INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Taxes [Text Block]

Note 7. INCOME TAXES

The provision/(benefit) for income taxes consisted of:

Dollars in Millions			Year Ended December 31,
Current:			2012		2011		2010
	U.S.		$	627	$	864	$	797
	Non-U.S.			442		442		339
		Total Current		1,069		1,306		1,136
Deferred:
	U.S.			(1,164)		406		438
	Non-U.S			(66)		9		(16)
		Total Deferred		(1,230)		415		422
Total Provision/(Benefit)			$	(161)	$	1,721	$	1,558

Effective Tax Rate

The reconciliation of the effective tax rate to the U.S. statutory Federal income tax rate was:

		% of Earnings Before Income Taxes
Dollars in Millions		2012			2011			2010
Earnings before income taxes:
	U.S.	$	(271)		$	4,336		$	3,833
	Non-U.S.		2,611			2,645			2,238
	Total	$	2,340		$	6,981		$	6,071
U.S. statutory rate			819	35.0%		2,443	35.0%		2,125	35.0%
Non-tax deductible annual pharmaceutical company fee			90	3.8%		80	1.2%		-	-
Tax effect of foreign subsidiaries' earnings previously
	considered indefinitely reinvested offshore		-	-		-	-		207	3.4%
Foreign tax effect of certain operations in Ireland, Puerto
	Rico and Switzerland		(688)	(29.4)%		(593)	(8.5)%		(694)	(11.4)%
State and local taxes (net of valuation allowance)			20	0.9%		33	0.5%		43	0.7%
U.S. Federal, state and foreign contingent tax matters			66	2.8%		(161)	(2.3)%		(131)	(2.1)%
U.S. Federal research and development tax credit			-	-		(69)	(1.0)%		(61)	(1.0)%
U.S. tax effect of capital losses			(392)	(16.7)%		-	-		-	-
Foreign and other			(76)	(3.3)%		(12)	(0.2)%		69	1.1%
		$	(161)	(6.9)%	$	1,721	24.7%	$	1,558	25.7%

The change in the 2012 effective tax rate from 2011 was due to:

• A tax benefit of $392 million attributable to a capital loss deduction resulting fromthe tax insolvency of Inhibitex; and
• Favorable earnings mix between high and low tax jurisdictions primarily attributed to lower Plavix* sales and a $1,830 million impairment charge for BMS-986094 intangible asset in the U.S. and to a lesser extent, an internal transfer of intellectual property.

Partially offset by:

• Contingent tax matters which resulted in a$66 million charge in 2012 and $161 million benefit in 2011;
• An unfavorable impact on the current year rate from the delay in the legal enactment of the research and development tax credit, which was not extended as of December 31, 2012; and
• Changes in prior period estimates upon finalizing U.S. tax returns resulting in a $54 million benefit in 2011.

The change in the 2011 effective tax rate from 2010 was due to:

• A $207 million charge recognized in the fourth quarter of 2010, which resulted primarily from additional U.S. taxable income from earnings of foreign subsidiaries previously considered to be indefinitely reinvested offshore;
• Changes in prior period estimates upon finalizing U.S. tax returns resulting in a $54 million benefit in 2011 and a $30 million charge in 2010; and
• Higher tax benefits from contingent tax matters primarily related to the effective settlements and remeasurements of uncertain tax positions ($161 million in 2011 and $131 million in 2010).

  Partially offset by:

• Unfavorable earnings mix between high and low tax jurisdictions compared to the prior year;
• The non-tax deductible annual pharmaceutical company fee effective January 1, 2011 (tax impact of $80 million); and
• An out-of-period tax adjustment of $59 million in 2010 for previously unrecognized net deferred tax assets primarily attributed to deferred profits related to certain alliances as of December 31, 2009 (not material to any prior periods).

The American Taxpayer Relief Act of 2012 (the Act) was signed into law on January 2, 2013. Among the provisions of the Act, was the retroactive reinstatement of the R&D tax credit and look thru exception for 2012 and 2013. As a result, the 2012 R&D tax credit and look thru exception benefit will be recognized in the first quarter of 2013.

Deferred Taxes and Valuation Allowance

The components of current and non-current deferred income tax assets/(liabilities) were as follows:

	December 31,
Dollars in Millions	2012		2011
Deferred tax assets
Foreign net operating loss carryforwards	$	3,722	$	3,674
Milestone payments and license fees		550		574
Deferred income		2,083		573
U.S. capital losses		794		-
U.S. Federal net operating loss carryforwards		170		251
Pension and postretirement benefits		693		755
State net operating loss and credit carryforwards		346		344
Intercompany profit and other inventory items		288		331
U.S. Federal tax credit carryforwards		31		109
Other foreign deferred tax assets		197		112
Share-based compensation		111		111
Legal settlements		45		46
Repatriation of foreign earnings		86		-
Other		344		233
Total deferred tax assets		9,460		7,113
Valuation allowance		(4,404)		(3,920)
Net deferred tax assets		5,056		3,193
Deferred tax liabilities
Depreciation		(147)		(118)
Repatriation of foreign earnings		-		(31)
Acquired intangible assets		(2,768)		(593)
Other		(734)		(676)
Total deferred tax liabilities		(3,649)		(1,418)
Deferred tax assets, net	$	1,407	$	1,775
Recognized as:
Deferred income taxes – current	$	1,597	$	1,200
Deferred income taxes – non-current		203		688
U.S. and foreign income taxes payable – current		(10)		(6)
Deferred income taxes – non-current		(383)		(107)
Total	$	1,407	$	1,775

The U.S. Federal net operating loss carryforwards were $486 million at December 31, 2012. Thesecarryforwardswere acquired as a result of certain acquisitions and are subject to limitations under Section 382 of the Internal Revenue Code. The net operating loss carryforwards expire in varying amounts beginning in 2022. The U.S. Federal tax credit carryforwards expire in varying amounts beginning in 2017. The realization of the U.S. Federal tax credit carryforwards is dependent on generating sufficient domestic-sourced taxable income prior to their expiration. The capital loss available of $2,200 million can be carried back to 2009 and carried forward to 2017. The foreign and state net operating loss carryforwards expire in varying amounts beginning in 2013 (certain amounts have unlimited lives).

