Pfizer 2007 Annual Report Download - page 54

52 2007 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
We regularly reevaluate our tax positions based on the results of
audits of federal, state and foreign income tax filings, statute of
limitations expirations, and changes in tax law that would either
increase or decrease the technical merits of a position relative to
the more likely than not standard. We believe that our accruals
for tax liabilities are adequate for all open years. Many factors are
considered in making these evaluations, including past history,
recent interpretations of tax law, and the specifics of each matter.
Because tax regulations are subject to interpretation and tax
litigation is inherently uncertain, these evaluations can involve a
series of complex judgments about future events and can rely
heavily on estimates and assumptions (see Note 1B. Significant
Accounting Policies: Estimates and Assumptions). Our evaluations
are based on estimates and assumptions that have been deemed
reasonable by management. However, if our estimates and
assumptions are not representative of actual outcomes, our results
could be materially impacted.
Because tax law is complex and often subject to varied
interpretations, it is uncertain whether some of our tax positions
will be sustained upon audit. The amounts associated with
uncertain tax positions in 2007 are as follows:
DEC. 31, JAN. 1,
(MILLIONS OF DOLLARS) 2007 2007
Noncurrent deferred tax assets(a) $ 529 $ 395
Other tax assets(a) 890 647
Income taxes payable(b)(c) (408) (47)
Other taxes payable(b) (6,246) (4,962)
Total amounts associated with
uncertain tax positions $(5,235) $(3,967)
(a) Included in
Other assets, deferred taxes and deferred charges .
(b) Includes gross accrued interest. Accrued penalties are not
significant.
(c) As of December 31, 2007, included in
Income taxes payable
($358 million) and Prepaid expenses and taxes ($50 million).
As of December 31, 2006, included in Income taxes payable
($47 million).
Tax liabilities associated with uncertain tax positions represent
unrecognized tax benefits, which arise when the estimated
benefit recorded in our financial statements differs from the
amounts taken or expected to be taken in a tax return because
of the uncertainties described above. These unrecognized tax
benefits relate primarily to issues common among multinational
corporations. Substantially all of these unrecognized tax benefits,
if recognized, would impact our effective income tax rate.
Tax assets associated with uncertain tax positions 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 efforts among taxing authorities, as required by tax
treaties to minimize double taxation, commonly referred to as the
competent authority process. The recoverability of these assets,
which we believe to be more likely than not, is dependent upon
the actual payment of taxes in one tax jurisdiction and, in some
cases, the successful petition for recovery in another tax jurisdiction.
A reconciliation of the beginning and ending amounts of gross
unrecognized tax benefits and accrued interest is as follows:
(MILLIONS OF DOLLARS)
Balance as of January 1, 2007 $(5,009)
Increases based on tax positions taken during a
prior period (80)
Increases based on tax positions taken during the
current period (1,089)
Increases primarily related to currency translation
adjustments (191)
Decreases related to settlements with taxing
authorities 32
Decreases as a result of a lapse of the applicable
statute of limitations 14
Increases in accrued interest due to the passage
of time (331)
Balance as of December 31, 2007(a) $(6,654)
(a) Included in Income taxes payable ($358 million), Prepaid expenses
and taxes ($50 million) and Other taxes payable ($6.2 billion).
If our estimates of unrecognized tax benefits and potential tax
benefits are not representative of actual outcomes, our financial
statements could be materially affected 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. Finalizing
audits with the relevant taxing authorities can include formal
administrative and legal proceedings and, as a result, it is difficult
to estimate the timing and range of possible change related to
our uncertain tax positions. However, any settlements or statute
expirations would likely result in a significant decrease in our
uncertain tax positions. We estimate that within the next 12
months, our gross uncertain tax positions could decrease by as
much as $800 million, as a result of the settlement of issues
common to multinational corporations or the expiration of the
statute of limitations in multiple jurisdictions.