v3.20.4
Tax Matters
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Tax Matters Tax Matters
A. Taxes on Income from Continuing Operations
Components of Income from continuing operations before provision/(benefit) for taxes on income include:
 Year Ended December 31,
(MILLIONS OF DOLLARS)202020192018
United States$(2,488)$7,064 $(6,111)
International9,986 4,420 9,706 
Income from continuing operations before provision/(benefit) for taxes on income(a), (b)
$7,497 $11,485 $3,594 
(a)2020 v. 2019––The domestic loss in 2020 versus domestic income in 2019 was mainly related to the non-recurrence of the gain on the completion of the Consumer Healthcare JV transaction as well as higher certain asset impairments and higher R&D expenses. The increase in the international income was primarily related to the non-recurrence of the write off of assets contributed to the Consumer Healthcare JV as well as lower certain asset impairments and lower amortization of intangible assets.
(b)2019 v. 2018––The domestic income in 2019 versus domestic loss in 2018 was mainly related to the completion of the Consumer Healthcare JV transaction as well as lower certain asset impairments, partially offset by higher business and legal entity alignment costs as well as increased costs related to certain legal matters. The decrease in the international income was primarily related to higher certain asset impairments as well as the write off of assets contributed to the Consumer Healthcare JV.
Components of Provision/(benefit) for taxes on income based on the location of the taxing authorities include:
 Year Ended December 31,
(MILLIONS OF DOLLARS)202020192018
United States
Current income taxes:
Federal
$371 $(1,886)$388 
State and local
58 (187)(49)
Deferred income taxes:
Federal
(1,061)1,193 (1,641)
State and local
(115)266 15 
Total U.S. tax benefit
(747)(613)(1,287)
TCJA(a)
Current income taxes
— (135)(3,035)
Deferred Income taxes
— (187)2,439 
Total TCJA tax benefit
— (323)(596)
International
Current income taxes
1,517 2,418 2,195 
Deferred income taxes
(292)(863)(579)
Total international tax provision
1,224 1,555 1,617 
Provision/(benefit) for taxes on income
$477 $618 $(266)
(a)The 2018 current tax benefit and deferred tax expense primarily relate to the utilization of tax credit carryforwards against the repatriation tax liability associated with the enactment of the TCJA. See discussion below.
Amounts discussed below are rounded to the nearest hundred million and represent approximations.
In 2018, we finalized our provisional accounting for the tax effects of the TCJA, based on our best estimates of available information and data. We reported and disclosed the impacts within the applicable measurement period, in accordance with SEC guidance, and recorded a favorable adjustment of $100 million to Provision/(benefit) for taxes on income.
We elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, to pay our initial estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings over eight years through 2026. The third annual installment of this liability, which is due to be paid in April 2021, is reported in current Income taxes payable, and the remaining liability is reported in noncurrent Other taxes payable as of December 31, 2020. Our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards.
The TCJA subjects a U.S. shareholder to current tax on global intangible low-taxed income earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that we are permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for the tax expense related to such income in the year the tax is incurred. We elected to recognize deferred taxes for temporary differences expected to reverse as global intangible low-taxed income in future years.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. As of December 31, 2020, neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on our effective tax rate.
The changes in Provision/(benefit) for taxes on income impacting the effective tax rate year-over-year are summarized below:
2020 v. 2019

The higher effective tax rate in 2020 was mainly the result of:
•the non-recurrence of the $1.4 billion tax benefits, representing taxes and interest, recorded in 2019 due to the favorable settlement of an IRS audit for multiple tax years;
•the non-recurrence of the tax benefits related to certain tax initiatives associated with the implementation of our then new business structure; and
•the non-recurrence of the tax benefits recorded in 2019 as a result of additional guidance issued by the U.S. Department of Treasury related to the TCJA, as well as:
•lower tax benefits related to the impairment of intangible assets,
partially offset by:
•the non-recurrence of the tax expense of $2.7 billion recorded in the third quarter of 2019 associated with the gain related to the completion of the Consumer Healthcare JV transaction; and
•the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.
2019 v. 2018

