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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes [Abstract] |
Income Taxes | Note 19—Income Taxes Income taxes charged to net income (loss) were: Millions of Dollars 2019 2018 2017 Income Taxes Federal Current $ 18 4 79 Deferred (113) 545 (3,046) Foreign Current 2,545 3,273 1,729 Deferred (323) (166) (510) State and local Current 148 108 51 Deferred (8) (96) (125) $ 2,267 3,668 (1,822) Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were: Millions of Dollars 2019 2018 Deferred Tax Liabilities PP&E and intangibles $ 8,660 8,004 Inventory 35 60 Deferred state income tax - 61 Other 234 156 Total deferred tax liabilities 8,929 8,281 Deferred Tax Assets Benefit plan accruals 542 641 Asset retirement obligations and accrued environmental costs 2,339 2,891 Investments in joint ventures 1,722 104 Other financial accruals and deferrals 777 330 Loss and credit carryforwards 8,968 2,378 Other 345 398 Total deferred tax assets 14,693 6,742 Less: valuation allowance (10,214) (3,040) Net deferred tax assets 4,479 3,702 Net deferred tax liabilities $ 4,450 4,579 At December 31, 2019, noncurrent assets and liabilities included deferred taxes of $ 184 million and $ 4,634 million, respectively. At December 31, 2018, noncurrent assets and liabilities included deferred taxes of $ 442 million and $ 5,021 million, respectively. At December 31, 2019, the components of our loss and credit carryforwards before and after consideration of the applicable valuation allowances were: Millions of Dollars Net Deferred Expiration of Gross Deferred Tax Asset After Net Deferred Tax Asset Valuation Allowance Tax Asset U.S. foreign tax credits $ 7,696 14 2028 U.S. general business credits 250 250 2036-2038 U.S. capital loss 202 32 2024 State net operating losses and tax credits 370 50 Various Foreign net operating losses and tax credits 450 413 Post 2025 $ 8,968 759 Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During 2019, valuation allowances increased a total of $ 7,174 million. The increase primarily relates to deferred tax assets recognized during 2019 as a result of the finalization of rules related to the U.S. Tax Cuts and Jobs Act (Tax Legislation including ongoing issuance of tax regulations related to such legislation), as further discussed below. Based on our historical taxable income, expectations for the future, and available tax-planning strategies, management expects deferred tax assets, net of valuation allowance, will primarily be realized as offsets to reversing deferred tax liabilities. On December 2, 2019, the Internal Revenue Service finalized foreign tax credit regulations related to the 2017 Tax Cuts and Jobs Act. Due to the finalization of these regulations, in the fourth quarter of 2019 we recognized $ 151 million of net deferred tax assets. Correspondingly, we recorded $ 6,642 million of existing foreign tax credit carryovers where recognition was previously considered to be remote. Present legislation still makes their realization unlikely and therefore these credits have been offset with a full valuation allowance. At December 31, 2019, unremitted income considered to be permanently reinvested in certain foreign subsidiaries and foreign corporate joint ventures totaled approximately $ 4,196 million. Deferred income taxes have not been provided on this amount, as we do not plan to initiate any action that would require the payment of income taxes. The estimated amount of additional tax, primarily local withholding tax, that would be payable on this income if distributed is approximately $ 210 million. The following table shows a reconciliation of the beginning and ending unrecognized tax benefits for 2019, 2018 and 2017: Millions of Dollars 2019 2018 2017 Balance at January 1 $ 1,081 882 381 Additions based on tax positions related to the current year 9 268 612 Additions for tax positions of prior years 120 43 109 Reductions for tax positions of prior years (22) (73) (129) Settlements (9) (35) (5) Lapse of statute (2) (4) (86) Balance at December 31 $ 1,177 1,081 882 Included in the balance of unrecognized tax benefits for 2019, 2018 and 2017 were $ 1,100 million, $ 1,081 million and $ 882 million, respectively, which, if recognized, would impact our effective tax rate. The balance of the unrecognized tax benefits increased in 2019 mainly due to the treatment of our PDVSA settlement. The balance of the unrecognized tax benefits increased in 2018 mainly due to the treatment of distributions from certain foreign subsidiaries. The balance of unrecognized tax benefits increased in 2017 mainly due to the recognition of a U.S. worthless securities deduction that we do not believe will generate a cash tax benefit. See Note 13—Contingencies and Commitments, for more information on the PDVSA settlement. At December 31, 2019, 2018 and 2017, accrued liabilities for interest and penalties totaled $ 42 million, $ 45 million and $ 54 million, respectively, net of accrued income taxes. Interest and penalties resulted in a benefit to earnings of $ 3 million in 2019, a benefit to earnings of $ 4 million in 2018, and no impact to earnings in 2017. We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in major jurisdictions are generally complete as follows: U.K. (2015), Canada (2014), U.S. (2014) and Norway (2018). Issues in dispute for audited years and audits for subsequent years are ongoing and in various stages of completion in the many jurisdictions in which we operate around the world. Consequently, the balance in unrecognized tax benefits can be expected to fluctuate from period to period. It is reasonably possible such changes could be significant when compared with our total unrecognized tax benefits, but the amount of change is not estimable. The amounts of U.S. and foreign income (loss) before income taxes, with a reconciliation of tax at the federal statutory rate with the provision for income taxes, were: Millions of Dollars Percent of Pre-Tax Income (Loss) 2019 2018 