AbbVie 2014 Annual Report Download - page 99

13NOV201221352027
Effective Tax Rate Reconciliation
years ended December 31 2014 2013 2012
Statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit — 0.3 0.1
Effect of foreign operations (11.3) (11.5) (23.5)
U.S. tax credits (8.9) (2.7) (1.5)
Branded prescription drug fee 3.7 0.4 0.3
Valuation allowances 3.6 0.1 —
Resolution of uncertain tax positions — — (3.4)
Non-deductible litigation loss — — 0.6
All other, net 3.0 1.0 0.3
Effective tax rate 25.1% 22.6% 7.9%
The effective tax rate fluctuates year to year due to the allocation of the company’s taxable earnings
among jurisdictions, as well as certain discrete factors and events in each year, including acquisitions and
collaborations. The effective tax rate in 2014, 2013 and 2012 differs from the statutory tax rate principally
due to the benefit from foreign operations which reflects the impact of lower income tax rates in locations
outside the United States, tax exemptions and incentives in Puerto Rico and other foreign tax jurisdictions,
and business development activities together with the cost of repatriation decisions. The effective tax rate
for these periods also reflects the benefit from U.S. tax credits principally related to research and
development credits, the orphan drug tax credit and Puerto Rico excise tax credits. The research and
development credit for 2014 was due to legislation enacted in the fourth quarter that extended the credit
to December 31, 2014.
The increase in the effective tax rate in 2014 was principally driven by additional expenses of
$129 million related to the Branded Prescription Drug Fee, which is non-deductible, and state tax valuation
allowances of $129 million as further discussed in the ‘‘Deferred Tax Assets and Liabilities’’ section
following. On July 28, 2014, the Internal Revenue Service issued final rules and regulations for the Branded
Prescription Drug Fee, an annual non-tax-deductible fee payable to the federal government under the
Affordable Care Act based on an allocation of a company’s market share for branded prescription drugs
sold to certain government programs in the prior year. The final rules accelerated the expense recognition
criteria for the fee obligation from the year in which the fee is paid, to the year in which the market share
used to allocate the fee is determined. This change required AbbVie and other industry participants to
recognize an additional year of expense in 2014.
The effective income tax rate in 2014 and 2013 reflects income tax expenses relating to current
earnings outside the United States that are not deemed indefinitely reinvested. In 2012, the effective
income tax rate includes the recognition of tax benefits totaling approximately $195 million as a result of
favorable resolutions of various tax positions pertaining to prior years.
Puerto Rico enacted legislation that assesses an excise tax beginning in 2011 on certain products
manufactured in Puerto Rico. The tax is levied on gross inventory purchases from entities in Puerto Rico
and is included in cost of products sold in the consolidated statements of earnings. The majority of the tax
is creditable for U.S. income tax purposes.
2014 Form 10-K 93