Management has established a valuation allowance when a deferred tax asset is more likely than not to be realized. At December 31, 2012, a valuation allowance of $4,404 million was established for the following items: $3,659 million primarily for foreign net operating loss and tax credit carryforwards, $338 million for state deferred tax assets including net operating loss and tax credit carryforwards, $15 million for U.S. Federal net operating loss carryforwards and $392 million for U.S Federal capital losses.

In 2011, foreign holding companies net operating losses and their corresponding valuation allowances included an increase of $2,027 millionas a result of statutory impairment charges that are not required inconsolidated net earnings. These foreign holding companies had a higher asset basis for statutory purposes than the basis used in the consolidated financial statementsdue to an internal reorganization of certain legal entities in prior periods.

Changes in the valuation allowance were as follows:

	Year Ended December 31,
Dollars in Millions	2012		2011		2010
Balance at beginning of year	$	3,920	$	1,863	$	1,791
Provision		494		2,410		92
Utilization		(145)		(135)		(22)
Foreign currency translation		39		(222)		(6)
Acquisitions		96		4		8
Balance at end of year	$	4,404	$	3,920	$	1,863

Income tax payments were $676 million in 2012, $597 million in 2011 and $672 million in 2010. The current tax benefit realized as a result of stock related compensation credited to capital in excess of par value of stock was $71 million in 2012, $47 million in 2011 and $10 million in 2010.

U.S. taxes have not been provided on approximately $21 billion of undistributed earnings of foreign subsidiaries as these undistributed earnings are indefinitely invested offshore at December 31, 2012. Additional tax provisions will be requiredif these earnings are repatriated in the future to the U.S. or if such earnings are determined to be remitted in the foreseeable future. Due to complexities in the tax laws and assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that will have to be provided. As a result, BMS has favorable tax rates in Ireland and Puerto Rico under grants not scheduled to expire prior to 2023.

An internal reorganization of certain legal entities resulted in a $207 million charge in 2010. It is possible that U.S. tax authorities could assert additional material tax liabilities arising from the reorganization. BMS would vigorously challenge any such assertion, were it to occur, and believes it would prevail; however, there can be no assurance of such a result.

Business is conducted in various countries throughout the world and is subject to tax in numerous jurisdictions. A significant number of tax returns are filed and subject to examination by various Federal, state and local tax authorities. Tax examinations are often complex, as tax authorities may disagree with the treatment of items reported requiring several years to resolve. Liabilities are established for possible assessments by tax authorities resulting from known tax exposures including, but not limited to, transfer pricing matters, tax credits and deductibility of certain expenses. Such liabilities represent a reasonable provision for taxes ultimately expected to be paid and may need to be adjusted over time as more information becomes known. The effect of changes in estimates related to contingent tax liabilities is included in the effective tax rate reconciliation above.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	Year Ended December 31,
Dollars in Millions	2012		2011		2010
Balance at beginning of year	$	628	$	845	$	968
Gross additions to tax positions related to current year		46		44		46
Gross additions to tax positions related to prior years		66		105		177
Gross additions to tax positions assumed in acquisitions		31		1		11
Gross reductions to tax positions related to prior years		(57)		(325)		(196)
Settlements		(54)		(30)		(153)
Reductions to tax positions related to lapse of statute		(19)		(7)		(7)
Cumulative translation adjustment		1		(5)		(1)
Balance at end of year	$	642	$	628	$	845

Additional information regarding unrecognized tax benefits is as follows:

	Year Ended December 31,
Dollars in Millions	2012		2011		2010
Unrecognized tax benefits that if recognized would impact the effective tax rate	$	633	$	570	$	818
Accrued interest		59		51		51
Accrued penalties		32		25		23
Interest expense/(benefit)		14		10		(12)
Penalty expense/(benefit)		16		7		(4)

Uncertain tax benefits reduce deferred tax assets to the extent the uncertainty directly related to that asset; otherwise, they are recognized as either current or non-current U.S. and foreign income taxes payable. Accrued interest and penalties payable for unrecognized tax benefits are included in either current or non-current U.S. and foreign income taxes payable. Interest and penalties related to unrecognized tax benefits are included in income tax expense.

BMS is currently under examination by a number of tax authorities, including but not limited to the major tax jurisdictions listed in the table below, which have proposed adjustments to tax for 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 December 31, 2012 will decrease in the range of approximately $370 million to $400 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits, primarily settlement related, will involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. BMS also anticipates that it is reasonably possible that new issues will be raised by tax authorities which may require increases to the balance of unrecognized tax benefits; however, an estimate of such increases cannot reasonably be made at this time. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.

The following is a summary of major tax jurisdictions for which tax authorities may assert additional taxes based upon tax years currently under audit and subsequent years that will likely be audited:

U.S.	2008 to 2012
Canada	2005 to 2012
France	2010 to 2012
Germany	2007 to 2012
Italy	2003 to 2012
Mexico	2006 to 2012