The higher effective tax rate was primarily the result of:
•the tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare JV transaction; and
•the non-recurrence of certain tax initiatives and favorable adjustments to the provisional estimate of the TCJA,
partially offset by:
•an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years, primarily due to a benefit of $1.4 billion, representing tax and interest, resulting from the favorable settlement of an IRS audit;
•benefits related to certain tax initiatives associated with the implementation of our then new business structure;
•the tax benefits recorded as a result of additional guidance issued by the U.S. Department of Treasury related to the enactment of the TCJA; and
•the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business.
In all years, federal, state and international net tax liabilities assumed or established as part of a business acquisition are not included in Provision/(benefit) for taxes on income (see Note 2A).

B. Tax Rate Reconciliation
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations follows:
 Year Ended December 31,
202020192018
U.S. statutory income tax rate21.0 %21.0 %21.0 %
TCJA impact(a)
— (2.8)(16.6)
Taxation of non-U.S. operations (b), (c)
(9.6)(4.5)1.2 
Tax settlements and resolution of certain tax positions(d)
(2.5)(13.8)(19.3)
Completion of Consumer Healthcare JV transaction(d)
— 8.2 — 
U.S. Healthcare Legislation(e)
0.1 — (1.1)
U.S. R&D tax credit(1.3)(0.8)(2.2)
Interest(f)
1.1 0.6 5.7 
All other, net(g)
(2.4)(2.5)3.9 
Effective tax rate for income from continuing operations
6.4 %5.4 %(7.4)%
(a)See Note 5A.
(b)For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the U.S., together with the U.S. tax cost on our international operations, changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions,” as well as changes in valuation allowances. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year, and the rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the U.S. tax implications of our foreign operations is a significant component of our effective tax rate each year and generally offsets some of the reduction to our effective tax rate each year resulting from the jurisdictional location of earnings; (iii) the impact of certain tax initiatives; and (iv) the impact of changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as the U.S. tax cost on our international operations, can vary as a result of operating fluctuations in the normal course of business and as a result of the extent and location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See also Note 5A for the components of pre-tax income and Provision/(benefit) for taxes on income, which is based on the location of the taxing authorities, and for information about settlements and other items impacting Provision/(benefit) for taxes on income.
(c)In all years, the impact on our effective tax rate is the result of the jurisdictional location of earnings. In 2020 and 2019, the reduction in our effective tax rate resulting from the jurisdictional location of earnings is largely due to lower tax rates in certain jurisdictions, as well as manufacturing and other incentives for our subsidiaries in Singapore and to a lesser extent in Puerto Rico. We benefit from Puerto Rican tax incentives pursuant to a grant that expires during 2029. Under such grant, we are partially exempt from income, property and municipal taxes. In Singapore, we benefit from incentive tax rates effective through 2045 on income from manufacturing and other operations.
(d)For a discussion about tax settlements and resolution of certain tax positions and the impact of the gain on the completion of the Consumer Healthcare JV transaction, see Note 5A.
(e)The favorable rate impact in 2018 is a result of the updated 2017 invoice received from the federal government, which reflected a lower expense than what was previously estimated for invoiced periods, as well as certain tax initiatives.
(f)Includes changes in interest related to our uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions”.
(g)All other, net is primarily due to routine business operations.
C. Deferred Taxes
Components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow:
2020 Deferred Tax*2019 Deferred Tax*
(MILLIONS OF DOLLARS)Assets(Liabilities)Assets(Liabilities)
Prepaid/deferred items(a)
$3,094 $(352)$1,918 $(204)
Inventories276 (25)267 (10)
Intangible assets(b)
793 (5,355)718 (6,784)
Property, plant and equipment211 (1,219)177 (1,204)
Employee benefits1,981 (127)2,115 (37)
Restructurings and other charges291 — 212 — 
Legal and product liability reserves382 — 469 — 
Net operating loss/tax credit carryforwards(c)
1,761 — 2,003 — 
Unremitted earnings— (46)— (77)
State and local tax adjustments171 — 152 — 
Investments(d)
128 (3,545)11 (3,318)
All other102 (57)167 (9)
9,189 (10,726)8,208 (11,643)
Valuation allowances(1,586)— (1,526)— 
Total deferred taxes$7,603 $(10,726)$6,682 $(11,643)
Net deferred tax liability(e)
$(3,123)$(4,961)
*The deferred tax assets and liabilities associated with global intangible low-taxed income are included in the relevant categories. See Note 5A.
(a)The increase in 2020 is primarily related to the capitalization of certain R&D-related expenses.
(b)The decrease in 2020 is primarily the result of amortization of intangible assets and certain impairment charges.
(c)The amounts in 2020 and 2019 are reduced for unrecognized tax benefits of $3.0 billion and $2.9 billion, respectively, where we have net operating loss carryforwards, similar tax losses, and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to settle any additional income taxes that would result from the disallowance of a tax position.
(d)The amounts in 2020 and 2019 are primarily related to the Consumer Healthcare JV. See Note 2C.
(e)In 2020, Noncurrent deferred tax assets and other noncurrent tax assets ($0.9 billion), and Noncurrent deferred tax liabilities ($4.1 billion). In 2019, Noncurrent deferred tax assets and other noncurrent tax assets ($0.7 billion), and Noncurrent deferred tax liabilities ($5.7 billion).

