Pfizer 2007 Annual Report Download - page 52

50 2007 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
B. Taxes on Income
Income from continuing operations before provision for taxes on
income, minority interests and the cumulative effect of a change
in accounting principles consists of the following:
YEAR ENDED DEC. 31,
_____________________________________________________
(MILLIONS OF DOLLARS) 2007 2006 2005
United States $ 242 $ 3,266 $ 985
International 9,036 9,762 9,815
Total income from
continuing operations
before provision for taxes
on income, minority
interests and cumulative
effect of a change in
accounting principles $9,278 $13,028 $10,800
The decrease in domestic income from continuing operations before
taxes in 2007 compared to 2006 is due primarily to the volume and
geographic mix of product sales and restructuring charges in 2007
compared to 2006, as well as the impact of charges associated with
Exubera (see Note 4. Asset Impairment Charges and Other Costs
Associated with Exiting Exubera), partially offset by lower IPR&D
charges in 2007 of $283 million, primarily related to our acquisitions
of BioRexis and Embrex, compared to IPR&D charges in 2006 of $835
million, primarily related to our acquisitions of Rinat and PowderMed.
The increase in domestic income from continuing operations
before taxes in 2006 compared to 2005 is due primarily to IPR&D
charges in 2005 of $1.7 billion, primarily related to our acquisitions
of Vicuron and Idun, the Bextra impairment and changes in product
mix, among other factors, partially offset by IPR&D charges recorded
in 2006 of $835 million, primarily related to our acquisitions of
Rinat and PowderMed, and a 2006 charge of $320 million related
to the impairment of the Depo-Provera intangible asset.
The provision for taxes on income from continuing operations
before minority interests and the cumulative effect of a change
in accounting principles consists of the following:
YEAR ENDED DEC. 31,
_____________________________________________________
(MILLIONS OF DOLLARS) 2007 2006 2005
United States:
Taxes currently payable:
Federal $ 1,393 $1,399 $2,572
State and local 243 205 108
Deferred income taxes (1,986) (1,371) (1,295)
Total U.S. tax
(benefit)/provision (350) 233 1,385
International:
Taxes currently payable 2,175 1,913 1,963
Deferred income taxes (802) (154) (170)
Total international tax
provision 1,373 1,759 1,793
Total provision for taxes on
income(a) $1,023 $1,992 $3,178
(a) Excludes federal, state and international expense of approximately
$1 million in 2007, a benefit of $119 million in 2006 and a benefit
of $127 million in 2005, primarily related to the resolution of
certain tax positions related to Pharmacia, which were debited or
credited to Goodwill, as appropriate.
In 2006, we were notified by the Internal Revenue Service (IRS)
Appeals Division that a resolution had been reached on the matter
that we were in the process of appealing related to the tax deductibility
of an acquisition-related breakup fee paid by the Warner-Lambert
Company in 2000. As a result, we recorded a tax benefit of
approximately $441 million related to the resolution of this issue
(see Note 8E. Taxes on Income: Tax Contingencies). Also in 2006, we
recorded a decrease to the 2005 estimated U.S. tax provision related
to the repatriation of foreign earnings, due primarily to the receipt
of information that raised our assessment of the likelihood of prevailing
on the technical merits of a certain position, and we recognized a tax
benefit of $124 million. Additionally, in 2006, the IRS issued final
regulations on Statutory Mergers and Consolidations, which impacted
certain prior-period transactions, and we recorded a tax benefit
of $217 million, reflecting the total impact of these regulations.
In 2005, we recorded an income tax charge of $1.7 billion, included
in Provision for taxes on income, in connection with our decision to
repatriate approximately $37 billion of foreign earnings in accordance
with the American Jobs Creation Act of 2004 (the Jobs Act). The Jobs
Act created a temporary incentive for U.S. corporations to repatriate
accumulated income earned abroad by providing an 85% dividend-
received deduction for certain dividends from controlled foreign
corporations, subject to various limitations and restrictions including
qualified U.S. reinvestment of such earnings. In addition, in 2005, we
recorded a tax benefit of $586 million related to the resolution of
certain tax positions (see Note 8E. Taxes on Income: Tax Contingencies).
Amounts reflected in the preceding tables are based on the
location of the taxing authorities. As of December 31, 2007, we
have not made a U.S. tax provision on approximately $60 billion
of unremitted earnings of our international subsidiaries. As of
December 31, 2007, these earnings are intended to be permanently
reinvested overseas. Because of the complexity, it is not practical
to compute the estimated deferred tax liability on these
permanently reinvested earnings.
C. Tax Rate Reconciliation
Reconciliation of the U.S. statutory income tax rate to our effective
tax rate for continuing operations before the cumulative effect
of a change in accounting principles follows:
YEAR ENDED DEC. 31,
___________________________________________________
2007 2006 2005
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Earnings taxed at other than
U.S. statutory rate (21.6) (15.7) (20.6)
Resolution of certain tax
positions —(3.4) (5.4)
Tax legislation impact —(1.7) —
U.S. research tax credit and
manufacturing deduction (1.5) (0.5) (0.8)
Repatriation of foreign
earnings —(1.0) 15.4
Acquired IPR&D 1.1 2.2 5.4
All other—net (2.0) 0.4 0.4
Effective tax rate for income
from continuing operations
before cumulative effect
of a change in accounting
principles 11.0% 15.3% 29.4%