Question

P10-45. Analyzing and Interpreting Effects of TCJA Tax Law Changes.

Pfizer Inc. reports the following footnote disclosure in its 2018 Form 10-K.

The following table provides the components of Income from continuing operations before provision (benefit) for taxes on income:

Year Ended December 31, $ millions                                                   2018                 2017                2016

United States                                                                                         $(4,403)            $(6,879)       $(8,534)

International                                                                                            16,288              19,184          16,886

Income from continuing operations before provision of taxes…   11,885              12,305            8,351

The following table provides the components of Provision (benefit) for taxes on income based on the location of the taxing authorities:

$ millions                                                                                                    2018                  2017               2016

United States

Current income taxes:

Federal                                                                                                        $668                  $1,267           $342

State and Local                                                                                                 9                         45               (52)

Deferred income taxes:

Federal                                                                                                        (1,663)              (2,064)            (419)

State and local                                                                                                  16                   (304)            (106)

Total U.S. tax provision                                                                                 (970)              (1,055)           (235)   

TCJA

Current income taxes                                                                              (3,035)                13,135                 -

Deferred income taxes                                                                             2,439                 (23,795)               -

Total TCJA tax provision                                                                            (596)                 (10,660)              -

International

Current income taxes                                                                               2,831                   2,709              1,532

Deferred income taxes                                                                              (558)                      (42)              (175)

Total international tax provision                                                            2,273                   2,667              1,358

a.In the fourth quarter of 2017, we recorded an estimate of certain tax effect of the TCJA, including (i) the impact of deferred tax assets and liabilities from reduction in the U.S. Federal corporate tax rate from 35% to 21%, (ii) the impact on valuation allowances and other state income tax considerations, (iii) the $15.2 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we plan to elect, with the filing of our 2018 U.S. Federal Consideration Income Tax Return, payments over eight years through 2026 that is reported in Other taxes payable in our consolidated balance sheet as of December 31, 2017 and (iv) deferred taxes on basis differences expected to give rise to future taxes on global intangible low-taxed income. As a result of the TCJA, in the fourth quarter of 2017, we reversed an estimate of the deferred taxes that are no longer expected to be needed due to the change to the territorial tax system.

Required.

1. What is the amount of the income tax expense reported by Pfizer for each year? What amount is current versus deferred?
2. What is Pfizer’s effective (average) tax rate for each year?
3. Use the pretax information to determine the effective tax rate for U.S. operations for each year.
4. The footnotes include amounts related to the TCJA of 2017. What was the effect on the company’s tax expense in 2017 and 2018 due to the TCJA?
5. Pfizer lists four TCJA items that impacted their 2017 tax provision. Explain how each of the four items might have affected Pfizer’s 2017 tax expens

Answer 1

Answer:

a) the amount of the income tax expense reported by Pfizer for each year are given below ;

Income tax value	2018	2017	2016
Entire U.S. tax provision	$          -970	$         -1,055	$       -235
Entire TCJA tax provision	$          -596	$       -10,660	$           -
Total international tax provision	$        2,273	$           2,667	$      1,358
Total Income tax value	$           707	$         -9,048	$      1,123
Current Income tax	$           473	$         17,157	$      1,823
Deferred tax	$           234	$       -26,205	$       -700

b) Pfizer’s effective (average) tax rate for each year is :

Effective tax rate (ETR)	2018	2017	2016
Pre-tax income (PTI)	$      11,885	$         12,305	$      8,351
Total Income tax expense(TITE)	$           707	$         -9,048	$      1,123
ETR	5.95%	-73.53%	13.45%

c) determine the effective tax rate for U.S. operations for each year is :

ETR (US)	2018	2017	2016
PTI	$      11,885	$         12,305	$      8,351
TITE	$          -970	$         -1,055	$       -235
ETR (US)	-8.16%	-8.57%	-2.81%

d) Deferred tax assets/(liabilities) are back off due to reduce in corporate tax rates. This is described by Company in the PCJA foot note.

Thank you .