INCOME TAXES



	Three Months Ended June 30,					Six Months Ended June 30,
Dollars in Millions	2014			2013		2014			2013
Earnings Before Income Taxes	$	448		$	530	$	1,433		$	1,204
Provision for Income Taxes	114			—		163			51
Effective tax rate	25.4		%	—		11.4		%	4.2		%

Changes in the effective tax rates between the current and prior period primarily resulted from the following items:


•	The first quarter of 2014 includes a $96 million income tax benefit attributed to the sale of the diabetes business ($81 million for the six months ended June 30, 2014). This tax benefit resulted primarily from the capital loss deduction on the sale of the Amylin shares;


•	The impact of no tax benefit attributable to the $148 million research and development charge resulting from the acquisition of iPierian in the second quarter of 2014;


•	The first quarter of 2013 includes the retroactive reinstatement of the research and development tax credit and look through exception for the full year 2012 ($43 million). The applicable tax legislation for these items was not extended as of June 30, 2014, therefore the research and development tax credit was not considered in the 2014 effective tax rate;


•	All periods were impacted by other discrete tax benefits attributable to restructuring, impairment, pension settlements and other charges.

The effective tax rate is lower than the U.S. statutory rate of 35% primarily attributable to undistributed earnings of certain foreign subsidiaries that have been considered or are expected to be indefinitely reinvested offshore. These undistributed earnings primarily relate to operations in Ireland and Puerto Rico, which operate under favorable tax grants not scheduled to expire prior to 2023. If these undistributed earnings are repatriated to the U.S. in the future, or if it were determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. Reforms to U.S. tax laws related to foreign earnings have been proposed and if adopted, may increase taxes, which could reduce the results of operations and cash flows.

BMS is currently being audited by a number of tax authorities and significant disputes may arise related to issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. BMS estimates that it is reasonably possible that the total amount of unrecognized tax benefits at June 30, 2014 could decrease in the range of approximately $300 million to $360 million in the next twelve months as a result of the settlement of certain tax audits and other events resulting in the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.

Effective January 2014, the Company adopted an update from the FASB that clarified existing guidance on the presentation of unrecognized tax benefits when various qualifying tax benefit carryforwards exist, including when the unrecognized tax benefit should be presented as a reduction to deferred tax assets or as a liability. As a result, non-current deferred tax assets and income tax liabilities were reduced by $236 million.