 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we plan to elect payment over eight years through 2026 (with the first of eight installments due in April 2019) that is reported primarily in Other taxes payable, and deferred taxes on basis differences expected to give rise to future taxes on global intangible low-taxed income. In addition, we had provided deferred tax liabilities in the past on foreign earnings that were not indefinitely reinvested. As a result of the TCJA, we reversed an estimate of the deferred taxes that are no longer expected to be needed due to the change to the territorial tax system. The estimated amounts recorded may change in the future due to uncertain tax positions. With respect to the aforementioned repatriation tax liability related to the TCJA repatriation tax, our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards. The TCJA subjects a U.S. shareholder to current tax on global intangible low-taxed income earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that we are permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for the tax expense related to such income in the year the tax is incurred. We have elected to recognize deferred taxes for temporary differences expected to reverse as global intangible low-taxed income in future years. However, given the complexity of these provisions, we have not finalized our analysis. We were able to make a reasonable estimate of the deferred taxes on the temporary differences expected to reverse in the future and provided a provisional deferred tax liability of approximately $1 billion as of December 31, 2017. The provisional amount is based on the evaluation of certain temporary differences inside each of our foreign subsidiaries that are expected to reverse as global intangible low-taxed income. However, as we continue to evaluate the TCJA’s global intangible low-taxed income provisions during the measurement period, we may revise the methodology used for determining the deferred tax liability associated with such income. We believe that we have made reasonable estimates with respect to each of the above items, however, all of the amounts recorded remain provisional as we have not completed our analysis of the complex and far reaching effects of the TCJA. Further, we continue to consider our assertions on any remaining outside basis differences in our foreign subsidiaries as of September 30, 2018 and have not completed our analysis. In the third quarter of 2018, we recorded a favorable adjustment to the provisional estimate of the impact of the legislation, primarily related to the remeasurement of deferred tax assets and liabilities as well as revised estimates of benefits related to certain tax initiatives. Under guidance issued by the staff of the SEC, we expect to finalize our accounting related to the tax effects of the TCJA on deferred taxes, valuation allowances, state tax considerations, the repatriation tax liability, global intangible low-taxed income, and any remaining outside basis differences in our foreign subsidiaries during the fourth quarter of 2018, as we complete the remainder of our tax return filings and as any interpretations or clarifications of the TCJA occur through further legislation or U.S. Treasury actions or other means. Our effective tax rate for continuing operations was 1.6% for the third quarter of 2018, compared to 20.3% for the third quarter of 2017 and was 9.9% for the first nine months of 2018, compared to 20.1% for the first nine months of 2017. The lower effective tax rate for the third quarter and first nine months of 2018 in comparison with the same periods in 2017 was primarily due to:
• | the adoption of a territorial system and the lower U.S. tax rate as a result of the December 2017 enactment of the TCJA as well as favorable adjustments to the provisional estimate of the impact of the legislation;
• | the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; as well as
• | an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
B. Deferred Taxes We have not completed our analysis of the TCJA on our prior assertion of indefinitely reinvested earnings. Accordingly, we continue to evaluate our assertion with respect to our accumulated foreign earnings subject to the deemed repatriation tax and we also continue to evaluate the amount of earnings that are indefinitely reinvested. Additionally, we continue to evaluate our assertions on any remaining outside basis differences in our foreign subsidiaries as of September 30, 2018 as we have not finalized our analysis of the effects of all of the new provisions in the TCJA. As of September 30, 2018, it is not practicable to estimate the additional deferred tax liability that would be recorded if the earnings subject to the deemed repatriation tax and any remaining outside basis differences as of September 30, 2018 are not indefinitely reinvested. In accordance with the authoritative guidance issued by the SEC Staff Accounting Bulletin 118, we expect to complete our analysis within the measurement period. C. 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. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. The U.S. is one of our major tax jurisdictions, and we are regularly audited by the IRS:
• | With respect to Pfizer, the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2009-2010. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2011-2015 are currently under audit. Tax years 2016-2018 are open but not under audit. All other tax years are closed.
• | With respect to Hospira, the federal income tax audit of tax year 2014 through short-year 2015 was effectively settled in the second quarter of 2018. All other tax years are closed.
• | With respect to Anacor and Medivation, the open tax years are not considered material to Pfizer.
In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2013-2018), Japan (2017-2018), Europe (2011-2018, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2018, primarily reflecting Brazil) and Puerto Rico (2011-2018). D. Tax Provision/(Benefit) on Other Comprehensive Income/(Loss)
The following table provides the components of Tax provision/(benefit) on other comprehensive income/(loss):
|  | Three Months Ended |  | Nine Months Ended
(MILLIONS OF DOLLARS) |  | September 30, 2018 |  |  | October 1, 2017 |  |  | September 30, 2018 |  |  | October 1, 2017 |
Foreign currency translation adjustments, net(a) |  | $ | 14 |  |  | $ | (62 | ) |  | $ | 82 |  |  | $ | (192 | )
Unrealized holding gains/(losses) on derivative financial instruments, net |  | 35 |  |  | 28 |  |  | 39 |  |  | 30 |
Reclassification adjustments for (gains)/losses included in net income |  | (28 | ) |  | (29 | ) |  | 36 |  |  | (169 | )
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) |  | — |  |  | — |  |  | 1 |  |  | — |
|  | 7 |  |  | (1 | ) |  | 77 |  |  | (139 | )
Unrealized holding gains/(losses) on available-for-sale securities, net |  | 20 |  |  | 37 |  |  | (8 | ) |  | 93 |
Reclassification adjustments for gains included in net income |  | (6 | ) |  | (49 | ) |  | (8 | ) |  | (45 | )
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings(c) |  | — |  |  | — |  |  | (45 | ) |  | — |
|  | 14 |  |  | (12 | ) |  | (62 | ) |  | 47 |
Benefit plans: actuarial gains/(losses), net |  | 2 |  |  | (37 | ) |  | 27 |  |  | (15 | )
Reclassification adjustments related to amortization |  | 15 |  |  | 60 |  |  | 43 |  |  | 152 |
Reclassification adjustments related to settlements, net |  | 10 |  |  | 22 |  |  | 25 |  |  | 30 |
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) |  | — |  |  | — |  |  | 637 |  |  | — |
Other |  | 11 |  |  | (33 | ) |  | 18 |  |  | (46 | )
|  | 38 |  |  | 11 |  |  | 750 |  |  | 121 |
Benefit plans: prior service costs and other, net |  | — |  |  | — |  |  | — |  |  | — |
Reclassification adjustments related to amortization |  | (11 | ) |  | (17 | ) |  | (33 | ) |  | (50 | )
Reclassification adjustments related to curtailments, net |  | (1 | ) |  | (1 | ) |  | (4 | ) |  | (5 | )
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) |  | — |  |  | — |  |  | (144 | ) |  | — |
Other |  | 1 |  |  | 1 |  |  | 1 |  |  | 1 |
|  | (11 | ) |  | (17 | ) |  | (179 | ) |  | (55 | )
Tax provision/(benefit) on other comprehensive income/(loss) |  | $ | 62 |  |  | $ | (80 | ) |  | $ | 667 |  |  | $ | (218 | )
(a) | Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.
(b) | For additional information on the adoption of a new accounting standard related to reclassification of certain tax effects from AOCI, see Note 1B.
(c) | For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Note 1B.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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