3. Income taxes


millions of dollars	2014			2013			2012
Current income tax expense		106			425			593
Deferred income tax expense (a)		1,130			484			634
Total income tax expense (b)		1,236			909			1,227
Statutory corporate tax rate (percent)		25.5			25.4			25.5
Increase/(decrease) resulting from:
Enacted tax rate change		-			-			-
Other		(0.9	)		(1.1	)		(0.9	)
Effective income tax rate		24.6			24.3			24.6

(a)

There were no material net (charges)/credits for the effect of changes in tax laws and rates included in the provisions for deferred income taxes in 2014, 2013 and 2012.

(b)

Cash outflow from income taxes, plus investment credits earned, was $811 million in 2014 (2013 – $911 million, 2012 – $871 million).

Deferred income taxes are based on differences between the accounting and tax values of assets and liabilities. These differences in value are re-measured at each year-end using the tax rates and tax laws expected to apply when those differences are realized or settled in the future. Components of deferred income tax liabilities and assets as at December 31 were:


millions of dollars	2014			2013			2012
Depreciation and amortization		3,777			2,949			2,434
Successful drilling and land acquisitions		827			815			399
Pension and benefits		(438	)		(376	)		(717	)
Site restoration		(304	)		(287	)		(284	)
Capitalized interest		82			69			53
Other		(103	)		(99	)		39
Net long-term deferred income tax liabilities		3,841			3,071			1,924

LIFO inventory valuation		(201	)		(450	)		(478	)
Other		(113	)		(109	)		(49	)
Net current deferred income tax assets		(314	)		(559	)		(527	)
Valuation allowance		-			-			-
Net deferred income tax liabilities		3,527			2,512			1,397

Unrecognized tax benefits

Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements.

The following table summarizes the movement in unrecognized tax benefits:


millions of dollars	2014			2013			2012
Balance as at January 1		151			143			134
Additions based on current year’s tax position		4			10			4
Additions for prior years’ tax positions		-			2			10
Reductions for prior years’ tax positions		(4	)		(4	)		(3	)
Reductions due to lapse of the statute of limitations		-			-			(2	)
Balance as at December 31		151			151			143

The unrecognized tax benefit balances shown above are predominately related to tax positions that would reduce the company’s effective tax rate if the positions are favourably resolved. Unfavourable resolution of these tax positions generally would not increase the effective tax rate. The 2014, 2013 and 2012 changes in unrecognized tax benefits did not have a material effect on the company’s net income. The company’s tax filings from 2007 to 2014 are subject to examination by the tax authorities. The Canada Revenue Agency has proposed certain adjustments to the company’s filings. Management is currently evaluating those proposed adjustments and believes that a number of outstanding matters are expected to be resolved in 2015. The impact on unrecognized tax benefits and the company’s effective income tax rate from these matters is not expected to be material.

Resolution of the related tax positions will take many years to complete. It is difficult to predict the timing of resolution for tax positions, since such timing is not entirely within the control of the company.

The company classifies interest on income tax related balances as interest expense or interest income and classifies tax related penalties as operating expense.