AbbVie 2013 Annual Report Download - page 98

AbbVie and Abbott entered into a tax sharing agreement, effective on the date of separation, which
provides that Abbott is liable for and has indemnified AbbVie against all income tax liabilities for
periods prior to the separation if the tax positions are settled for amounts in excess of recorded
liabilities. AbbVie will not benefit if prior tax positions are resolved more favorably than recorded
amounts. As a result, no liability for uncertain tax positions was recorded in the combined financial
statements as of December 31, 2012 and 2011.
The table above reflects a reduction of $1.1 billion relating to tax periods prior to the separation for
which Abbott is the primary obligor. However, under U.S. Treasury Regulations, each member of a
consolidated group is severally liable for the U.S. federal income tax liability of each other member of
the consolidated group. Accordingly, with respect to periods in which AbbVie was included in Abbott’s
consolidated group, AbbVie could be liable to the U.S. government for any U.S. federal income tax
liability incurred by the consolidated group, to the extent not discharged by any other member.
However, if any such liability were imposed, AbbVie would be entitled to be indemnified by Abbott
pursuant to the tax sharing agreement.
AbbVie will be responsible for unrecognized tax benefits and related interest and penalties for periods
after separation or in instances where an existing entity was transferred to AbbVie upon separation. As
a result, AbbVie has continued to account for these tax uncertainties. To the extent that these
obligations relate to periods prior to the separation, a reimbursement receivable of approximately
$41 million has been recorded within other assets at December 31, 2013.
If recognized, the net amount of potential tax benefits that would impact the company’s effective tax
rate is $218 million. The company is routinely audited by the tax authorities in these jurisdictions, and
a number of audits are currently underway. It is reasonably possible during the next twelve months that
uncertain tax positions may be settled, which could result in a decrease in the gross amount of
unrecognized tax benefits. Due to the potential for resolution of federal, state, and foreign
examinations, and the expiration of various statutes of limitation, the company’s gross unrecognized tax
benefits balance may change within the next twelve months up to $22 million. All significant federal,
state, local, and international matters have been concluded for years through 2005. The company
believes adequate provision has been made for all income tax uncertainties.
AbbVie recognizes accrued interest and penalties related to uncertain tax positions in income tax
expense. The amounts expensed and the liabilities accrued are immaterial as of and for the years ended
December 31, 2013, 2012 and 2011. Uncertain tax positions are included as a long-term liability on the
balance sheet.
Note 13 Legal Proceedings and Contingencies
Subject to certain exceptions specified in the separation agreement, AbbVie assumed the liability for,
and control of, all pending and threatened legal matters related to its business, including liabilities for
any claims or legal proceedings related to products that had been part of its business but were
discontinued prior to the distribution, as well as assumed or retained liabilities, and will indemnify
Abbott for any liability arising out of or resulting from such assumed legal matters. AbbVie is involved
in various claims, legal proceedings and investigations, including those described below. The recorded
accrual balance for litigation at December 31, 2013 was not significant. Within the next year, other
legal proceedings may occur that may result in a change in the estimated loss accrued by AbbVie.
While it is not feasible to predict the outcome of all other proceedings and exposures with certainty,
management believes that their ultimate disposition should not have a material adverse effect on
AbbVie’s consolidated financial position, cash flows, or results of operations, except as described below.
The U.S. Department of Justice, through the U.S. Attorney for the Western District of Virginia, and
various state Attorneys General investigated AbbVie’s sales and marketing activities for Depakote. The
government sought to determine whether any of these activities violated civil and/or criminal laws,
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