Shira Bass , Senior Tax Manager, PwC IsraelYonatan Kaplan , Tax Manager, PwC Israel

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Tax Accounting Considerations Accounting Methods Opportunities

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Tax Accounting Considerations

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US Tax Reform-Timeline of significant tax reform guidance

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Expected Changes in Pharma Companies’ Effective Tax Rates

Companies Estimated Change in Effective Tax Rate (2017 to 2018)

Pfizer 20% to approximately 17%

Merck 19.1% to 19-20%

(but down from the “better” comparison rate of around 22% in 2016)

J&J 17.2% to 16.5-18%

(but the tax law still had a 1.5-2.5% “positive impact”)

Gilead 24.5% to 21-23%

AbbVie 18.9% to 9%

(increasing to 13% over the next 5 years)

Amgen 18% to 14-15%

BMS 21% to 20-21%

(falling to the “high teens” in coming years)

Eli Lilly 20.5% to 18%

Celgene Approximately 16% to approximately 18%

Mylan 18% to 17.5-19%

(“potential slight upward pressure” for 2018 relating to implementation of the tax law and portfolio

changes)

Source: EvaluatePharma, Company 10k Filings, PwC analysis

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The Current LandscapeSEC Reporting: Q2 SAB 118 Disclosures - Dow 30

* As disclosed in the 27 annual and quarterly filings by the members of the Dow 30 between January 1, 2018 and February 28, 2018.

** As disclosed in the 26 quarterly filings by the members of the Dow 30 between March 1, 2018 and May 9, 2018.

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Where do we stand?

56% of Q3 webcast attendees expected to finalize at least some aspect of their period of enactment accounting during the third quarter (16% completely, and 40% for some aspects)

67%Of those who relied upon the SAB, 67% recorded adjustments to provisional estimates during either the first, second or third quarter* 0% Of those who relied upon the SAB,

0% completed accounting for the 2017 ACT in the third quarter*

* Based upon the 18 quarterly filings by the members of the Dow 30 with third quarter reports filed between 10/18/2018 and 11/2/2018

56%

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Finalizing provisional estimates

Future legislative guidance

Disclosures

2018 Estimates

US tax reform - Key Considerations

SAB 118 Disclosures

• The nature and amount of any measurement period adjustments recognized during the reporting period

• The effect of measurement period adjustments on the effective tax rate

• When the accounting for the income tax effects of the 2017 Act has been completed

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8%

Financial reporting considerations – 2018 and forwardTax reform provisions

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163(j)8%GILTI

Accounting when there is complexity, uncertainty and unintended consequences

BEAT Toll

chargeFDII

Valuation

allowance

assessment

Indefinite

reinvestment

assertion

Uncertain

tax positions

162(m)

162(m)

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Valuation allowance assessments

Cumulative income

Carryforward periods Scheduling

exercise

New tax law provisions

Tax limitations

Valuation allowances - Impact of tax reform

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GILTI Refresher

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Beyond reform - Accounting considerations

Change in tax status

IP Migrations

Check-the-box

elections

Tax elections

?

?

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• Ongoing OECD BEPS concerns and the MLI

• The European Council's mandatory disclosure directive (DAC 6)

● In the Courts:▫ Wayfair (Supreme Court)▫ Altera (9th Circuit)-Subsequently withdrawn

Beyond reform - US & Global Developments

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Business combinations – definition of a business

Statement of cash flows –classification of specific items

Financial instruments –recognition & measurement

Liabilities – breakage for stored-value cards

Revenue – new converged standard (amendments)

Stranded tax effects –reclassification of certain tax effects from AOCI

Leases – new standard

Pension costs – presentation of certain costs

Hedging – targeted improvements

Income taxes – intra-entity asset transfers

Select standards effective

in 2018 or 2019

Select standards effective in 2018 and 2019

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Federal Tax Updates and Opportunities

Federal Tax Considerations

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5 – BEAT Planning Opportunities

Review of COGS to identify maximize deduction and reduce BEAT Liability

Tax Reform Planning

3 – 163(j) Planning Opportunities

UNICAP Considerations to reduce 163(j) impact.

4 – GILTI Planning Opportunities

Accounting method opportunities to increase

QBAI, reduce current year foreign earnings

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Accounting Methods Study

2 – Inventory and Interest Capitalization review

263A Final Regulations released on 19/11/2018

8 – Fixed Assets

Changes to Bonus Depreciation and Leasehold Improvement Property

7 – 162(m)Possibly expanded to foreign filers - awaiting guidance

6 – R&D Credit

Increased value with corporate rate reduction from 35% - 21%

1 – Accounting Methods

Consideration of automatic and non-automatic filings –Analysis of timing of income and deductions

2

UNICAP Review

3

163(j)

4

GILTI

5

BEAT

6

R&D Credit

7

162(m)

8

Fixed Assets / Depreciation

©2018 Kesselman & Kesselman. All rights reserved.

In this document, “PwC Israel” refers to Kesselman & Kesselman, which is a member firm of PricewaterhouseCoopers International Limited, each

member firm of which is a separate legal entity. Please see www.pwc.com/structure for further details.

This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not

take into account any objectives, financial situation or needs of any recipient. Any recipient should not act upon the information contained in this

publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or

completeness of the information contained in this publication, and, to the extent permitted by law, Kesselman & Kesselman, and any other

member firm of PwC, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any

consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision

based on it, or for any direct and/or indirect and/or other damage caused as a result of using the publication and/or the information contained in it.

Thank You!

Shira Bass , Senior Tax Manager, PwC Israeled.Kirshner@pwc.comShira.Bass@pwc.comTel: 03-795-5068

Yonatan Kaplan, Tax Manager, PwC Israel Yonatan.Kaplan@pwc.comTel: 03-795-5033

Thank You!