Pfizer 2015 Annual Report Download - page 93

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
92
2015 Financial Report
Uncertain Tax Positions
As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon audit.
As of December 31, 2015 and 2014, we had approximately $4.8 billion and $4.7 billion, respectively, in net unrecognized tax benefits,
excluding associated interest.
• Tax assets associated with uncertain tax positions primarily 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
and from foreign tax credits that would be generated upon settlement of an uncertain tax position. 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. As of December 31, 2015 and 2014, we had approximately $1.1 billion and $1.5
billion, respectively, in assets associated with uncertain tax positions. In 2015, these amounts were included in Noncurrent deferred tax
assets and other noncurrent tax assets ($963 million) and Noncurrent deferred tax liabilities ($179 million). In 2014, these amounts were
included in Noncurrent deferred tax assets and other noncurrent tax assets ($966 million) and Noncurrent deferred tax liabilities ($527
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.
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS OF DOLLARS) 2015 2014 2013
Balance, beginning $ (6,182) $ (6,087) $ (6,315)
Acquisitions(a) (110)——
Divestitures(b) ——29
Increases based on tax positions taken during a prior period(c) (31)(110)(205)
Decreases based on tax positions taken during a prior period(c), (d) 496 473 876
Decreases based on settlements for a prior period(e) 64 70 571
Increases based on tax positions taken during the current period(c) (675)(795)(1,178)
Impact of foreign exchange 319 161 38
Other, net(c), (f) 199 106 97
Balance, ending(g) $ (5,919) $ (6,182) $ (6,087)
(a) Primarily related to the acquisition of Hospira. See also note 2A.
(b) Primarily related to the disposition of our Animal Health (Zoetis) business. See also Note 2D.
(c) Primarily included in Provision for taxes on income.
(d) Primarily related to effectively settling certain tax positions with the U.S. and foreign tax authorities. See also Note 5A.
(e) Primarily related to cash payments.
(f) Primarily related to decreases as a result of a lapse of applicable statutes of limitations.
(g) In 2015, included in Income taxes payable ($38 million), Current tax assets ($22 million), Noncurrent deferred tax assets and other noncurrent tax assets
($135 million), Noncurrent deferred tax liabilities ($2.7 billion) and Other taxes payable ($3.0 billion). In 2014, included in Income taxes payable ($13
million), Current tax assets ($27 million), Noncurrent deferred tax assets and other noncurrent tax assets ($196 million), Noncurrent deferred tax liabilities
($2.4 billion) and Other taxes payable ($3.5 billion).
• Interest related to our unrecognized tax benefits is recorded in accordance with the laws of each jurisdiction and is recorded in Provision
for taxes on income in our consolidated statements of income. In 2015, we recorded net interest expense of $71 million. In 2014, we
recorded net interest expense of $40 million; and in 2013, we recorded net interest income of $16 million primarily as a result of settling
certain tax positions with the U.S. and various foreign tax authorities. Gross accrued interest totaled $714 million as of December 31, 2015
(reflecting a decrease of approximately $5 million as a result of cash payments) and gross accrued interest totaled $643 million as of
December 31, 2014 (reflecting a decrease of approximately $18 million as a result of cash payments). In 2015, these amounts were
included in Current tax assets ($12 million) and Other taxes payable ($702 million). In 2014, these amounts were included in Current tax
assets ($15 million) and Other taxes payable ($628 million). Accrued penalties are not significant. See also Note 5A.
Status of Tax Audits and Potential Impact on Accruals for Uncertain Tax Positions
The U.S. is one of our major tax jurisdictions, and we are regularly audited by the IRS:
• With respect to Pfizer Inc., 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 2011-2013 are currently under audit. Tax years 2014 and 2015 are
open, but not under audit. All other tax years are closed.
• With respect to Hospira, Inc., the IRS is auditing 2010-2011 and 2012-2013. Tax years 2014-2015 (through date of acquisition) are open
but not under audit. All other tax years are closed. The open tax years and audits for Hospira, Inc. and its subsidiaries are not considered
material to Pfizer.