We have carryforwards, primarily related to net operating and capital losses, general business credits, foreign tax credits and charitable contributions, which are available to reduce future U.S. federal and/or state, as well as international, income taxes payable with either an indefinite life or expiring at various times from 2021 to 2040. Certain of our U.S. net operating losses and general business credits are subject to limitations under IRC Section 382.

As of December 31, 2020, we have not made a U.S. tax provision on $55.0 billion of unremitted earnings of our international subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred tax liability as of December 31, 2020 is not practicable. The amount of indefinitely reinvested earnings is based on estimates and assumptions and subject to management evaluation, and is subject to change in the normal course of business based on operational cash flow, completion of local statutory financial statements and the finalization of tax returns and audits, among other things. Accordingly, we regularly update our earnings and profits analysis for such events.

D. Tax Contingencies

For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1P.

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, 2020, we had $4.3 billion and as of December 31, 2019, we had $4.2 billion in net unrecognized tax benefits, excluding associated interest.
•Tax assets for 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. 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, 2020, we had $1.3 billion in assets associated with uncertain tax positions. These amounts were included in Noncurrent deferred tax assets and other noncurrent tax assets ($1.1 billion), Noncurrent deferred tax liabilities ($122 million) and Other taxes payable ($46 million). As of December 31, 2019, we had $1.2 billion in assets associated with uncertain tax positions. These amounts were included in Noncurrent deferred tax assets and other noncurrent tax assets ($1.0 billion) and Noncurrent deferred tax liabilities ($109 million).
•Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate.
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(MILLIONS OF DOLLARS)
202020192018
Balance, beginning$(5,381)$(6,259)$(6,558)
Acquisitions(a)
37 (44)— 
Divestitures(b)
265 — — 
Increases based on tax positions taken during a prior period(c)
(232)(36)(192)
Decreases based on tax positions taken during a prior period(c), (d)
64 1,109 561 
Decreases based on settlements for a prior period(e)
15 100 123 
Increases based on tax positions taken during the current period(c)
(411)(383)(370)
Impact of foreign exchange(72)25 56 
Other, net(c), (f)
120 107 121 
Balance, ending(g)
$(5,595)$(5,381)$(6,259)
(a)For 2020 and 2019, primarily related to the acquisition of Array (goodwill adjustment made within the measurement period). See Note 2A.
(b)For 2020, related to the separation of Upjohn. See Note 2B.
(c)Primarily included in Provision/(benefit) for taxes on income.
(d)Primarily related to effectively settling certain issues with the U.S. and foreign tax authorities. See Note 5A.
(e)Primarily related to cash payments and reductions of tax attributes.
(f)Primarily related to decreases as a result of a lapse of applicable statutes of limitations.
(g)In 2020, included in Income taxes payable ($34 million), Noncurrent deferred tax assets and other noncurrent tax assets ($18 million), Noncurrent deferred tax liabilities ($3.0 billion) and Other taxes payable ($2.5 billion). In 2019, included in Income taxes payable ($108 million), Current tax assets ($2 million), Noncurrent deferred tax assets and other noncurrent tax assets ($51 million), Noncurrent deferred tax liabilities ($2.8 billion) and Other taxes payable ($2.4 billion).
