Net operating losscredit carryforwards unremitted

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Net operating loss/credit carryforwards . Unremitted earnings ........................... State and local tax adjustments . All other .......................... .......... Subtotal ..................... ................ Valuation allowance ........... ........ ........ Total deferred taxes . Net deferred tax liability ; . $ 1,321 132 1,165 420 4,479 1,359 1,411 4,575 452 607 15,921 (894) $15,027 $ (112) (59) (17,104) (2,146) (56) (70) (9,524) (575) (29,646) $(29,646) $(14,619) $ 1,330 437 949 715 4,786 884 1,010 4,658 747 744 16,260 (353) $15,907 $ (60) (859) (19,802) (2,014) (66) (8) (7,057) (187) (30,053) $(30,053) $(14,146) Pfizer's deferred tax liabilities relate to a varied assortment of items. As we illustrate above. Pfizer uses accelerated depreciation in its tax return, which results in a deferred tax liability of $2,146 million. The deferred tax asset relating to employee benefits arises from the accrual of pension expense for financial reporting, but has not yet been funded with cash contributions. The deferred tax liability relating to unremitted earnings results from investments that Pfizer has in affiliated companies. Pfizer reports income related to those investments, but the income is not taxable until the companies actually pay dividends to Pfizer. Thus, reported profit is greater than taxable income and a deferred tax liability is recognized (we discuss accounting for intercompany investments in Module 9). Pfizer will pay taxes on the subsidiaries' profits when the subsidiarie pay dividends in the future and then the deferred tax liability will be reduced. Finally, the deferred tax asset of net operating loss carryforwards relates to losses that Pfizer has reported for tax purposes that the company is carrying forward to reduce future tax liability as explained above. Pfizer's 2010 income before tax is$9,422 million. Its tax expense of$l ,124million represent an effective tax rate of 11.9%. The effective tax rate is defined as tax expense divided by pretax income ($1,124 million/$9,422 million = 11.9%).6 By comparison, the federal statutory tax 6 This is the effective tax rate for all of Pfizer's income. [0 Module 3 we compute the tax rate on operating profit by first deducting the taxes related to nonoperating income (or adding back the tax shield related to nonoperating expenses). The effective tax rate on total income, is a weighted average of the two rates (operating and nonoperating).
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Module 5 I Revenue Recognition and Operating Income 5-24 corporations (the rate prescribed in tax regulations) is 35%. Companies must provide a .c:e.:z~eo that reconciles the effective tax rate (11.9% for Pfizer) with the Federal statutory rate --. Following is the schedule that Pfizer reports in its 10-K. 'on to federal taxes (paid to the IRS), companies also pay taxes to state, local, and foreign .::::s.::~·ons where they operate. These tax rates are typically lower than the statutory rate of In _010, Pfizer's effective tax rate was reduced by 26.4% as a result of favorable rulings in ~~~oo with taxing authorities. Also, several miscellaneous items increased Pfizer's effective ~by 3.3%, resulting in a net decrease of 23.1%.
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