P10-45
Subject:LawPrice: Bought3
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.
a. What is the amount of the income tax expense reported by Pfizer for each year? What amount is current versus deferred?
b. What is Pfizer's effective (average) tax rate for each year?
c. Use the pretax information to determine the effective tax rate for U.S. operations for each year.
d. 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?
e. 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 expense.