•Interest related to our unrecognized tax benefits is recorded in accordance with the laws of each jurisdiction and is recorded primarily in Provision/(benefit) for taxes on income. In 2020, we recorded a net increase in interest of $89 million. In 2019, we recorded a net decrease in interest of $564 million, resulting primarily from a settlement with the IRS; and in 2018, we recorded a net increase in interest of $103 million. Gross accrued interest totaled $493 million as of December 31, 2020 (reflecting a decrease of $5 million as a result of cash payments and a decrease of $75 million relating to the separation of Upjohn) and gross accrued interest totaled $485 million as of December 31, 2019 (reflecting a decrease of $13 million as a result of cash payments). In 2020, this amount was included in Income taxes payable ($7 million) and Other taxes payable ($486 million). In 2019, this amount was included in Income taxes payable ($20 million) and Other taxes payable ($465 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, the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2011-2013. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2014-2015 are currently under audit. Tax years 2016-2020 are open, but not under audit. All other tax years are closed.
In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2013-2020), Japan (2017-2020), Europe (2011-2020, primarily reflecting Ireland, the U.K., France, Italy, Spain and Germany), Latin America (1998-2020, primarily reflecting Brazil) and Puerto Rico (2016-2020).

Any settlements or statutes of limitations expirations could result in a significant decrease in our uncertain tax positions. We estimate that it is reasonably possible that within the next 12 months, our gross unrecognized tax benefits, exclusive of interest, could decrease by as much as $50 million, as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements 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 changes related to our uncertain tax positions, and such changes could be significant.
E. Tax Provision/(Benefit) on Other Comprehensive Income/(Loss)
Components of the Tax provision/(benefit) on other comprehensive income/(loss) include:
 Year Ended December 31,
(MILLIONS OF DOLLARS)202020192018
Foreign currency translation adjustments, net(a)
$(79)$254 $94 
Unrealized holding gains/(losses) on derivative financial instruments, net(88)83 21 
Reclassification adjustments for (gains)/losses included in net income(25)(125)27 
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)
— — 1 
 (113)(42)50 
Unrealized holding gains/(losses) on available-for-sale securities, net45 — (23)
Reclassification adjustments for (gains)/losses included in net income(24)5 16 
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings(c)
— — (45)
 22 5 (53)
Benefit plans: actuarial gains/(losses), net(281)(169)(141)
Reclassification adjustments related to amortization62 55 55 
Reclassification adjustments related to settlements, net65 65 33 
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)
— — 637 
Other(8)(10)29 
 (161)(58)612 
Benefit plans: prior service (costs)/credits and other, net12 (1)2 
Reclassification adjustments related to amortization of prior service costs and other, net(31)(43)(39)
Reclassification adjustments related to curtailments of prior service costs and other, net— (1)(4)
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b)
— — (144)
Other1 — — 
 (17)(45)(185)
Tax provision/(benefit) on other comprehensive income/(loss)$(349)$115 $518 
(a)Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that are expected to be held indefinitely.
(b)For additional information on the adoption of a new accounting standard related to reclassification of certain tax effects from AOCI, see Note 1B in our 2018 Financial Report.
(c)For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Note 1B in our 2018 Financial Report.