2017 2019 2018 2017 Income (loss) before income taxes United States $ 4,704 2,867 (5,250) 49.4 % 28.7 200.8 Foreign 4,820 7,106 2,635 50.6 71.3 (100.8) $ 9,524 9,973 (2,615) 100.0 % 100.0 100.0 Federal statutory income tax $ 2,000 2,095 (915) 21.0 % 21.0 35.0 Non-U.S. effective tax rates 1,399 1,766 625 14.7 17.7 (23.9) Tax Legislation - (10) (852) - (0.1) 32.6 Canada disposition - - (1,277) - - 48.8 U.K. disposition (732) (150) - (7.7) (1.5) - Recovery of outside basis (77) (21) (962) (0.8) (0.2) 36.8 Adjustment to tax reserves 9 (4) 881 0.1 - (33.7) Adjustment to valuation allowance (225) (26) - (2.4) (0.3) - APLNG impairment - - 834 - - (31.9) State income tax 123 135 (84) 1.3 1.4 3.2 Malaysia Deepwater Incentive (164) - - (1.7) - - Enhanced oil recovery credit (27) (99) (68) (0.3) (1.0) 2.6 Other (39) (18) (4) (0.4) (0.2) 0.2 $ 2,267 3,668 (1,822) 23.8 % 36.8 69.7 Our effective tax rate for 2019 was favorably impacted by the sale of two of our U.K. subsidiaries. The disposition generated a before-tax gain of more than $ 1.7 billion with an associated tax benefit of $ 335 million. The disposition generated a U.S. capital loss of approximately $ 2.1 billion which has generated a U.S. tax benefit of approximately $ 285 million. The remaining U.S. capital loss has been recorded as a deferred tax asset fully offset with a valuation allowance. See Note 5—Asset Acquisitions and Dispositions, for additional information on the disposition. During the third quarter of 2019, we received final partner approval in Malaysia Block G to claim certain deepwater tax credits. As a result, we recorded an income tax benefit of $ 164 million. The decrease in the effective tax rate for 2018 was primarily due to the impact of the Clair Field disposition in the U.K. and our overall income position, partially offset by our mix of income among taxing jurisdictions. Our effective tax rate for 2018 was favorably impacted by the sale of a U.K. subsidiary to BP. The subsidiary held 16.5 percent of our 24 percent interest in the BP-operated Clair Field in the U.K. The disposition generated a before-tax gain of $ 715 million with no associated tax cost. See Note 5—Asset Acquisitions and Dispositions, for additional information on the disposition. Tax Legislation was enacted in the U.S. on December 22, 2017, reducing the U.S. federal corporate income tax rate to 21 percent from 35 percent, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign-sourced earnings. SAB 118 measurement period We applied the guidance in Staff Accounting Bulletin No. 118 when accounting for the enactment-date effects of Tax Legislation in 2017 and throughout 2018. At December 31, 2017, we had not completed our accounting for all the enactment-date income tax effects of Tax Legislation under ASC 740, Income Taxes, for the remeasurement of deferred tax assets and liabilities and the one-time transition tax. As of December 31, 2018, we had completed our accounting for all the enactment-date income tax effects of Tax Legislation. As further discussed below, during 2018, we recognized adjustments of $ 10 million to the provisional amounts recorded at December 31, 2017, and included these adjustments as a component of income tax provision. Provisional Amounts—Foreign tax effects The one-time transition tax is based on our total post-1986 earnings, the tax on which we previously deferred from U.S. income taxes under U.S. law. We estimated at December 31, 2017, that we would not incur a one- time transition tax. Upon further analyses of Tax Legislation and Notices and regulations issued and proposed by the U.S. Department of the Treasury and the Internal Revenue Service, we finalized our calculations of the transition tax liability during 2018. Based upon this analysis, we did not incur a one-time transition tax. As a result of the Tax Legislation, we removed the indefinite reinvestment assertion on one of our foreign subsidiaries and recorded a tax expense of $ 56 million in the fourth quarter of 2017. Deferred tax assets and liabilities As of December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21 percent), by recording a provisional amount of $ 908 million. Upon further analysis of certain aspects of Tax Legislation and refinement of our calculations during the 12 months ended December 31, 2018, we adjusted our provisional amount by $ 10 million, which is included as a component of income tax expense. Global intangible low-taxed income (GILTI) We have elected to account for GILTI in the year the tax is incurred. For 2019 and 2018, the current-year U.S. income tax impact related to GILTI activities is immaterial. Our effective tax rate in 2017 was favorably impacted by a tax benefit of $ 1,277 million related to the Canada disposition. This tax benefit was primarily associated with a deferred tax recovery related to the Canadian capital gains exclusion component of the 2017 Canada disposition and the recognition of previously unrealizable Canadian capital asset tax basis. The Canada disposition, along with the associated restructuring of our Canadian operations, may generate an additional tax benefit of $ 822 million. However, since we believe it is not likely we will receive a corresponding cash tax savings, this $ 822 million benefit has been offset by a full tax reserve. See Note 5—Asset Acquisitions and Dispositions for additional information on our Canada disposition. The impairment of our APLNG investment in the second quarter of 2017 did not generate a tax benefit. See the “APLNG” section of Note 6—Investments, Loans and Long-Term Receivables, for information on the impairment of our APLNG investment. Certain operating losses in jurisdictions outside of the U.S. only yield a tax benefit in the U.S. as a worthless security deduction. For 2019, 2018 and 2017, before consideration of unrecorded tax benefits discussed above, the amount of the tax benefit was $ 9 million, $ 36 million and $ 962 million, respectively.

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